Chapter01 - Chapter 1 Financial Goals and Corporate...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 1 Financial Goals and Corporate Governance Outline This introductory chapter introduces the field of multinational financial management, and discusses issues that differentiate management of a multinational enterprise (MNE) from that of a firm that operates solely in a single country. The MNE is defined as a firm that has physical operational assets located in more than one country. The main differences between international and domestic financial management are summarized in Exhibit 1.1 in the text. By investing in foreign operations, the firm faces a diverse set of challenges, ranging from political and financial risks to managerial challenges caused by differences in culture, institutions, and business norms. The chapter illustrates the typical steps taken by a firm as it transforms itself from purely domestic firm to an MNE. I. Global Transition I In the first step of global transition, a company moves from the Domestic Phase to the International Trade Phase. Instead of using exclusively domestic suppliers and catering to domestic clientele, the company enters the import and export market. A) Why move to the international trade phase? The incentives to transfer from the domestic phase to the international trade phase include: 1. Access to cheaper production inputs through imports, 2. Possible economies of scale gained through expanded markets and higher production volume, 3. Competitive forces. If the home country competitors are using more cost-efficient imported raw materials, etc., it may force the company to follow suit. Overall, consistent with the goal of shareholder wealth maximization, the firm is striving towards higher efficiency. B) Challenges introduced by Global Transition I: 1. Foreign exchange risk: Exports (imports) create assets (liabilities) denominated in foreign currencies, whose value will vary with exchange rates. 2. Credit risk management: International differences in business practices and legal systems
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/11/2008 for the course BUSN 101 taught by Professor Holcomb during the Fall '08 term at Gonzaga.

Page1 / 3

Chapter01 - Chapter 1 Financial Goals and Corporate...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online