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Finance (Overview of MFM (Common Methods conduct Int. Business…

- - - - Conflict of goals btw. managers and shareholders
      - Agency Costs
        
        Cost of ensuring that managers maximise shareholder wealth
        
        Costs are normally higher for MNCs than for purely domestic firms
      - Parent Control
      - Corporate Control
      - Sarbanes-Oxley Act
        (Improved Corporate Governance of MNCs)
  - - - Allow managers of parent to control foreign subsidiaries
        
        reduce power of subsidiary managers
    - - More control to subsidiary managers who are closer to subsidiary´s operations and environment
  - - - The valuation model of an MNC shows that the MNC’s value is favorably affected when its expected foreign cash inflows increase, the currencies denominating those cash inflows increase, or the MNC’s required rate of return decreases. Conversely, the MNC’s value is adversely affected when its expected foreign cash inflows decrease, the values of currencies denominating those cash flows decrease (assuming that they have net cash inflows in foreign currencies), or the MNC’s required rate of return increases.
- - - - Summary of flow and funds due to purchases of goods/services or provision of income on financial assets
        
        Payments for merchandise and services
        
        Factor income payments
        
        Transfer payments
    - - Summary of low and funds resulting from sale of assets btw. one specific country and all others countries over specific time
    - - special type of investment, including DFI and portfolio investment
    - - Current Account
        
        Exports
        (-) Imports
        (+/-) Net Income (dividends eg)
        (+/-) Net transfer
        (+/-) Unilateral Transfers
      - Capital Account
        
        (+) Sales of own assets to foreigners
        (-) Purchases of foreign assets
      - Reserve Account
        
        SDRs
        Gold
        Foreign Currencies
        Reserve Position in the IMF
  - - - Removal of Berlin Wall
      - Single European Act 1987
      - NAFTA
      - General Agreement of Tariffs and Trade
      - Inception of Euro
      - Expansion EU
    - - Definition:
        Process if subcontracting to a third party in another country to provide supplies or services that were previously to produced internally
      - Impact:
        
        Increased Int. Trade activity
        
        Lower cost of operations and job creation in countries with low wages
      - Criticism:
        May reduce jobs in US
  - - - Exchange Rates may correct a balance of trade deficit:
        When a home country is exchanged for a foreign currenry to buy foreign goods, then the home currency faces downward prrssure, leading to increased foreign demand for the country´s products
      - Current account decreases if currency appreciates relative to other currencies
      - Exchange Rates will not automatically correct any international trade balance when other forces are at work
      - Limitations of a weak Home Currency Solution
        
        Competition
        
        Impact of other currencies
        
        Prearranged Int. Trade Transactions (J-Curve)
        
        Intracompany Trade
        --> Exschnage Rates and International Friction