跨国公司财务管理讲义.doc

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CHAPTER 1
INTRODUCTION: MULTINATIONAL ENTERPRISE AND MULTINATIONAL FINANCIAL MANAGEMENT
Learning Objectives ：
● To understand the nature and benefits of globalization
●To explain why multinational corporations are the key players in international economic competition today
●To classify the three historical types of multinational corporation (MNC) and explain their motivations for international expansion
●To explain why managers of MNCs need to exploit rapidly changing global economic conditions and why political policy makers must also be concerned with the same changing conditions
●To identify the advantages of being multinational, including the benefits of international diversification
●To describe the general importance of financial economics to multinational financial management and the particular importance of the concepts of arbitrage, market efficiency, capital asset pricing, and total risk
●To characterize the global financial marketplace and explain why MNC managers must be alert to capital market imperfections and asymmetries in tax regulations
1.1 THE RISE OF THE MULTINATIONAL CORPORATION
1.1.1A multinational corporation (MNC) is a company engaged in producing and selling goods or services in more than one country.
1.1.2A brief taxonomy of the MNC and its evolution
Raw-Materials Seekers. Raw-materials seekers were the earliest multinationals, the villains of international business.
Market Seekers. The market seeker is the archetype of the modern multinational firm that goes overseas to produce and sell in foreign markets
Cost Minimizers. These firms seek out and invest in lower cost production sites overseas (for example, Hong Kong, Taiwan, and Ireland) to remain cost-competitive both at home and abroad.
1.1.3the true multinational corporation is characterized more by its state of mind than by the size and worldwide dispersion of its assets.
1.1.4the essential element that distinguishes the true multinational is its commitment to seeking out, undertaking, and integrating manufacturing, marketing, R&D, and financing opportunities on a global, not domestic, basis.
1.1.5In a world in which change is the rule and not the exception, the key to international competitiveness is the ability of management to adjust to change and volatility at an ever faster rate.
1.1.6New global manager is needed.
1.2 THE INTERNATIONALIZATION OF BUSINESS AND FINANCE
1.2.1The existence of global competition and global markets for goods, services, and capital is a fundamental economic reality that has altered the behavior of companies and governments worldwide.
1.2.2Politicians and labor leaders, unlike corporate leaders, usually take a more parochial view of globalization.
1.2.3International economic integration reduces the freedom of governments to determine their own economic policy.
1.2.4The stresses caused by global competition have stirred up protectionists and given rise to new concerns about the consequences of free trade.
The U.S.–Canada trade agreement; the North American Free Trade Agreement (NAFTA),
1.3 MULTINATIONAL FINANCIAL MANAGEMENT: THEORY AND PRACTICE
1.3.1The main objective of multinational financial management is to maximize shareholder wealth as measured by share price.
1.3.2Shareholders are the legal owners of the firm and management has a fiduciary obligation to act in their best interests.
1.3.3Financial management is traditionally separated into two basic functions: the acquisition of funds (financing decision) and the investment of those funds (investment decision).
1.3.4The risks of multinational management include exchange and inflation risks; international differences in tax rates; multiple money markets, often with limited access; currency controls; and political risks, such as sudden or creeping expropriation.
1.3.5The most advantage of MNC is the international diversification of markets and production sites.
1.3.6Some concepts of financial economics:
Arbitrage Market efficiency Capital Asset Pricing Risk classification
1.4 OUTLINE OF THE BOOK
This book is divided into five parts.
Part I: Environment of International Financial Management
Part II: Foreign Exchange Risk Management
Part III: Financing the Multinational Corporation

Part IV: Foreign Investment Analysis
Part V: Multinational Working Capital Management

CHAPTER 2
THE FUNDAMENTAL OF INTERNATIONAL FINANCE
Learning Objectives：
●To explain the concept of an equilibrium exchange rate
●To identify the basic factors affecting exchange rates in a floating exchange rate system
●To calculate the amount of currency appreciation or depreciation associated with a given exchange rate change
●To distinguish between a free float, a managed float, a target-zone arrangement, and a fixed-rate system of exchange rate determination
●To distinguish between the current account, the financial account, and the official reserves account and describe the links among these accounts
2.1 SETTING THE EQUILIBRIUM SPOT EXCHANGE RATE
2.1.1Exchange rates can be for spot or forward delivery.
