Fin-7016

Financial Management for International Business

NORTHCENTRAL UNIVERSITYASSIGNMENT COVER SHEET

Dr. Ana Machuca Assignment 8: Signature assignment

Faculty Use Only<Faculty comments here> <Faculty Name> <Grade Earned> <Writing Score> <Date Graded>

THIS FORM MUST BE COMPLETELY FILLED INPlease Follow These Procedures: If requested by your mentor, use an assignment cover sheet as the first page of the word processor file. Keep a Photocopy or Electronic Copy of Your Assignments: You may need to re-submit assignments if your mentor has indicated that you may or must do so. Academic Integrity: All work submitted in each course must be the Learner’s own.

By:Jose A Vega Cotto MBA, MA

2

• Introduction…………………………………………….5• International finance ………………………...……….6• International monetary system ………………………..7• Balance of payments …………………………………...8• Foreign exchange market ………………………………9• Bond yields ……………………………………………10• Currency futures ……………………………………….11• Credit default swaps markets ...……………………….12• Management of foreign exchange risk ………………13• Different types of risk …….…………………………...14• Good financial strategy ……………………………….15

3

• Capital Budgeting in Multinational Organizations …...16• Financial impact of sourcing debt ……….…………….17• Financial impact of sourcing equity globally ………...18• Strategy to source equity globally ……………………19• Foreign investment theory …………………………….20• Foreign investment strategy …………………………21• Foreign investment assessment ……………………...22• Foreign investment management ..……………………23• Becoming a multinational company ……………………25• Conclusion …….………………………………………26• References …………………………………………….27

4

This presentation explains different aspects of

international finance and their relation with the economic

globalization process. It is important to emphasize the

consideration which recognizes this process as a whole in

the development of humanity in this century. The

international economic environment is now increasingly

characterized by its dynamism and globalization.

5

International finance divided

in 2 categories:

International Economics: Exchange

rate, balance of payments, exchange

rate regimes, interest rates.

Corporate finance: They provide

sources of obtaining financing in the

short and long term study of financial

markets and financial derivatives

(futures, options, swaps [swap cash

flow]). 6

International monetary systems are sets of internationally agreed rules, conventions and supporting institutions that facilitate international trade, cross border investment and generally the reallocation of capital between nation states (wikipedia, 2012).

7

The balance of payments (BOP) is an accounting of a country's international transactions for a particular time period (Federal Reserve Bank, 2009).

8

Retrieved 2/18/2012 from http://www.developing8.org/2009/10/26/bangladeshs-july-balance-of-payments-surplus-reaches-694-mln/

The foreign exchange market is the market in which currencies are traded (Go currency, 2012)

Bond Yields Currency Futures Credit Default Swap

Markets

9

Retrieved 2/18/2012 from http://www.itnnews.lk/latest/?p=28607

Currency and bond markets are very closely related.

The direction of both investment assets is widely dependent on a country's economic environment and monetary policy (Lee, 2011).

10

Retrieved 2/18/2012 from: http://bondyields.org/

According to lee (2011) derivative instruments like currency futures are also great in confirming short term trends in foreign exchange rates.

In the equity markets, stock brokers and traders will look towards market volume in confirming momentum.

11

Retrieved 2/18/2012 from: http://www.forum4finance.com/2010/08/11/now-nbfcs-can-trade-in-currency-futures/?replytocom=10329

According to lee (2011) A relatively unknown market, credit default swaps or CDS instruments can be great in showing long-term sentiment for individual currencies.

12

Retrieved 2/18/2012 from : http://money.howstuffworks.com/credit-default-swap1.htm

Control foreign exchange risk

According to Flicker (1990):Participation in international marketsPricingSettlementForward contract

13

Manage RiskRisk Management in a Multinational Company

A company must evaluate the risks utilizing various methods such as risk avoidance and loss reduction; also the corporation must be ready to cover any losses in case there is no way to deal with the loss.

14

Financial

Prepare sales forecast. Projected income Statement. International overhead

Expenses. International and local tax. Foreign currency. Projected cash flow. Future need for liquidity. Assets to liabilities ratio. Financing options

15

Retrieved 2/18/2012 from: http://www.ehow.com/about_7394216_personal-financial-strategy.html

According to Szpiro & Diminik (1997) capital budgeting is a process that involves:

Intellectual activities. The social process. Organizational

resources and the environment change.

