Chapter 1 - Globalization and the Multinational Firm
1) Corporate Finance (Demand for Capital) and 2) Investments (Supply of Capital).
vs. External finance.
Internal Issues like dividend policy, capital structure, working capital
management, strategy/policy, optimal growth rate, etc.
Investors, fund managers, commercial and investment banks, pension funds
shopping globally for investments.
GOAL OF FIRM?
WHY STUDY INTL FINANCE?
Highly globalized and integrated world economy.
Between 1980-1995, volume of world trade doubled. International trade has been increasing much
faster than world output. 1950-1995, world output increased 6x, world trade increased 16x, world
currency activity has increased something like 50x.
GM produces cars in 50 countries, sells cars in almost 150 countries. GM is a typical
multinational corporation (MNC).
Much of intl. trade is for inputs, parts, supplies, raw materials, NOT finished goods. Intense global
competition has resulted in relentless cost cutting measures - finding cheapest cost of production by
relocating production to the cheapest country, outsourcing purchase of parts, etc. Economic problem =
Result of global economy: few products are made exclusively in one country anymore. IBM computers
might be assembled in Malaysia, with Taiwanese monitors, Korean keyboards, US made microchips,
with software developed by US and Indian engineers, advertising services of a UK company, financing
from banks in Holland and Germany.
US cars vs. "foreign" cars??
Financial markets are also highly and increasingly integrated. Capital flows instantly around the world,
seeks the highest return, stays were it is well treated, leaves when it is not well treated. MNCs have
shares of stock cross- listed on foreign stock exchanges. Advantages?? More liquid, access to more
All major economic functions - consumption, production, investment - are highly globalized. We
consume, invest, produce, work and sell in a global economy/marketplace. Financial managers and
MGT 566: International Finance – CH 1
Professor Mark J. Perry