2.1.2A spot rate is the price at which currencies are traded for immediate delivery, or in two days in the interbank market.
2.1.3A forward rate is the price at which foreign exchange is quoted for delivery at a specified future date.
2.1.4The exchange rates are market-clearing prices that equilibrate supplies and demands in the foreign exchange market.
2.1.5Factors that Affect the Equilibrium Exchange Rate:
As the supply and demand schedules for a currency change over time, the equilibrium exchange will also change.
Relative Inflation Rates Relative Interest Rates Relative Economic Growth Rates
Political and Economic Risk Expectation and Asset Market model
2.1.6Calculating Exchange Rate Change
2.2 ALTERNATIVE EXCHANGE RATE SYSTEMS
2.2.1The international monetary system refers primarily to the set of policies, institutions, practices, regulations, and mechanisms that determine the rate at which one currency is exchanged for another.
2.2.2This section considers five market mechanisms for establishing exchange rates:
free float managed float target-zone arrangement
fixed-rate system the current hybrid system.
2.3 BALANCE-OF-PAYMENT CATEGORIES
2.3.1The balance of payment is an accounting statement that summarizes all the economic transactions between residents of the home country and the residents of all other countries.
2.3.2Currency inflows are recorded as credits, and outflows are recorded as debits.
2.3.3There are three principal balance-of-payments categories:
1. Current account 2. Capital account 3. Financial account
2.3.4For most countries, only the current and financial accounts are significant.
CHAPTER 3
COUNTRY RISK ANALYSIS
Learning Objectives：
● To define what country risk means from the standpoint of an MNC
● To describe the social, cultural, political, and economic factors that affect the general level of risk in a country and identify key indicators of country risk and economic health
● To describe what we can learn about economic development from the contrasting experiences of a variety of countries
● To describe the economic and political factors that determine a country’s ability and willingness to repay its foreign debts
3.1 MEASURING POLITICAL RISK
3.1.1Expropriation is the most obvious and extreme form of political risk,.
3.1.2There are other significant political risks, including currency or trade controls, changes in tax or labor laws, regulatory restrictions, and requirements for additional local production.
3.1.3Factors in political risk forecasting model
Political Stability Economic Factors Subjective Factor
Political Risk and Uncertain Property Rights
3.1.4A useful indicator of the degree of political risk is the seriousness of capital flight.
3.2 ECONOMIC AND POLITICAL FACTORS UNDERLYING COUNTRY RISK
3.2.1key factors that determine the economic performance of a country and its degree of risk
Fiscal Irresponsibility Monetary Instability Controlled Exchange Rate System
Wasteful Government Spending Resource Base
Country Risk and Adjustment to External Shocks
3.2.2Key Indicators of Country Risk and Economic Health
3.3 COUNTRY RISK ANALYSIS IN INTERNATIONAL BANKING
3.3.1From a bank’s standpoint, country risk is the possibility that borrowers in a country will be unable or unwilling to service or repay their debts to foreign lenders in a timely manner.
3.3.2What ultimately determines a nation’s ability to repay foreign loans is that nation’s ability to generate U.S. dollars and other hard currencies.
3.3.3The Government’s Cost/Benefit Calculus
3.3.4Lessons from the International Debt Crisis
CHAPTER 4
MEASURING AND MANAGING TRANSLATION AND TRANSACTION EXPOSURE
Learning Objectives
● To define translation and transaction exposure and operating exposure, distinguish them.
● To describe the four principal currency translation methods available and to calculate translation exposure using these different methods
● To identify the basic hedging strategy and techniques used by firms to manage their currency transaction and translation risks
● To describe the costs and benefit associated with using the different hedging techniques
● To describe and assess the economic soundness of the various corporate hedging objectives
4.1 ALTERNATIVE MEASURES OF FOREIGN EXCHANGE EXPOSURE
4.1.1The three basic types of exposure are translation exposure, transaction exposure, and operating exposure.
4.1.2Transaction exposure and operating exposure combine to form economic exposure.
