Study Unit 1
TOPIC 1: THE INTERNATIONAL FINANCE ENVIRONMENT
1.1
AIM OF THE TOPIC
This topic focuses on the context within which the financial managers of MNCs make their decisions. The discussions focus on key terminology, instruments and institutions that are central to such decision making.
1.2
CONTENTS OF THE TOPIC
Study Unit 1: Overview of multinational financial management
Study Unit 2: International flow of funds and balance of payments
Study Unit 3: International financial markets
Study Unit 4: Exchange rate determination
Study Unit 5: Currency derivatives
STUDY UNIT 1
OVERVIEW OF MULTINATIONAL FINANCIAL MANAGEMENT
LEARNING OUTCOMES
On completion of this study unit, you should be able to
■ understand what is special about international finance
■ understand why MNCs are important players in international economic competition
■ identify the main goal of the MNC and conflicts with that goal
■ describe key theories that justify international business
■ understand the common methods used to conduct international business
■ identify some limitations associated with international business
■ describe the impact of international opportunities on an MNC’s value
1.1
OVERVIEW OF THE UNIT
In general, MNCs seek out, undertake and integrate production, marketing and R & D, and financing opportunities on a global basis. Because of their international operations, MNCs
4
face unique risks as well as opportunities. Three major dimensions distinguish international finance from purely domestic finance, namely, foreign exchange and political risks, market imperfections and expanded opportunity sets. The decisions made by financial managers of
MNCs should reflect these additional risks and opportunities and be consistent with the goal of the firm.
This study unit describes the goal of the financial manager of MNCs, namely to maximize shareholder wealth. However, you should be aware of various problems and constraints that are encountered in achieving this goal.
There are three major
1.1
AIM OF THE TOPIC
This topic focuses on the context within which the financial managers of MNCs make their decisions. The discussions focus on key terminology, instruments and institutions that are central to such decision making.
1.2
CONTENTS OF THE TOPIC
Study Unit 1: Overview of multinational financial management
Study Unit 2: International flow of funds and balance of payments
Study Unit 3: International financial markets
Study Unit 4: Exchange rate determination
Study Unit 5: Currency derivatives
STUDY UNIT 1
OVERVIEW OF MULTINATIONAL FINANCIAL MANAGEMENT
LEARNING OUTCOMES
On completion of this study unit, you should be able to
■ understand what is special about international finance
■ understand why MNCs are important players in international economic competition
■ identify the main goal of the MNC and conflicts with that goal
■ describe key theories that justify international business
■ understand the common methods used to conduct international business
■ identify some limitations associated with international business
■ describe the impact of international opportunities on an MNC’s value
1.1
OVERVIEW OF THE UNIT
In general, MNCs seek out, undertake and integrate production, marketing and R & D, and financing opportunities on a global basis. Because of their international operations, MNCs
4
face unique risks as well as opportunities. Three major dimensions distinguish international finance from purely domestic finance, namely, foreign exchange and political risks, market imperfections and expanded opportunity sets. The decisions made by financial managers of
MNCs should reflect these additional risks and opportunities and be consistent with the goal of the firm.
This study unit describes the goal of the financial manager of MNCs, namely to maximize shareholder wealth. However, you should be aware of various problems and constraints that are encountered in achieving this goal.
There are three major