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Chapter 1 Introduction

FINC3240 International Finance. Chapter 1 Introduction. Topics. A. Multinational corporation (MNC) and international financial management B. Why firm do international business C. How firms conduct international business. Multinational Corporation (MNC).

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Chapter 1 Introduction

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  1. FINC3240 International Finance Chapter 1 Introduction

  2. Topics A. Multinational corporation (MNC) and international financial management B. Why firm do international business C. How firms conduct international business

  3. Multinational Corporation (MNC) • Firms that engage in some form of international business. import; export; direct foreign investment (DFI) The focus of this course is on the U.S.-based MNC whose parents wholly own any foreign subsidiaries.

  4. International Financial Management • International financial management is important to both MNC and companies that have no international business. financial Management includes: financial analysis, how to raise capital, project evaluation (capital budgeting), etc. no-international-business firms’ competitors will be affected.

  5. Why Doing International Business A. Comparative advantage B. Imperfect Market C. Product Cycle

  6. A. Comparative advantage Theory Japan and U.S. vs. Mexico and China What is their advantage in technology, capital, labor, raw material, etc.? Specialization by country What are their typical products and goods? comparative advantage allows firms to penetrate foreign markets and benefit from savings in cost.

  7. B. Imperfect Market Theory factors of production (such as labor and other resources) are somewhat immobile due to restrictions and costs of transportation. MNC do direct foreign investment (DFI) in other countries.

  8. C. Product Cycle Theory home market becomes mature and need to expand in foreign market. export was replace by producing locally to reduce cost.

  9. Types of International Business • International trade(import and export) • Licensing Direct Foreign Investment (DFI) • Franchising • Joint ventures • Acquisitions of existing operations • Establishing new subsidiaries Advantage vs. disadvantage?

  10. DFI Risk Franchising and Joint Ventures New Foreign Subsidiaries Foreign Acquisitions LEAST RISK MOST RISK Degrees of Risk to MNC

  11. Questions and Applications page 21, #17 In-class discussion

  12. Homework 1 Homework 1: Q&A, 2, 4, 10, 13, 14. The next in-class discussion topic: The wage and house price rise in China and its potential effects on MNC’s strategy and global production.

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