FNCE-404 Study Guide - Midterm Guide: Product Differentiation, United States Dollar, Strategic Management

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9 Aug 2016
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Chapter 1: Multinational Financial Management: Opportunities & Challenges
Learning Objectives:
Examine the requirements for the creation of value
Comparative advantage, and its requirements for the explanation and justification of
international trade and commerce
Discover what is different about international financial management
Which market imperfections give rise to multinational enterprise
Consider how globalization process moves a business from domestic level to multinational
Examine possible causes to the limitations to globalizations
The creation of value requires combining three critical elements: 1) an open market place; 2) high-
quality strategic management; 3) access to capital
Multinational Enterprise (MNE)
Include for profit, non-profit firms, and NGOs (Non-Governmental Organization)
Have operations in more than one country
Conduct business through branches, foreign subsidiaries, or joint ventures with host country
firms
Reliance on emerging markets for cheaper labour, raw materials, and outsourced
manufacturing, and as of lately, for markets for sales and profits.
New World Markets:
oBRICs (Brazil, Russia, India, China)
oBIITS (Brazil, India, Indonesia, Turkey, and South Africa)
oMINTs (Mexico, Indonesia, Nigeria, Turkey)
The Global Financial/Capital Market Place
The global capital market place is a collection of institutions (central banks, commercial banks,
NGOs like IMG and World Bank) and securities (bonds, mortgages, loans, etc.), which are all
linked via a global networkthe Interbank Market
The interbank market, in which securities of all kinds are traded, is the critical pipeline system
for the movement of capital
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The movement of capital in the global financial system takes place through a vehicle –currency
We can characterize the global financial AKA capital market place through its assets, institutions,
and linkages
oAssets
The assets –financial assets –at the heart of the global capital markets are the
debt securities issued by governments (e.g., U.S. Treasury Bonds). These low-
risk assets form the foundation for creation, trading, and pricing of other
financial assets like bank loans, corporate bonds, and equities(stock). The health
and security of the global financial system relies on the quality of these assets
oInstitutions
Central Banks: create and control each country’s money supply
Commercial Banks: Accept deposits and extend loans to businesses, both local
and global
Other Financial Institutions: primarily trade securities and derivatives
The health and security of the global financial system relies on the stability of these
financial institutions
oLinkages
The links between the financial institutions are the interbank networks using currency.
The ready exchange of currencies in the global marketplace is the first and foremost
element for the conduct of financial trading. Global currency markets are the largest
markets in the world. The interbank market bases all of its pricing through the single
most widely quoted interest rate in the world –LIBOR (the London Interbank Offered
Rate)
The Market for Currencies
Foreign currency exchange rate is the price of any one country’s currency in terms of another
country’s currency
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