Learning Fundamentals of Multinational Finance

Management Class for Learners is, along with the free Chat Lines, Discussion Forums and Wikis, and Learner Support units, a self-directed study support resource, designed for all business, management, IT, English Language, and research students and instructors studying or teaching or intending to enhance their managerial or professional knowledge, understanding, skills and competence by online open learning.

Apart from the web-based learning material, such as adapted versions Wikipedia, on the 'public domain' have been used for a seamless integration of relevant modules to the entire curriculum, for example, we have also used other web sources and our own or material created or 'acquired' from our colleagues and made available to all global users here.

Whilst we unable to accept any responsibility for the accuracy, views or opinions expressed in any of the third party material featured on our sites, please feel free to use it, and let us know if you do not find what you need or have any problems in accessing any of the relevant links on our pages.

In keeping with the ethos of the Internet, we respect the copyrights of the original owners/authors of the sites or material we have used, we also expect our users to respect our copyright and all the third party intellectual property rights when using any material found on Management Class or Finntrack sites.

For further details on all our web-based resources go here.

Check the availability and buy your books from our Bookshop.

Contact us here

Online Business School for the delivery and management
of your own existing or the customised versions of our programmes
for in-class or global distance learning.

For further information

The Bookshop

Today's Videos Playlist

Rationale

Learning Outcomes

Teaching and Learning Resources

Global Financial Environment
Foreign Exchange Theory and Markets
Foreign Exchange Exposure
Financing the Global Firm
Foreign Investment Decisions
Managing Multinational Operations

Learner Support

Case Studies

Related Workshops

Recommended Texts

Resources

Assignments, Assessments

Assessment Regulations

Learning Centres

Fundamentals of Multinational Finance

Rationale

International monetary systems are sets of internationally agreed rules, conventions and supporting institutions that facilitate international trade, cross border investment and generally the reallocation of capital between nation states. They provide means of payment acceptable between buyers and sellers of different nationality, including deferred payment.

To operate successfully, they need to inspire confidence, to provide sufficient liquidity for fluctuating levels of trade and to provide means by which global imbalances can be corrected. The systems can grow organically as the collective result of numerous individual agreements between international economic actors spread over several decades. Alternatively, they can arise from a single architectural vision as happened at Bretton Woods in 1944.

Bretton Woods in Motion

1. Introduction

2. The goal

3. The technical functioning of this utility

4. The dataset

5. For an assessment of the outcomes

6. Bibliography and data sources

Learning Objectives and Outcomes

This is a non-taught unit designed for self-directed study by those intending to enhance their professional or managerial competence, knowledge, understanding, and skills in business finance.

Knowledge

After completing the course, student will understand

1. foundations and principles of multinational finance

2. the relationship between changes in interest rates and exchange rates

3. the processes of financing of a global firm

4. financial management of multinational operations

Skills

After completing the course, student will be able to

1. apply the main concepts and principles of multinational finance

2. make foreign investment decisions using relevant information

3. use international financial information in making management decisions

4. participate in strategic and financial analysis and planning

Today's Videos

Connect with us on http://www.youtube.com/finntrack
Google's Playlists

Teaching and Learning Resources

Click on the titles below

Teaching and Learning Resources

Global Financial Environment

Tutorials

Readings

Globalisation at the crossroads

The US has championed free trade – at grave cost to itself. To avoid a trade war, other countries must now share the burden

China has been criticised by the US for keeping its currency artificially low;
the 'currency war' could be just an opening skirmish in a much more serious
trade war, warns Kenneth Rogoff. Photograph: Nicky Loh/REUTERS

G20 leaders who scoff at the United States' proposal for numerical trade-balance limits should know that they are playing with fire. The US is not making a demand as much as it is issuing a plea for help.

According to a recent joint report by the International Monetary Fund and the International Labour Organisation, fully 25% of the rise in unemployment since 2007, totalling 30 million people worldwide, has occurred in the US. If this situation persists, as I have long warned it might, it will lay the foundations for huge global trade frictions. The voter anger expressed in the US midterm elections could prove to be only the tip of the iceberg.

Protectionist trade measures, perhaps in the form of a stiff US tariff on Chinese imports, would be profoundly self-destructive, even absent the inevitable retaliatory measures. But make no mistake: the ground for populist economics is becoming more fertile by the day.

The new US Congress is looking for scapegoats for the country's economic quagmire. And, with a president who has sometimes openly questioned rigid ideological adherence to free trade, anything is possible, especially in the runup to the 2012 presidential election. If trade frictions do boil over, policymakers may look back on today's "currency wars" as a minor skirmish in a much larger battle.

Read More ...

International Trade Theory

The best sources of free data are the central banks, starting with the European Central Bank, the Bank of England, the Fed and the Bank of Japan

Larger Map

Foreign Exchange Theory and Markets

Tutorials

Readings

Markets - Foreign exchange market

Theory 1 - Determination of exchange rates - why do they go up and down?

An exchange rate is a price - exactly the same as any other price - the amount you have to give up to acquire something else - in this case another currency. So an exchange rate is the price of one currency in terms of another. In other words it is the price you will pay in one currency to get hold of another.

The price can be set in various ways. It may be fixed by the government or it could perhaps be linked to something external - for example, gold. However, the most likely alternative is that it will be fixed in a market. Since it is a price, it will be determined, like any other price, by demand and supply. This is the supply and demand of pounds traded on the foreign exchange market and is NOT the amount of sterling in circulation! A high level of demand for a currency will force up its price - the exchange rate. Where supply is equal to demand is the equilibrium exchange rate, as shown in the diagram below.

Read more ...

