lecture7 - Page 1 of 3 Help Week 7 Multi-National Financial...

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

View Full Document Right Arrow Icon
Global Financial Management Introduction | Domestic versus Multinational Financial Management | Exchange Rate Risk | Interest Rate Parity | Purchasing Power Parity | Effect of Inflation | Political Risk The world as we know it is shrinking due to (1) jet transportation, and (2) electronic satellite communication. The entire world is now the market for many companies due to demand from third-world and emerging nations. Chapter 17 highlights the key differences between multinational and domestic corporations and the impact of these differences on the financial management of multinational business. The text lists six major reasons for why both U.S. and foreign companies go global: to broaden their markets, to seek raw materials, to seek new technology, to seek production efficiency, to avoid political and regulatory hurdles, and to diversify. Within the United States, the way of doing business may be somewhat different from one state to another, say from Maine to Louisiana, due to different cultures and politics. However, the language is the same (somewhat), the monetary system is the same, and the laws, while different from state to state, are generally uniform as they relate to commercial transactions. Now, compare this with an Illinois corporation doing business in France or China. Our textbook lists, on pages 693-694, the six major factors that distinguish financial management in firms operating within a single country from firms that operate globally. These include 1. different currency denominations, 2. economic and legal ramifications, 3. language differences, 4. cultural differences, 5. role of governments, and 6. political risks. As the book indicates, all six of these factors are important, but for now, we'll focus on different currency denominations and political risk. An exchange rate specifies the number of units of a given currency that can be purchased with one unit of another currency. For example, if the British Pound is worth $1.6648 (direct quotation), then $1.00 is worth 0.6007 British Pound (indirect quotation). Since most nations currently operate under a system of floating exchange rates,
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.

Page1 / 3

lecture7 - Page 1 of 3 Help Week 7 Multi-National Financial...

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