1、INTERNATIONAL FINANCIAL MANAGEMENT,EUN / RESNICK,Fourth Edition,We are concerned with financial management in an international setting.,Key terms,North American Free Trade Agreement (NAFTA) 北美自由貿(mào)易協(xié)定 Shareholder wealth maximization 股東利益最大化 Theory of comparative advantage 比較優(yōu)勢理論 World Trade Organizati

2、on (WTO) 世界貿(mào)易組織 International mutual funds 國際信托基金 Bearer share 不記名股票 Registered share 記名股票 Working capital 營運資本,Key terms,Corporate governance 公司治理 European Union 歐盟 Expanded opportunity 擴大的市場機遇 Foreign exchange risk 外匯風(fēng)險 General Agreement on Tariffs and Trade (GATT) 關(guān)貿(mào)總協(xié)定 Market imperfections 市場的不完

3、善性 Multinational corporation (MNC) 跨國公司,Whats Special about International Finance? Goals for International Financial Management Globalization of the World Economy Multinational Corporations Summary,Outline,1.Whats Special about “International” Finance?,(1)Foreign Exchange Risk (2)Political Risk (3)M

4、arket Imperfections (4)Expanded Opportunity Set,(1) Foreign Exchange Risk,What is the risk? The risk refers to the uncertainty of result in the future. What is foreign exchange risk? Foreign exchange risk arises from foreign currency translation, which indicates that the uncertainty of exchange rate

5、 fluctuations has overall and significant effects on primary economic activities, such as consumption, production and investment.,For example,Suppose $1 = ￥ 100 and you buy 10 shares of Toyota at ￥ 10,000 per share. One year later the investment is worth ten percent more in yen: ￥ 11,0000 But, if th

6、e yen has depreciated to $1 = ￥ 120, your investment has actually lost money in dollar terms.,Case study: Foreign exchange risks arouse from Mexico Peso depreciation,Background: Mexico Financial Crisis in 1994 On December 20th, 1994, Mexico government declared that the floating range of Peso against

7、 US dollar would be expanded to 15%. On December 22nd, 1994, Mexico government was forced to declare that Peso would be allowed to float flexibly. As a result, foreign capital was withdrawn from Mexico, the price of stock market dropped dramatically.,Foreign exchange risks related with this crisis F

8、or discussion,Suppose your company is a US-based company and Mexico is a major export market for your company, then what are the effects of pesos depreciation on your company? Is it bad or good for you? Supposing: Before depreciation: 1US$=8Peso After depreciation: 1US$=10Peso,Further discussion,If

9、your company also import raw material from Mexico, what are the effects of peso depreciation on your company? Is it bad or good for you?,As companies are engaged in all kinds of cross-borders transactions and businesses, fluctuations of exchange rate will have uncertain effects on companies involvin

10、g in international trade, international finance and international investment.,Foreign exchange risks: greater and greater!,Bretton Woods Agreement (1944),Jamaica Agreement (1973),Fixed exchange rate regime,Floating exchange rate regime,(2) Political Risk,Sovereign governments have the right to regul

11、ate the movement of goods, capital, and people across their borders. These laws sometimes change in unexpected ways.,Case study: the meltdown of Yukos-one of the largest Russian oil companies,Mikhail Khodorkovsky,Headquarters of Yukos,Yukos Oil Company,A fully-integrated oil-and-gas company headquar

12、tered in Moscow, Russia One of the worlds largest non-state oil companies by reserves and market capitalization One of Russias largest publicly traded corporations by market capitalization A team of approximately 100,000 dedicated professionals Shares publicly traded on the Russian Trading System (R

13、TS) and Moscow Interbank Currency Exchange (MICEX),Following the arrest of Mikhail Khodorkovsky, the majority owner and a critic of the government, on fraud and tax evasion charges, the Russia authorities have been steadily hammering Yukos into bankrupt. The authorities sued the company for more tha

14、n $20 billion back taxed and auctioned off its assets to cover the alleged tax arrears. The government action against Yukos, widely viewed as political motivated, inflicted a serious collateral damage on international shareholders of Yukos whose investment values were wipe out. It is important to un

15、derstand that the property rights of shareholders and investors are not universally respected.,(3) Market Imperfections,Market imperfections refer to various frictions and impediments that preventing markets from functioning perfectly.,Legal restrictions on movement of goods, people, and money Exces

16、sive Transactions costs Excessive Transportation costs Discriminatory taxation Information asymmetry,Various frictions and impediments,Imperfections in world financial market,Mainly refers to the restrictions on international capital flows To restrict the extent to which investors can diversify thei

17、r portfolios,The effects of Market imperfections,To motivate MNCs to locate production overseas to circumvent barriers.,The Example : Nestls Market Imperfection,Nestl used to issue two different classes of common stock bearer shares and registered shares. Foreigners were only allowed to buy bearer s

