Business FINS3616
FINS3616
International Finance
Assessment
Tutorials
10%
- Attendance
- Participation
Dr Wei Hu (Week 1-5)
Ext.
Room: ASB 359BB
Email: [e-mail]
Consultation: Mon 16:00 18:00
(or by appointment)
4%
6%
Mid
Session
- Week 6 In class
- Coverage: Week 1 to 4
35%
Final Examination
55%
- Formal exams period
- Coverage: Week 5-12
Total
100%
1-1
1-4
FINS3616
International Business Finance
MidMid-session Exam
It
includes 30 multiple choice questions and one
calculation question.
Dr Bohui Zhang (Week 6-12)
Ext. 93855834
Room: ASB 314
ASB
Email: [e-mail]
Consultation: Mon 16:00 18:00
(or by appointment)
Closed book
one and
half hours
The
format of final exam will be announced by Dr.
Bohui Zhang
1-2
1-5
Textbooks
Study Tools
Required textbook:
- Butler, K. (2008). Multinational Finance, South Western
College Publishing. Fourth Edition. This book is available
from the UNSW bookshop located near the Quadrangle.
Bloomberg.com
- Eiteman, D., K. Daly, S. Rath, A. Stonehill and M. Moffett
(2008) Multinational Business Finance, 1st Australian
Edition, Pearson Education Australia.
- Moosa, I. A. (2004). International Finance: An Analytical
Approach, Second Edition, McGraw-Hill, Australia
- Shapiro, A.C. (2002). Multinational Financial Management,
7th Edition, Wiley.
- Sathye, M, Rose L, Allen, L and Weston R (2006).
International Financial Management, John Wiley & Sons,
Australia Ltd.
- Eun, C.S. and Resnick B.G. (2001). International Financial
Management, 3rd Edition, McGraw-Hill.
- Solnik, B. and Mcleavy D. (2004). International Investment,
Fifth Edition, Addison Wesley.
World
Recommended textbooks:
1-3
(http://www.bloomberg.com/news/)
map
(http://maps.google.com/)
Australia
stock exchange
(http://www.asx.com.au/)
Reserve
Bank of Australia
(http://www.rba.gov.au/)
1-6
International
International Business Finance
Week 1
Rio Tintos news in Bloomberg
-- July 8th (Bloomberg): Australia seeks answers from China on
detained Rio workers
--July 9th (Bloomberg): Rudd Says Australia Acting
Methodically on Hus Detention
--July 10th (Bloomberg): Rio Tinto Group, the worlds No. 3
10
Ri Ti
mining company, added 1.9 percent after copper and oil prices
climbed in New York
--July 14th (Bloomberg): Rio Continuing Spot Market Ore Sales
to Chinese Mills
--July 19th (Bloomberg): Australias Smith Urges China to
Resolve Rio Tinto Case Quickly
Introduction
to multinational
financial management
-
Rise of multinational corporation
The value of multinationalit
lity
Challenges of multinationality
Corporate governance and goals of
MNC
1-10
International Business Finance
Three
broad phases in the evolution
of a firm
- Domestic phase operations are
confined
confined within the boundaries of one
country
- International trade phase the firm
imports materials or export its product
or both
- Multinational phase - The firm
establishes operations overseas
1-11
Question:
-- What is Rio Tintos business?
--Why does Rio Tinto sell iron ore to China? Do Chinese
companies pay Rio Tinto Australian dollar, Chinese yuan, or
US dollar? If they receive Chinese yuan or US dollar, do they
need to convert it back into Australian dollar? If yes, is the
exchange rate very volatile?
--What kind of risk does Rio Tinto face in its oversea business?
--Why does this kind of disputation arise?
--Will it affect Rio Tintos stock price, bond credit, revenue,
short-term and long-term investment strategies in China or
other markets?
Y1905
Local business
Australian mills
Rio Tinto
Y1990
Export
Chinese mills
Rio Tinto
Y2001
Foreign operation
Rio Tinto
Grasberg Joint
Venture,
Indonesia
International
International Business Finance
course is concerned with
multinational corporations (MNCs)
It takes the perspective of a financial
manager in a multinational
corporation
corporation
It develops framework for evaluating
the opportunities, costs, and risks of
operating in the worlds markets for,
Major areas
This
goods, services and financial
assets
Foreign
exchange markets and key
relationships
Managing the risk of multinational
operations
ti
International corporate finance
Understanding international capital
market
1-13
Multinational financial management
Key objectives
This
1-16
-Financial management conducted
in more than one cultural, social,
economic, or political environment.
