ch01An Introduction to Multinational Finance(跨国公司,Kirt C

Multinational Financeby Kirt C. ButlerIII

Overview and BackgroundThe International Financial Environment

III Derivative Securities for Hedging Currency Risk

IV Managing the Risks of Multinational OperationsV Valuation and the Structure of Multinational Operations

VI International Portfolio Investment and Asset Pricing

Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e

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Chapter 1An Introduction to Multinational Finance

Multinational financial management is financial management conducted in more than one cultural, social, economic, or political environmentWe’ll develop a framework for evaluating the opportunities, costs and risks of operating in the world’s markets for goods, services, and financial assets and liabilities1-2

Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e

Challenges facing the multinational managerThe gentle reader will never, never know what a consummate ass he can become, until he goes abroad.Mark Twain

Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e

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Vivé la differenceCross-border differences can affect all areas of business, particularly through differences in- Language & culture - Human resource management - Accounting - Marketing - Distribution - Logistics - Financial markets - Corporate governance - Other business conventions (legal, accounting, taxation, regulation, etc.)

Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e

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…where the art resides

The notes I handle no better than many pianists, but the pauses between the notes – ah, that is where the art resides. Arthur SchnabelKirt C. Butler, Multinational Finance, South-Western College Publishing, 3e 1-5

Multinational financial management Multinational

finance is interdisciplinary within the field of finance financial managers must be familiar withForeign exchange and Eurocurrency markets Derivatives securities International financial (debt & equity) markets International markets for real assets International portfolio investment1-6

Multinational

Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e

The approach of the book

Everything should be made as simple as possible, but not simpler. Albert Einstein

Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e

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The MNC’s opportunities Value = St [E[CFt] / (1+it)t]

Multinational investment policy- Higher returns from existing investments - New investment opportunities

Multinational financial policy- Reduced capital costs through access to international capital markets

Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e

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Perfect financial market assumptionsFinancial opportunities often involve a violation of one of these assumptions

Frictionless markets - No government intervention or taxes - No transactions, agency, or bankruptcy costs

Rational investors Equal access to costless information Equal access to market prices

Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e

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Market efficiency

Frictionless markets ensure operational efficiencyRational investors with equal access to markets and information ensure informational efficiency - That is, a market in which prices reflect all relevant information Together, these promote allocational efficiency1-10

Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e

Investment opportunities%MNC抯investment opportunity set Domestic firm抯marginal cost of capital

Domestic firm抯investment opportunity set Domestic firm

Capital budget1-11

Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e

Financing opportunities%Domestic firm 抯marginal cost of capital

MNC抯marginal cost of capital

Domestic firm 抯investment opportunity set

Domestic firm

Capital budget1-12

Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e

Return25%

The value of multinationality

20%

MNC’s investment opportunity set

Do mestic firm’s cost of capital

15%

10%

5%

MNC’s cost of capital

Do mestic firm’s investment opportunity set

0% 0 100Do mestic firm

200

300

400

500

Multinati onal corporation (MNC)

Capital budget ($ millions)Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e 1-13

The MNC’s additional risks Country

risk - the risk that the business environment in a host country will unexpectedly change- Political risk - the risk that the business environment in a host country will change unexpectedly due to political events - Financial risk - the risk of unexpected change in the financial or economic environment of a host country

Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e

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Risk versus risk exposure

Risk exists whenever actual outcomes can differ from expectationsA company has a risk exposure when its value can change with unexpected changes in business conditions1-15

Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e

Foreign market entry

Export or import entry-

Agents or distributors (foreign or domestic) Foreign sales branches or subsidiaries

Contract-based entry-

Licensing or franchising

Investment-based entry-

Foreign direct investments Mergers and acquisitions Strategic alliances or joint ventures1-16

Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e

Export through agents or distributors