Markets - Foreign exchange market

Theory 5 - Exchange rate jargon - jargon-busting guide

There is a lot of jargon associated with exchange rates. In this theory section we look at some of this jargon, and see what it means.

Spot exchange rates

The spot exchange rate is the rate existing in the market at any given moment. It can be considered as the rate of exchange for immediate delivery of the currency. The spot rate will change all the time according to the changes in supply and demand in the market.

Forward exchange rates

The forward exchange rate is a rate for a given time in the future. A price is agreed now for an exchange at some time in the future (often 3 months or so). Whatever happens to the spot rate between now and then, the contract will be met at the rate that was agreed. Companies may use the forward market to protect themselves against the foreign exchange risk. They know they can buy at a guaranteed rate for the future, and so can plan ahead. This process is called 'hedging' against risk. The existence of the forward market also creates the potential for speculation. Depending on the reason for buying or selling the currency the dealer could end up better off or worse off.

Purchasing Power Parity

The purchasing power parity exchange rate is the exchange rate between two currencies, which would enable exactly the same basket of goods to be purchased. In other words, the rate at which purchasing power will be the same in both countries. For example, say a basket of goods cost $50 in the USA, and the same basket cost £25 in the UK. The PPP rate between the £ and the $ would then be £1=$2. The PPP rate is often used when trying to work out consistent measures between countries like GDP or standard of living. It will generally be different to the actual equilibrium exchange rate, though it will be a factor influencing it.

Effective Exchange Rate

The effective exchange rate is also called the 'sterling index' or perhaps the 'sterling trade-weighted index'. It is an exchange rate calculated from a basket of currencies, and can perhaps best be thought of as an average exchange rate. Each of the currencies included is weighted according to its importance to us. This is worked out from the amount of trade we do with that country. The currency of a country that we do a large amount of trade with will have a higher weight than one whom we do relatively little trade with. The effective exchange rate can be a useful indicator, as it shows overall exchange rate changes. An individual currency may be affected by factors unique to that country, but the effective exchange rate will still give an overall indication.

ForexFlower : Lookup Currency Exchange Rates

The Interest Rate Transmission Mechanism

The Relationship Between Changes in Interest Rates and Exchange Rates

The animation below allows you to see what happens to exports when the interest rate rises or falls. The initial rate is assumed to be 3% with the exchange rate set at £1 = $1.60 and £1 = €1.50.

Read more ...

Foreign Exchange Exposure

Tutorials

Readings

Financing the Global Firm

Tutorials

Readings

The Finance Function in a Global Corporation

Historically, the finance functions in large U.S. and European firms have focused on cost control, operating budgets, and internal auditing. But as corporations go global, a world of finance opens up within them, presenting new opportunities and challenges for CFOs. Rather than simply make aggregate capital-structure and dividend decisions, for example, they also have to wrestle with the capital structure and profit repatriation policies of their companies’ subsidiaries. Capital budgeting decisions and valuation must reflect not only divisional differences but also the complications introduced by currency, tax, and country risks. Incentive systems need to measure and reward managers operating in various economic and financial settings.

Read More ...

Foreign Investment Decisions

Tutorials

Readings

Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. It is the establishment of an enterprise by a foreigner. [1]Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.[2] The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The IMF defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment.[3]

History Opposition See also References

External links

Capital Investment Procedures

Foreign Direct Investment(FDI)–an Indicator of Globalization

Capital

Capital, in the most basic terms, is money. All businesses must have capital in order to purchase assets and maintain their operations. Business capital comes in two main forms: debt and equity. Debt refers to loans and other types of credit that must be repaid in the future, usually with interest. In contrast, equity generally does not involve a direct obligation to repay the funds. Instead, equity investors receive an ownership position which usually takes the form of stock in the company.

The capital formation process describes the various means through which capital is transferred from people who save money to businesses that require funds. Such transfers may take place directly, meaning that a business sells its stocks or bonds directly to savers who provide the business with capital in exchange. Transfers of capital may also take place indirectly through an investment banking house or through a financial intermediary, such as a bank, mutual fund, or insurance company.

In the case of an indirect transfer using an investment bank, the business sells securities to the bank, which in turn sells them to savers. In other words, the capital simply flows through the investment bank. In the case of an indirect transfer using a financial intermediary, however, a new form of capital is actually created. The intermediary bank or mutual fund receives capital from savers and issues its own securities in exchange. Then the intermediary uses the capital to purchase stocks or bonds from businesses.

Read more:

Managing Multinational Operations

Tutorials

Readings

Transfer Pricing and Taxation

One of the most controversial and often least understood operations of multinationals, transfer pricing, is clearly described and defined.

An easily-followed illustration shows how transfer pricing can be used by multinationals to maximise their profits by tax avoidance and by obtaining tax rebates.

Also discussed is the effect of transfer pricing on the tax burden carried by other tax payers.

Corporate Governance and the International Market for Corporate Control

Multinationals in the Next Decade: Blueprint, Flow and Soul Building the Modern Multinational Organization

Recommended Texts

Fundamentals of Multinational Finance: International Edition, 3/E Michael H. Moffett, Thunderbird - The Garvin School of International Management
Arthur I. Stonehill, University of Hawaii at Manoa
David K. Eiteman, University of California, Los Angeles Publisher: Pearson Higher Education
Copyright: 2009

Check the availability and buy your books from our Bookshop.

Multinational Finance, 4th Edition, Multinational Finance assumes the viewpoint of the financial manager of a multinational corporation with investment or financial operations in more than one country. The text provides a framework for evaluating the many opportunities, costs, and risks of multinational operations in a manner that allows readers to see beyond the algebra and terminology to the general principles of multinational financial management.

Check the availability and buy your books from our Bookshop.