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What’s Special about “International” Finance, goals of MNC, the rise of the MNCs, the Internationalization of Business & Finance, multinational Financial Management Theory & practice to help you answer the questions above, you are invited to refer to the content of the curriculum chapter 1 "MNCs & Multinational Financial Management" | CHAPTER ONE MNCs MULTINATIONAL FINANCIAL MANAGEMENT OVERVIEW What s Special about International Finance Goals of MNC The rise of the MNCs The Internationalization of Business Finance Multinational Financial Management Theory practice HE STUDY OF INTERNATIONAL FINANCE Making investment and financing Decisions in a global market. Cash flows associated with these decisions Risks associated with these cash flows The international financial markets WHAT S SPECIAL ABOUT MTERNATIONAL FINANCE Foreign Exchange Risk Political Risk Market Imperfections Expanded Opportunity Set 1-4 1 WHAT S SPECIAL ABOUT INT JNAL FINANCE Foreign Exchange Risk This is risk that foreign currency profits may evaporate in dollar terms due to unanticipated unfavorable exchange rate movements. Suppose 1 100 and you buy 10 shares of Toyota at 10 000 per share. One year later the investment is worth ten percent more in yen 110 000. But if the yen has depreciated to 1 120 your investment has actually lost money in dollar terms. 1-5 WHAT S SPECIAL ABOUT INT NAL FINANCE Political Risk - Sovereign governments have the right to regulate the movement of goods capital and people across their borders. These laws sometimes change in unexpected ways. WHAT S SPECIAL ABOUT MTERNATIONAI FINANCE Market Imperfections - Legal restrictions on the movement of goods people and money - Transactions costs - Shipping costs -Tax arbitrage 1-7 THE EXAMPLE OF MARKET IMPERFECTION Nestle used to issue two different classes of common stock bearer shares and registered shares. Foreigners were only allowed to buy bearer shares. Swiss citizens could buy registered shares. The bearer stock was more expensive. On November 18 1988 Nestle lifted restrictions imposed on foreigners allowing them to hold registered shares as well as bearer shares. 1-8 2 FOREIGN OWNERSHIP RESTRICTIONS 1-9 THE EXAMPLE OF MARKET IMPERFECTION Following this the price spread between the two types of shares narrowed dramatically. This implies that there was a .
