Chapter 1 Notes - Chapter 1 Multinational Financial...

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Chapter 1: Multinational Financial Management: Opportunities and Challenges Multinational financial management (MNEs) - firms: both for-profit companies and not-for-profit organizations – that have operations in more than one country and conduct their business through branches, foreign subsidiaries, or joint ventures with host country firms. In the late 20 th and early 21 st centuries, they used to think financial globalization was a good thing. Now it’s more complicated than that since we are having more risks now. - The international monetary system: is under constant scrutiny( examination) - Large fiscal deficits plague most of the major trading countries of the world - Many countries experience continuing balance of payments imbalances, large deficits and surpluses - Ownership, control, and governance vary radically across the world - Publicly traded companies/ privately held or family – owned business - Global capital markets that normally provide the means to lower a firm’s cost of capital have in many ways shrunk in size and have become less open and accessible to many of the world’s organizations - Today’s emerging markets: the problem of first being the recipients of capital inflows, and then of experiencing rapid and massive capital outflows The Global Financial Marketplace: Assets, Institutions, and Linkages – - Assets: o Global capital markets: debt securities issued by governments (U.S. Treasury Bonds) Low-risk or risk-free assets Derivatives – the value of which is based on market value changes of the underlying securities - Institutions: o Global finance: central banks Create and control each country’s money supply o Commercial banks: Take deposits and extend loans to businesses, both local and global o Other financial institutions: Created to trade securities and derivatives - Linkages: o The links between he financial institutions – the actual fluid or medium for exchange – are the interbank networks using currency The exchange of currencies, and the subsequent exchange of all other securities globally via currency, is the international interbank network.
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- This network, whose primary price is the London Interbank Offered Rate ( LIBOR), is the core component of the global financial system The Market for Currencies: Foreign currency exchange rate – The price of any one country’s currency in terms of another country’s currency For example: Exchange rate between the U.S. dollar and the European euro is $/€
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