Lecture 2 - Multinational financial management: An Overview. This chapter introduces the multinational corporation as having similar goals to the purely domestic corporation, but a wider variety of opportunities. With additional opportunities come potential increased returns and other forms of risk to consider. The potential benefits and risks are introduced. The commonly accepted goal of an MNC is to maximize shareholder wealth. Financial managers throughout the MNC have a single goal of maximizing the value of the entire MNC. | Multinational Financial Management: An Overview 2 Lecture International Business Methods International trade involves exporting and/or importing. Licensing allows a firm to provide its technology in exchange for fees or some other benefits. Franchising obligates a firm to provide a specialized sales or service strategy, support assistance, and possibly an initial investment, in exchange for periodic fees. International Business Methods Firms may also penetrate foreign markets by engaging in a joint venture (joint ownership and operation) with firms that reside in those markets. Acquisitions of existing operations in foreign countries allow firms to quickly gain control over foreign operations as well as a share of the foreign market. International Business Methods Firms can also penetrate foreign markets by establishing new foreign subsidiaries. Many MNCs use a combination of methods to increase international business. In general, any method of conducting business that requires a . | Multinational Financial Management: An Overview 2 Lecture International Business Methods International trade involves exporting and/or importing. Licensing allows a firm to provide its technology in exchange for fees or some other benefits. Franchising obligates a firm to provide a specialized sales or service strategy, support assistance, and possibly an initial investment, in exchange for periodic fees. International Business Methods Firms may also penetrate foreign markets by engaging in a joint venture (joint ownership and operation) with firms that reside in those markets. Acquisitions of existing operations in foreign countries allow firms to quickly gain control over foreign operations as well as a share of the foreign market. International Business Methods Firms can also penetrate foreign markets by establishing new foreign subsidiaries. Many MNCs use a combination of methods to increase international business. In general, any method of conducting business that requires a direct investment in foreign operations is referred to as a direct foreign investment (DFI). International Opportunities Investment opportunities The marginal returns on MNC projects are above those of purely domestic firms since MNCs have expanded opportunity sets of possible projects from which to select. Financing opportunities MNCs can obtain capital funding at a lower cost due to their larger opportunity set of funding sources around the world. Marginal Return on Projects Purely Domestic Firm MNC Asset Level of Firm Investment Opportunities International Opportunities Cost-Benefit Evaluation for Purely Domestic Firms versus MNCs Appropriate Size for Purely Domestic Firm Appropriate Size for MNC X Y Marginal Cost of Capital Purely Domestic Firm MNC Financing Opportunities International Opportunities Opportunities in Europe the Single European Act of 1987 the removal of the Berlin Wall in 1989 the inception of the euro in 1999 the expansion of the European Union International .
