MNEs need access to capital

1
Multinational Finance Function

• MNEs need access to capital
• Finance and Treasury Functions in the
  Internalization Process
• Chief Financial Officer (CFO)vice president of
  finance

2
Location of Treasury Function in the Corporate
Organizational Structure
3
AcquiringFinancial Resources
Borrowing Funds
Back-to-Back Loans
Eurobonds
Foreign Bonds
4
AcquiringFinancial Resources
Issuing Equity
American Depository Receipts
Venture Capital
Stock Market
5

• Internal Sources of Funds
• Fundsworking capital
• Sources of fundsMNEs have more complex
  arrangements due to the number of subsidiaries
  and the diverse environments in which they
  operate

6

• Internal Sources of Funds (cont.)
• Global cash management
• Generates and invests cash through dealings with
  financial institutions

7

• Internal Sources of Funds (cont.)
• Multilateral nettingcompany establishes one
  center to handle all internal cash, funds, and
  financial transactions
• Advantages include

8

• Foreign-Exchange Risk Management
• Translation exposure
• Transaction exposure
• Economic exposure (operating exposure)potential
  for change in expected cash flows that arise from

9

• Exposure-Management Strategy
• Defining and measuring exposure
• MNE must forecast the degree of exposure in each
  major currency in which it operates
• Reporting systemsubstantial participation from
  foreign operations combined with central control
• Foreign input important to ensure forecasting
  effectiveness

10

• Exposure-Management Strategy (cont.)
• Centralized policytop management should
  determine hedging policy
• Formulating hedging strategiessafest position
  has exposed assets equal to exposed liabilities
• Operational strategies

11

• Exposure-Management Strategy (cont.)
• Formulating hedging strategies (cont.)
• Contractual arrangements

12

• Capital Budgeting Decision in an International
  Context
• Parent company needs to compare the net present
  value or internal rate of return of a foreign
  project with that of its other projects and with
  that of others available
• Unique aspects of capital budgeting for foreign
  projects
• Parent cash flows must be distinguished from
  project cash flows
• Remittance of funds to the parent affected by
  differing tax systems, and legal and political
  constraints on movement of funds