Chapter One Globalization the Multinational firm Chapter objectives .Understand why it is important to study international finance .Distinguish international finance from domestic finance
INTERNATIONAL FINANCIAL MANAGEMENT EUN / RESNICK Second Edition 1 Chapter One Globalization & the Multinational Firm Chapter Objectives: •Understand why it is important to study international finance. •Distinguish international finance from domestic finance
Chapter One outline What's Special about"International ?"Finance? o Goals for International Financial Management o Globalization of the World economy Multinational corporations e Organization of the Text Summary McGraw-Hilylrwoin 1-1 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-1 ⚫ What’s Special about “International” Finance? ⚫ Goals for International Financial Management ⚫ Globalization of the World Economy ⚫ Multinational Corporations ⚫ Organization of the Text ⚫ Summary Chapter One Outline
What’sSp ecial about International Finance? o Foreign Exchange Risk ● Political risk Market Imperfections Expanded Opportunity set McGraw-Hilylrwoin 1-2 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-2 What’s Special about “International” Finance? ⚫ Foreign Exchange Risk ⚫ Political Risk ⚫ Market Imperfections ⚫ Expanded Opportunity Set
What’sSp ecial about International Finance? o Foreign Exchange risk The risk that foreign currency profits may evaporate in dollar terms due to unanticipated unfavorable exchange rate movements ● Political risk Sovereign governments have the right to regulate the movement of goods, capital, and people across their borders These laws sometimes change in unexpected ways McGraw-Hilylrwoin 1-3 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-3 What’s Special about “International” Finance? ⚫ Foreign Exchange Risk ◼ The risk that foreign currency profits may evaporate in dollar terms due to unanticipated unfavorable exchange rate movements. ⚫ Political Risk ◼ Sovereign governments have the right to regulate the movement of goods, capital, and people across their borders. These laws sometimes change in unexpected ways
What’sSp ecial about International Finance? Market Imperfections Legal restrictions on movement of goods people, and money Transactions costs Shipping costs Tax arbitrage McGraw-Hilylrwoin 144 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-4 ⚫ Market Imperfections ◼ Legal restrictions on movement of goods, people, and money ◼ Transactions costs ◼ Shipping costs ◼ Tax arbitrage What’s Special about “International” Finance?