The international financial environment

Exchange rate quotations for widely traded currencies are listed in many newspapers on a daily basis. Eurobonds are underwritten by a multi-national syndicate of investment banks and simultaneously placed in many countries.

multinational financial management

Exports and Imports U. Financing by the IMF is measured in special drawing rights. World Bank The primary objective of the profit-oriented bank is to make loans to countries in order to enhance economic development.

Trading also occurs around the clock. Advantages of the global economy for MNCs: 1.

International financial system and institutions

Currency options are classified as either calls or puts. Tax Rates Countries that impose relatively low tax rates on corporate earnings are more likely to attract DFI. A recently established agency offers various forms of political risk insurance. International Stock Markets MNCs can obtain funds by issuing stock in international markets, in addition to the local market. The use of ADRs circumvents some disclosure requirements. Motives for investing in foreign markets: economic conditions exchange rate expectations international diversification Motives for providing credit in foreign markets: high foreign interest rates Motives for borrowing in foreign markets: low interest rates 27 Foreign Exchange Market The foreign exchange market allows currencies to be exchanged to facilitate international trade or financial transactions. Interest Rates Money tends to flow to countries with high interest rates. Agency costs are normally larger for MNCs than for purely domestic firms, but can vary with the management style of the MNC. The Basel Accord includes standardized guidelines on the classification of capital. Theories of International Business Why are firms motivated to expand their business internationally? The regulations are different too. Stock issued in the U. The capital account represents a summary of the flow of funds resulting from the sale of assets between one specified country and all other countries over a specified period of time. In the s and 70s, the Eurodollar market, or what is now called the Eurocurrency market, grew to accommodate increasing international business.

Friction Surrounding Trade Agreements Dumping refers to the exporting of products by one country to other countries at prices below cost. The use of ADRs circumvents some disclosure requirements.

World financial environment ppt

Trading also occurs around the clock. Yet, these barriers can also create unique opportunities for specific geographic markets that will attract foreign creditors and investors. Futures are similar to forward contracts, except that they are sold on an exchange while forward contracts are offered by banks. The World Bank may spread its funds by entering into cofinancing agreements. The current account represents a summary of the flow of funds between one specified country and all other countries due to the purchases of goods or services, or the provision of income on financial assets, over a specified period of time. A recently established agency offers various forms of political risk insurance. Note that the factors are interactive, such that their simultaneous influence is complex. Attributes of banks important to customers in need of foreign exchange: competitiveness of quote special relationship with the bank speed of execution advice about current market conditions forecasting advice Banks provide foreign exchange transactions for a fee: the bid buy quote for a foreign currency will be less than its ask sell quote.

Various forms of corporate control can reduce agency problems - stock compensation, threat of hostile takeover, monitoring by large shareholders.

Acquisitions of Existing Operations Establishing New Foreign Subsidiaries Any method of increasing international business that requires a direct investment in foreign operations normally is referred to as a direct foreign investment DFI.

The current account represents a summary of the flow of funds between one specified country and all other countries due to the purchases of goods or services, or the provision of income on financial assets, over a specified period of time. For corporations with shareholders who differ from their managers, a conflict of goals can exist - the agency problem.

Financial services environment

Eurocurrency Market U. Syndicated Eurocredit loans are popular among big borrowers too. Stock issued in the U. Joint Ventures - joint ownership and operation by two or more firms. World Bank The primary objective of the profit-oriented bank is to make loans to countries in order to enhance economic development. Businesses U. Motives for Using International Financial Markets Several barriers deter the complete integration of the markets for real or financial assets. The forward market for currencies enables an MNC to lock in the exchange rate called a forward rate at which it will buy or sell a currency. Short-term investment or financing in foreign securities, usually in the Eurocurrency market. J Curve Effect U. Eurobonds are underwritten by a multi-national syndicate of investment banks and simultaneously placed in many countries. Various forms of corporate control can reduce agency problems - stock compensation, threat of hostile takeover, monitoring by large shareholders. Advantages of the global economy for MNCs: 1. The market for immediate exchange is known as the spot market. Note that the factors are interactive, such that their simultaneous influence is complex.
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PART 1: The International Financial Environment