AFIN253 lecture 12.docx - AFIN253 Lecture 12 – International Finance Introduction to international finance management Globalisation of the world

AFIN253 lecture 12.docx - AFIN253 Lecture 12 –...

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Introduction to international finance management Globalisation of the world economy: - Globalisation refers to the removal of barriers to free trade and the closer integration of national economies. - Consumers in many countries buy goods that are purchased from a number of countries, other than just their own. - The production of goods and services has also become highly globalized. - Like product markets, the financial system has also become highly integrated. The Rise of multinational companies: - A multinational company is a business company that operates in more than one country but is headquartered or based in its home country. - Multinationals are owned by a mixture of domestic and foreign shareholders. - The top 15 multinational business companies ranked by total revenues. Factors affecting international financial management: - Six factors can cause international business transactions to differ from domestic deals: AFIN253 Lecture 12 – International Finance
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1. The uncertainty of future exchange rate movements is called foreign exchange rate risk, or just exchange rate risk. 2. Differences in legal systems and tax codes can also impact the way companies operate in foreign countries. 3. While English is the official business language, it is not, however, the world’s social language. 4. Cultural views also shape business practices and people’s attitudes toward business. 5. An economic system determines how a country mobilizes its resources to produce goods and services needed by society, as well as how the production is distributed. 6. Country risk refers to political uncertainty associated with a particular country. - At the extreme, a country’s government may even expropriate – that is, take over – a business’s assets within the country. - These types of actions clearly can affect a company’s cash flows and, thus, the value of the company. Goals of international financial management: - Stockholder value maximisation is the accepted goal for companies in the united states, as well as in some other countries that share a similar heritage, such as the UK, Australia, India and Canada. - In continental Europe, for example, countries such as France and Germany focus on maximising corporate wealth. - The European manager’s goal is to earn as much wealth as possible for the company while considering the overall welfare of all stakeholders. - In Japan, companies form tightly knit, interlocking business groups called keiretsu, such as Mitsubishi, Mitsui, and sumitomo, and the goal of the Japanese business manager is to increase the wealth and growth of the Keiretsu. - As a result, they might focus on maximising market share rather than stockholder wealth. Foreign exchange markets The foreign exchange market is a group of international markets connected electronically where currencies are bought and sold in wholesale amounts. These markets provide three basic benefits: 1. A mechanism to transfer purchasing power from individuals who deal in one currency to people who deal in a different currency.
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