Multinational Financial Management

Define multinational corporation (MNC)

• firms that engage in some form of domestic business.

• firms that engage in some form of international business.

Conflict of goals between a firm’s managers and shareholders is often referred as

• Agency problem

• Comparative advantage

Define product cycle theory

• Specialization by countries can increase production efficiency

• The markets for the various resources used in production are “imperfect.”

• As a firm matures, it may recognize additional opportunities outside its home country.

Define imperfect markets theory

• Specialization by countries can increase production efficiency

• The markets for the various resources used in production are “imperfect.”

• As a firm matures, it may recognize additional opportunities outside its home country.

Choose the right one (or more than one)

Methods to conduct international business

• Licensing

• Franchising

• Existing operations

• DFI

• Domestic trade

Factors affecting direct foreign investment

• Tax rate on interest or dividends

• Potential economic growth

Factors affecting international portfolio investment

• Tax rate on interest or dividends

• Potential economic growth

Balance of trade components

• DFI account

• Current account

• Balance account

Summary of transactions between domestic and foreign residents for a specific country over a specified period of time

• balance of payments

• equity of payments

• current accounts

Factor affecting international trade flow

• Cost of labor

• Inflation

• Exchange rate

• Expansion