16

Retrieved 2/18/2012 from: http://cs.gmu.edu/~eclab/research.html

Methods of sourcing debt

Firms seeking to exploit cross country differences in production cost interact with suppliers operating in environments with varying level of institutional quality (Carluccio & Fally, 2008).

The joint venture American Depository Receipts International debt markets Capital investment Portfolio investment Direct investment Indirect investment Foreign investment Financial investment

17

Gaining access to global capital markets lowers a firm's marginal cost of capital and increase its availability by improving its market liquidity of its shares and by overcoming market segmentation (Kottolli, 2006).

18

Designing a capital sourcing strategy

An investment bank Potential foreign

investors.

1-19

Retrieved 2/20/2012 from: http://www.cash4impact.com/small-business-financing/debt-or-equity/

Foreign Portfolio Investment

Foreign Direct Investment Opportunity Cost

20

Retrieved from http://www.google.com.pr/imgres

The developing countries that have the most potential as a foreign investment starts with deciding what products and services the companies provide and how it can be brought to the market for a profit (Investing, 2009).

21

Retrieved from: http://bizcovering.com/investing/foreign-investment-strategies-picking-profitable-companies/

An investor must be concerned with the environmental and cultural issues when investing in a foreign company.

22

The investment management industry is even more globally focused as it faces emerging capital markets, deregulation and tremendous advances in technology (PWC, 2012).

23

Export Foreign Production Direct Investment Location Rules of Foreign Countries

24

Retrieved 2/20/2012 from: http://www.google.com.pr/imgres?q=Becoming+a+Multinational+Enterprise

The main objective of international financial management is to maximize

shareholder wealth of the multinational firm by developing the best financial

policies and consequent decision of the best decisions of this nature. The

knowledge of the area of international finance has grown enormously in recent

years, it has a greater understanding of many problems that previously seemed

puzzling. The study of international finance is part of the international training of

executives and entrepreneurs, important given the increasing globalization of the

economy. The knowledge of international finance allows financial executive to

understand how international events affect their companies and must be mediated

to avoid the dangers and seize the opportunities offered by changes in the

international environment.

25

Antiphas, T. (1999). Environmental impact assessment of foreign investment projects: Retrieved 2/20/2012 from http://www.leat.or.tz/publications/foreign.investment/

Both, L. D. (1982). Capital Budgeting Frameworks for the Multinational Corporation. Journal of International Business Studies, 13(2), 113.

Federal Reserve Bank. (2009, May). Balance of payments. Retrieved 2/18/2012 from http://www.newyorkfed.org/aboutthefed/fedpoint/fed40.html

Desai, M., Foley, F., & Hines, J. J. (2004). A multinational perspective on capital structure. The journal of finance, LIX(6), 2-5.

Flicker, S. R. (1990). Managing foreign currency exchange risk. Journal of Accountancy, 170(1), 2-5.

Fuentes, G. (2012). What is international investment theory? Retrieved 2/20/2012 from http://www.ehow.com/facts_5905368_international-investment-theory_.html

Ghoshal, S. (1987). Global Strategy: An Organizing Framework Strategic Management Journal, 8 (5), 425-440

Go currency. (2012). The 9 best stock to own now. Retrieved 2/18/2012 from http://www.gocurrency.com/articles/forex-for-beginners.htm

26

Investing, R. (2009). Foreign Investment Strategies Picking Profitable Companies. Retrieved 2/20/2012 from http://bizcovering.com/investing/foreign-investment-strategies-picking-profitable-companies

Kottolli, A. (2006). Raising equity globally. Retrieved 2/20/2012 from http://www.geocities.ws/akottolli/raising_equity_globally.html

Lee, R. (2011). 3 Key Markets To Follow When Trading FX. Retrieved 2/18/2012 from http://www.investopedia.com/articles/forex/11/3-markets-follow-trading-fx.asp#axzz1mmdgMEBH

PWC. (2012). Investment management. Retrieved 2/20/2012 from http://www.pwc.com/my/en/industry/investment-management.jhtml

Stephens, D. (1999, July). The Globalization of Information Technology in Multinational Corporations. Information Management Journal, 1(1), 1-5

Szpiro, D. A., & Dimnik, T. (1996). Capital budgeting in multinational organizations: Exploring the strategic context. Managerial Finance, 22 (1), 58-74 http://search.proquest.com.proxy1.ncu.edu/docview/212595236?accountid=28180

wikipedia. (2012). International monetary system. Retrieved 2/17/2012 from http://en.wikipedia.org/wiki/International_monetary_systems

27