International finance management

Chapter 1 Multinational Financial Management An Overview Lecture Outline Managing the MNC Facing Agency Problems Management Structure of an MNC Why Fimrs Pursue International Business Theory of Comparative Advantage Imperfect Markets Theory Product Cycle Theory How Firms Engage in International Business International Trade Licensing Franchising Joint Ventures Acquisitions of Existing Operations Establishing New Foreign Subsidiaries Summary of Methods Valuation Model for an MNC Domestic Model Valuing International Cash Flows Uncertainty Surrounding an MNCs Cash Flows Uncertainty of an MNCs Cost of Capital Organization of the Text Chapter Theme This chapter introduces the multinational corporation as having similar goals to the purely domestic corporation, but a wider variety of opportunities. With additional opportunities come potential increased returns and other forms of risk to consider. The potential benefits and risks are introduced. Topics to Stimulate Class Discussion 1. What is the appropriate definition of an MNC 2. Why does an MNC expand internationally 3. What are the risks of an MNC which expands internationally 4. Why do you think European countries attract U.S. firms 5. Why must purely domestic firms be concerned about the international environment POINT/COUNTER-POINT Should an MNC Reduce Its Ethical Standards to Compete Internationally POINT Yes. When a U.S.-based MNC competes in some countries, it may encounter some business norms there that are not allowed in the U.S. For example, when competing for a government contract, firms might provide payoffs to the government officials who will make the decision. Yet, in the United States, a firm will sometimes take a client on an expensive golf outing or provide skybox tickets to events. This is no different than a payoff. If the payoffs are bigger in some foreign countries, the MNC can compete only by matching the payoffs provided by its competitors. COUNTER-POINT No. A U.S.-based