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Total Foreign Holdings of U. S. Treasury Securities, $Bils., 2005-09

Total Foreign Holdings of U. S. Treasury Securities, $Bils., 2005-09

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Total Foreign Holdings of U. S. Treasury Securities, $Bils., 2005-09

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  1. Total Foreign Holdings of U. S. Treasury Securities, $Bils., 2005-09

  2. Major Foreign Holders of U. S. Treasury Securities, $Bils., - May 2009

  3. Going Global(% of Sales Outside Home Market)

  4. Chapter 1: IntroductionInternational Finance

  5. Changes in the Global Competitive Environment • Massive deregulation • Collapse of Communism • Large scale privatization • Revolution in information technology • Corporate control: mergers, takeovers, etc. • Rise of free-market policies in 3rd world • Discipline of the global marketplace

  6. Debate Over Globalization • Who benefits? • Who suffers? • Pros vs. Cons

  7. Foreign Direct Investment What is it?

  8. Foreign Direct Investment • Portfolio investment – foreign investor purchases securities without exercising control • Direct investment – construction of new facilities (“green-field operation”), or acquire control of an existing local firm

  9. Foreign Direct Investment Outflows1997 – 2006, $Trillions

  10. Foreign Direct Investmentby the U. S., 1980-2004

  11. Foreign Direct Investmentinto the U. S., 1980-2005

  12. Total Foreign Direct Investment in the United States, 1999-2006

  13. The Rise of China • GDP1978-2006 +9.67% annually • #1 in FDI since 2002 • 400 of 500 largest companies invest in China • In 2005, 58% of China’s exports produced by non-Chinese companies

  14. Multinational Corporation (MNC) • “… a company engaged in producing and selling goods or services in more than one country.” • “… a parent company located in the home country… five or six foreign subsidiaries, typically with a high degree of strategic interaction…”

  15. 1.D Multinational Corporations MNC Home Country . . . Foreign Subsidiary 1 Foreign Subsidiary 2 Foreign Subsidiary 3 Foreign Subsidiary 4 Foreign Subsidiary 5 High degree of strategic interaction

  16. Multinational Corporation (MNC) • “…globally coordinated allo-cation of resources by a single centralized management.”

  17. Multinational Corporation (MNC) • Unanticipated by classical economic theory (comparative advantage), … • which said that goods and services can move, … • but not factors of production (capital, labor, and land)

  18. Reasons for “Going International” • Raw-Material Seekers • Market Seekers • Cost Minimizers • Knowledge Seekers • Keeping Domestic Customers • Exploiting Financial Markets

  19. Process of Overseas Expansion Exporting Foreign Sales Subsidiary Licensing Foreign Production

  20. Multinational Financial Differences • Different Currencies • Economic/Legal Ramifications • Language Differences • Cultural Differences • Role of Governments • Political Risk

  21. 1.G Appendix (9) • Effects of free trade • Increased competition among businesses • Increased innovation • Higher productivity • Lower prices and greater choice for consumers • Rising wages for workers • Higher living standards

  22. Other Concerns • Wages • Employment (“outsourcing”) • Environment • Regulation

  23. Multinational Finance • Portfolio Diversification • global efficient frontier • Capital Budgeting • cash flow estimation • repatriation risk • higher cost of capital

  24. The Value of Multinationality

  25. Multinational Financial Management • Financing decision • Raising capital • Paying dividends • Investment Decision • Where to invest • Capital budgeting

  26. Multinational Finance[Working Capital Management] • Cash management • Credit management • Inventory management

  27. Video: #575 • “Managing the Overseas Assignment,” Part 2