-Multidisciplinary across the fields
of
of business.
finance, marketing, management,
production, distribution,
purchasing, logistics, taxation
course accounting,
and provides:
- basic theoretical and practical
knowledge required to manage the
financial functions of MNCs
theory and evidence basic to an
understanding of international
capital and foreign exchange
markets
skills required for identification and
management of risk relating to the
operations of MNCs
1-14
Key objectives
Multinational financial management
By the end of the course, students should be able to:
1-17
Multinational
Analyse and discuss international macro-economic and
political environment
Articulate determinants of foreign exchange rate and
interpret the impact of economic events on foreign
exchange rate
Forecast foreign exchange rates with common techniques
Identify risks relating to exchange rate fluctuations and
develop strategies to deal with them
Identify and describe methods of international capital
raising
Discuss, identify and evaluate foreign direct investment
and acquisition opportunities
Understand international capital market
1-15
finance is interdisciplinary
within the field of finance
Multinational
financial managers must
be familiar with
-
Foreign exchange and Eurocurrency markets
Derivatives securities
International financial markets (debt & equity)
International markets for real assets
International portfolio investment
International corporate finance
Current developments in international markets
1-18
The
The rise of the multinational
corporation
Theory of comparative advantage:
country should produce and export goods it
can produce with relative efficiency and
import goods other nations can produce more
efficiently.
The theory assumes that goods and services
can move internationally but factors of
production (capital, labour and land) are
relatively immobile.
MNC can exist and be understood when the
assumption underlying the theory of
comparative advantage are relaxed.
1-19
A
The
The rise of the multinational
corporation
Why do firms become multinational?
- Raw materials
- New markets
- Minimize costs of production
- Knowledge
- Political safety
1-22
The rise of the multinational
corporation
The
The value of multinationality
T
V=
Forces Changing
-
Global Markets include:
Massive deregulation
Privatizations of state-owned industries
Emergence of free market policies
Revolution in information technology
Wave of Mergers and Acquisitions
Rise of Big Emerging Markets
t =1
E CF t
1+ i t t
Multinational investment policy
- higher returns from existing investments
- new investment opportunities
Multinational financial
policy
- Reduced capital costs through access to
international markets
1-20
1-23
The value of the multinational corporation
potential gain from multinational operations
E ( R )%
M N C s i n v es tm e n t
o p p o r tu n ity s et
M N C s m ar g in a l
co st o f cap ital
D o m e stic f ir m
D o m es tic f ir m s m a rg in al
c o st o f cap ital
D o m es tic fir m s i n v es tm e n t
o p p o r tu n ity se t
C a pital b ud ge t
M NC
1-24
Governance of the multinational
corporation
Challenges
Challenges of multinationality
Risk
versus risk exposure
- Risk exists whenever actual
outcomes can differ from
expectations.
- A company has a risk exposure
when its value can change with
unexpected changes in business
conditions
Multinational corporations are
exposed to a variety of new country
risks
Board of Directors
Management
Shareholders
Debt
Assets
Equity
1-25
Claims on corporate revenues
Challenges of multinationality
Claims on corporate revenues
Political risk (Ref: Buttler Ch. 14)
- is the risk that a host government will change the rules of the
game under which business is conducted.
- Due to unexpected political changes within a host country or to
the hosts relationship with other governments.
1-28
REVENUES
EXPENSES
Financial Risk
- Foreign exchange risk the risk of an unexpected change in
OTHER
the value of the firm due to an unexpected change in exchange
rates
DEBT
- Interest rate risk the risk of unexpected change in the
value of the firm due to unexpected changed in interest
rates.
GOVT
EQUITY
VREVENUES
Cultural risk is the risk of dealing with an unfamiliar culture
= VEXPENSES + VGOVT + VDEBT + VEQUITY + VOTHER
1-26
Example:
-- Political risk
The disputation of Rio Tinto and Chinese government
--Financial risk
July 2008
2008
1 A$= 0.97 US$
A$
US$
November 2008 1A$=0.61 US$
Now
1 A$=0.81 US$
--Culture risk
Does everyone around the world like to visit Disney theme park?
1-29