Translation exposure, also known as accounting exposure, arises from the need, for purposes of reporting and consolidation, to convert the financial statements of foreign operations from the local currencies (LC) involved to the home currency (HC).
Transaction exposure results from transactions that give rise to known, contractually binding future foreign-currency-denominated cash inflows or outflows.
Operating exposure measures the extent to which currency fluctuations can alter a company’s future operating cash flows, that is, its future revenues and costs.
4.2 ALTERNATIVE CURRENCY TRANSLATION METHODS
4.2.1Companies with international operations will have foreign-currency-denominated assets and liabilities, revenues, and expenses. The financial statements of an MNC’s overseas subsidiaries must be translated from local currency to home currency before consolidation with the parent’s financial statements.
4.2.2Four principal translation methods are available:
the current/noncurrent method, the monetary/nonmonetary method,
the temporal method, and the current rate method.
4.2.3In practice, there are also variations of each method.
4.2.4Current/Noncurrent method
All the foreign subsidiary’s current assets and liabilities are translated into home currency at the current exchange rate. Each noncurrent asset or liability is translated at its historical exchange rate—that is, at the rate in effect at the time the asset was acquired or the liability was incurred.
The income statement is translated at the average exchange rate of the period, except for those revenues and expense items associated with noncurrent assets or libilities.
4.2.5Monetary/Nonmonetary Method
Monetary items (for example, cash, accounts payable and receivable, and long-term debt) are translated at the current rate; nonmonetary items (for example, inventory, fixed assets, and long-term investments) are translated at historical rates.
Income statement items are translated at the average exchange rate during the period, except for revenue and expense items related to nonmonetary assets and liabilities.
4.2.6Temporal Method
Under the temporal method, inventory is normally translated at the historical rate, but it can be translated at the current rate if the inventory is shown on the balance sheet at market values.
in the temporal method, it is based on the underlying approach to evaluating cost (historical versus market).
Income statement items normally are translated at an average rate for the reporting period.
4.2.7Current Rate Method
The current rate method is the simplest: All balance sheet and income items are translated at the current rate.
4.4 DESIGNING A HEDGING STRATEGY
4.4.1Hedging a particular currency exposure means establishing an offsetting currency position so as to lock in a dollar (home currency) value for the currency exposure and thereby eliminate the risk posed by currency fluctuations.
4.4.2The usefulness of a particular hedging strategy depends on both acceptability and quality.
4.4.3The objectives in management bahavior
Minimize translation exposure; Minimize earnings fluctuations owing to exchange rate changes; Minimize transaction exposure; Minimize economic exposure; Minimize foreign exchange risk management costs; Avoid surprises
4.4.4Costs and Benefits of Standard Hedging Techniques
4.4.5Exposure Netting
Exposure netting involves offsetting exposures in one currency with exposures in the same or another currency, where exchange rates are expected to move in a way such that losses (gains) on the first exposed position will be offset by gains (losses) on the second currency exposure.
4.4.6Accounting for Hedging and FASB 133
4.5 MANAGING TRANSLATION EXPOSURE
4.5.1Firms have three available methods for managing their translation exposure: (1) adjusting fund flows, (2) entering into forward contracts, and (3) exposure netting.
4.5.2Funds adjustment involves altering either the amounts or the currencies (or both) of the planned cash flows of the parent or its subsidiaries to reduce the firm’s local currency accounting exposure.
4.5.3Evaluating Alternative Hedging Mechanisms
4.5.4Ordinarily, the selection of a funds-adjustment strategy cannot proceed by evaluating each possible technique separately without risking suboptimization.
4.6 MANAGING TRANSACTION EXPOSURE
Various techniques for managing transaction exposure Forward Market Hedge
Money-Market Hedge Risk shifting Pricing Decision Exposure netting
Currency Risk Sharing Currency Collars Cross-Hedging Foreign Currency Options
CHAPTER 5
MEASURING AND MANAGING ECONOMIC EXPOSURE
Learning Objectives
● To define economic exposure and exchange risk and distinguish between the two
● To define operating exposure and distinguish between it and transaction exposure
● To identify the basic factors that determine the foreign exchange risk faced by a particular company or project
● To describe the marketing, production, and financial strategies that are appropriate for coping with the economic consequences of exchange ra