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Transcript of Vega jfin7016 8
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
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• 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
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• 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
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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.
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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).
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The balance of payments (BOP) is an accounting of a country's international transactions for a particular time period (Federal Reserve Bank, 2009).
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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
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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).
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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.
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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.
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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
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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.
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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
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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.
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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
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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).
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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).
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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).
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Export Foreign Production Direct Investment Location Rules of Foreign Countries
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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.
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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
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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
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