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Multinational Financial Management Alan Shapiro 7 th Edition J.Wiley & Sons. Power Points by Joseph F. Greco, Ph.D. California State University, Fullerton. CHAPTER 1. Introduction: Multinational Enterprise and Multinational Financial Management. CHAPTER OVERVIEW:.

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multinational financial management alan shapiro 7 th edition j wiley sons

Multinational Financial ManagementAlan Shapiro7th EditionJ.Wiley & Sons

Power Points by

Joseph F. Greco, Ph.D.

California State University, Fullerton

chapter 1

CHAPTER 1

Introduction: Multinational Enterprise and Multinational Financial Management

chapter overview
CHAPTER OVERVIEW:

I. The Rise of the Multinational Corporation

II. The Internationalization of Business and Finance

III. Multinational Financial Management: Theory and Practice

part 1 the rise of the multinational corporation
PART 1 THE RISE OF THE MULTINATIONAL CORPORATION

I. The MNC: Definition

a company with production and distribution facilities in more than one country.

the rise of the multinational corporation
THE RISE OF THE MULTINATIONAL CORPORATION

A. Forces Changing Global Markets

Massive deregulation

Collapse of communism

Privatizations of state-owned industries

Revolution in information technology

Wave of M&A

Emergence of free market policies

Rise of Big Emerging Markets (BEMs)

the rise of the multinational corporation6
THE RISE OF THE MULTINATIONAL CORPORATION

B. Prime Transmitter of Competitive Forces in the Global Economy:

The MNC emphases group performance such as

Global coordinated allocation of resources

Market – entry strategy

Ownership of foreign operations

Production, marketing and financial activities

the rise of the multinational corporation7
THE RISE OF THE MULTINATIONAL CORPORATION

C. EVOLUTION OF THE MNC

Reasons to Go Global:

1. More raw materials

2. New markets

3. Minimize costs of production

the rise of the multinational corporation8
THE RISE OF THE MULTINATIONAL CORPORATION

RAW MATERIAL SEEKERS

exploit markets in other countries

historically first to appear

modern-day counterparts

British Petroleum

Exxon

the rise of the multinational corporation9
THE RISE OF THE MULTINATIONAL CORPORATION

MARKET SEEKERS

produce and sell in foreign markets

heavy foreign direct investors

representative firms:

IBM

MacDonald’s

Nestle

Levi Strauss

the rise of the multinational corporation10
THE RISE OF THE MULTINATIONAL CORPORATION

COST MINIMIZERS

seek lower-cost production abroad

motive: to remain cost competitive

Texas Instruments

Intel

Seagate Technology

the rise of the multinational corporation11
THE RISE OF THE MULTINATIONAL CORPORATION

D. THE MNC: A BEHAVIORAL VIEW

1. State of mind:

committed to producing,

undertaking investment and marketing, and financing globally.

the rise of the multinational corporation12
THE RISE OF THE MULTINATIONAL CORPORATION

E. THE GLOBAL MANAGER

1. Understands political and

economic differences;

2. Searches for most cost-

effective suppliers;

3. Evaluates changes on value of the firm.

part ii the internationalization of business and finance
Part II The Internationalization of Business and Finance

I. Globalization

A. Political and Labor Union Concerns

the internationalization of business and finance
The Internationalization of Business and Finance

B. Consequences of Global Competition

Acceleration of the global economy

part iii multinational financial management theory and practice
PART III. MULTINATIONAL FINANCIAL MANAGEMENT: THEORY AND PRACTICE

I. THE MULTINATIONAL FINANCIAL SYSTEM

A. Main Objective of MNC:

Maximize shareholder wealth

B. Other Objectives Reflect Ability to Link:

via affiliate transfer mechanisms

theory and practice
THEORY AND PRACTICE

C. Mode of Transfer:

Reflects freedom to select a variety of financial channels.

D. Timing Flexibility:

Most MNC have some flexibility in timing of fund flows.

theory and practice17
THEORY AND PRACTICE

E. Value

The ability to avoid national taxes has led to controversy.

theory and practice18
THEORY AND PRACTICE

II. FUNCTIONS OF FINANCIAL

MANAGEMENT

A. Two Basic Functions:

1. Financing

2. Investing

theory and practice19
THEORY AND PRACTICE

B. Additional Factors Facing the MNC Executive

1. Political risk

2. Economic risk

theory and practice20
THEORY AND PRACTICE

III. THEORETICAL FOUNDATIONS

A. Useful Concepts from Financial Economics:

1. Arbitrage

2. Market Efficiency

3. Capital Asset Pricing

theory and practice21
THEORY AND PRACTICE

B. Importance of Total Risk

1. Adverse Impact

lower sales and higher costs

2. Justifies hedging activities of MNC

3. Diversification reduces risk

theory and practice22
THEORY AND PRACTICE

IV. THE GLOBAL FINANCIAL MARKET PLACE

A. Inter-linkage by Computers

B. Market Acts as A Global

Referendum Process:

Currencies may rise or fall