FOUNDATIONS OF MULTINATIONAL FINANCIAL MANAGEMENT

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CHAPTER 1

• Introduction

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CHAPTER OVERVIEW

• I. Why Trade?
• II. The Multinational Corporation
• III. Multinational Financial Management

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Without Trade
Suppose the world consisted of two countries that
each produced the only essential products for
life food and beer.
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Without Free Trade?

• Each countrys production levels? The worlds?
• If neither product is storable. What is
  consumption in each country? In the world?
• Who has the absolute advantage in production?
• What is the exchange rate between the goods?
  Relative efficiencies?

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With Trade

• Suppose they reallocate production.

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With Free Trade?

• What are each countrys production of each?
• What is the worlds production of each?
• Neither product is storable. What is consumption
  in the world? In each country?
• Are citizens of both countries better off with
  free trade?
• Without costless movement of factors of
  production, who loses?

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• The MNC Definition
• a company with production and distribution
  facilities in more than one country.

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IBM
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• These are some of the forces that, over the last
  20 years, have led to the rise of the MNC.
• Massive deregulation
• Collapse of communism
• Privatizations of state-owned industries
• Revolution in information technology
• Wave of MA
• Emergence of free market policies
• Rise of Big Emerging Markets (BEMs)

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Reasons to go global

• 1. RAW MATERIAL SEEKERS
• Definition?
• Examples?

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Reasons to go global

• 2. MARKET SEEKERS
• Definition?
• Examples?

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Reasons to go global

• 3. COST MINIMIZERS
• Definition?
• Examples?

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What is financial management?What makes
multinational financial management different from
domestic financial management? What is the goal
of multinational financial management?
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The global financial manager

• 1. Understands political and economic
  differences between countries
• 2. Searches for most cost-effective means of
  production / financing
• 3. Evaluates potential changes based on effect
  on value of the firm.