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GLOBALIZED FINANCIAL MARKET, global-hologram_crop - Coggle Diagram
GLOBALIZED FINANCIAL MARKET
Goals for International Financial [Management
Maximize Shareholder Wealth
the firm makes all business decisions
investments with an eye toward making the owners of the firm—the shareholders—better off financially, or more wealthy, than they were before.
France and Germany
“stakeholders”
the firm
employees
customers
suppliers
Japan
many companies form a small number of interlocking business groups called keiretsu
Mitsubishi
Mitsui
Sumitomo
A firm cannot stay in business to maximize shareholder wealth
treats employees poorly
produces shoddy merchandise
wastes raw materials and natural resources
operates inefficiently
fails to satisfy customers
The importance of corporate governance
the financial and legal framework for regulating the relationship between a company’s management and its shareholders.
Globalization of the World Economy
Major Trends and Developments
Major Trends and Developments
Europe’s Sovereign Debt Crisis of 2010
The crisis started in December 2009
The new Greek government revealed that its budget deficit would be 12.7 percent of GDP
excessive borrowing and spending
Wages and prices rising faster than productivity
Depreciation of the national
currency
Weakness of the euro as the
common currency
No fiscal integration
Lack of fiscal discipline in
a euro-zone country
Large-scale privatization of
state-owned enterprises
Emergence of the Euro as a Global Currency
The advent of the euro at the start of 1999
Formulated by the European
Central Bank (ECB)
Revolutionary changes in European finance.
Redenominating corporate and government bonds and stocks from many different currencies into the common currency
Markets in depth and liquidity
Raise capital more easily on favorable terms in Europe
Lessening dependence on the banking sectors for capital
raising
the transactions domain of the euro may become larger than that of the U.S. dollar in the future
The global financial crisis of 2008–2009
Time
on September 14, 2008
when Lehman Brothers - a major U.S. investment bank with a global presence, went bankrupt
Full-blown global financial crisis in 2008–
2009
Affect
International trade has been shrinking
rapidly
The world was sliding into the “Great Recession,” the most
serious
Severe credit crunch
Making borrowing and refinancing difficult for households, firms, and banks.
Cause
Households and financial institutions borrowed too much
and took too much risk
The crisis was amplified many fold and transmitted globally by securitization
The “invisible hands” of free markets apparently failed to self-regulate its excesses
International financial markets are highly
interconnected and integrated
Brexit.
The majority of Britons voted to leave the EU
Brexit is likely to weaken the United
Kingdom and the European Union, both economically and politically
Brexit thus revealed some of the serious difficulties associated with free trade and global integration that espouses free movements of goods, services, capital, and people across countries.
It is thus important for countries to promote and pursue “shared growth” to continue to benefit from free trade and economic
integration and fend off protectionism
Emergence of Globalized Financial Markets
Trade Liberalization and Economic Integration
Globalization
Technology played an important role
This gives benefits to the consumers and the producers as well.
The expansion and access of businesses to all over the world to reach the needs of the customers internationally.
Multinational Corporations
A multinational corporation (MNC)
business firm incorporated in one country that has production and sales operations in many other countries
Example
General Electric (GE)
Ford Motor
BMW
Apple
MNCs may gain from their global presence
Spreading R&D expenditures and advertising costs over their global sales
Pooling global purchasing power over suppliers
Utilizing their technological and managerial know-how globally with minimum additional costs
companies are increasingly using offshore outsourcing as a way of saving costs and boosting productivity
Microsoft entered the video game market, it decided to outsource production of the Xbox gaming console to Flextronics, a Singapore-based contract manufacturer
MNCs can indeed leverage their global presence to boost their profit margins and create shareholder value.
International Finance
What's special international Finance?
Political risk
An unexpected overturn of the government that jeopardizes existing negotiated contracts...
Foreign exchange risk
They are potentially exposed to foreign exchange
risk that they would not normally encounter in purely domestic transactions.
Market imperfections
Trade barriers and tax incentives may affect location of production...
Expanded opportunity sets
Raise funds in global markets, gains from economies of scale...
Benefits of international finance
Company has operations in more than one country can act swiftly in case of emergencies and conduct BCP (Business Continuity Protocol)
Revenue from international trade can act as a shield to the company and doesn’t have to worry about domestic demand as they have still demand from overseas.
There is a range of options in international trade and finance to raise and manage the capital for the business.
The scope of growth for companies concentrating on international trade is significantly high compared to companies that don’t.
With different currencies involved and more opportunities to manage the capital involved
Why do we need to study “international” financial management?
We are now living in a highly globalized and integrated
world economy.
All the major economic functions—consumption, production, and investment—are highly globalized
Production of goods and services has become highly globalized