18、hares. Swiss citizens could buy registered shares. The bearer stock was more expensive. On November 18, 1988, Nestl lifted restrictions imposed on foreigners, allowing them to hold registered shares as well as bearer shares.,Nestls Foreign Ownership Restrictions,Source: Financial Times, November 26,

19、 1988 p.1. Adapted with permission.,SF,The Example :Nestls Market Imperfection,Following this, the price spread between the two types of shares narrowed dramatically. This implies that there was a major transfer of wealth from foreign shareholders to Swiss shareholders. Foreigners holding Nestl bear

20、er shares were exposed to political risk in a country that is widely viewed as a haven from such risk. The Nestl episode illustrates both the importance of considering market imperfections and the peril of political risk.,Through expanded opportunity, firms can locate production in any country or re

21、gion of the world to maximize their performance and raise funds in any capital market where the cost of capital is the lowest. Through expanded opportunity, individual investors can also benefit greatly if they invest internationally rather than domestically.,(4) Expanded Opportunity Set,Possible fi

22、nancial goals: Survive avoid financial distress and bankrupt beat the competition maximize sales or market shares minimize costs maximize profits maintain steady earnings growth,2.Goals for International Financial Management,Long-term goal: Maximize Shareholder Wealth,Refers to maximize the current

23、value per share of the existing stock. Means that the firm makes all business decisions and investments with an sys toward making the owners of the firm-the shareholders-better off financially, or more wealthy than before.,Corporate governance- an important issue related to shareholder wealth maximi

24、zation,Corporate governance represents the financial and legal framework for regulating the relationship between a companys management and its shareholders.,As shown by a series of recent corporate scandals at companies like Enron, WorldCom, and Global Crossing, managers may pursue their own private

25、 interests at the expense of shareholders when they are not closely monitored. These calamities have painfully reinforced the importance of corporate governance.,3.Globalization of the World Economy: Major Trends,Emergence of Globalized Financial Markets Emergence of the Euro as a Global Currency Tr

26、ade Liberalization and Economic Integration Privatization,Deregulation of Financial Markets coupled with -Advances in Technology have greatly reduced information and transaction costs, which has led to: -Financial Innovations, such as Currency futures and options Multi-currency bonds Foreign stock i

27、ndex futures and options International mutual funds Cross-border stock listings,(1)Emergence of Globalized Financial Markets,Know something about Market Maker,A market maker is a firm that stands ready to buy and sell a particular stock on a regular and continuous basis at a publicly quoted price. Y

28、oull most often hear about market makers in the context of the Nasdaq or other over the counter (OTC) markets.,Know something about investment-banking and commercial-banking,Investment-banking: to serve the direct financing business. Commercial-banking: to serve the indirect financing business. Mixe

29、d operation and divided operation,Capital market,Currency Market,（2）Emergence of the Euro as a Global Currency,January1st, 1999, the advent of the euro represents a momentous event in the history.,Currently more than 300 million Europeans in 22 countries are using the common currency on a daily basi

30、s. In May 2004, 10 more countries joined the European Union and adopt the euro. The “transaction domain” of the euro may become larger than the U.S. dollars in the near future.,Euro Area,Austria Belgium Cyprus Finland France Germany Greece Ireland,Membership,Italy Luxembourg Malta Portugal Slovenia

31、Spain The Netherlands,Euro VS US dollar,U.S dollar- an invoiced, vehicle and reserve currency The euro has a strong potential for becoming another global currency rivaling the U.S dollar for dominance in international trade and finance.,VS,(3)Trade liberalization and economic integration,The theoret

32、ical base for international trade is the theory of comparative advantage, which was advanced by David Ricardo in Principles of Political Economy(1817). According to his theory, it is mutually beneficial for countries if they specialize in the production of those goods among them.,David Ricardo,There

33、 has been a sea change in the attitudes of many of the worlds governments who have abandoned mercantilist views and embraced free trade as the surest route to prosperity for their citizenry.,Over the past 50 years, international trade increased about twice as fast as world GDP.,China: Rapid increasi

34、ng(1985-2005),Source: National Bureau of Statistics of China,US trade deficit: increasing,All around the world,All around the world,A Year Without Made in China: One Familys True Life Adventure in the Global Economy,Sara Bongiorni,International organizations for promoting international trade,The Gen

35、eral Agreement on Tariffs and Trade (GATT) is a multilateral agreement among member countries which has reduced many barriers to trade. The World Trade Organization (WTO) has the power to enforce the rules of international trade.,Regional organizations for promoting international trade,European Unio

36、n (EU): the direct descendent of European Community, includes 25 member states. North American Free Trade Agreement (NAFTA): a free trade area, includes 3 member states (United States, Canada and Mexico),NAFTA,The North American Free Trade Agreement (NAFTA) calls for phasing out impediments to trade between Canada, Mexico and the United States over a 15-year pe