CASE
International Financial
Operations at Tektronix
Financial Functions in the MNE
•
Deciding on the Capital Structure – the ideal
long-term mix of debt versus equity financing
•
Raising funds for the firm – from equity, debt,
or intra-corporate financing
•
Working Capital and Cash Flow Management
– funds passing in and out of value-adding
activities
2
Financial Functions (cont’d)
• Capital Budgeting – assessing the
attractiveness of major investment projects
• Currency Risk Management
• Coping with the Diversity
of International accounting
and Tax Practices
3
Implications of Currency Risk for TEK
• Foreign customers may demand fewer TEK
goods
• Cost of dollar-denominated inputs rises, leading
to higher prices in finished products
• Prices for finished products with dollardenominated content rises; demand falls
• TEK could see an increase in its exports abroad,
which could:
-- Generate higher revenues and higher
profits at home;
-- Enable TEK to pay its workers higher
wages
4
Managing Currency Risk
• Centralize currency management within the
firm
• Monitor changes in key currencies
• Be wary of unstable currencies or those
subject to exchange controls
• Monitor long-term economic and regulatory
trends.
• Emphasize flexibility in international operations
5
Managing Currency Risk (cont’d)
• Deal in currencies that are strong or
strengthening.
• Consolidate receivables and payables,
matching them
• Employ lead or lag strategies
• When currency depreciation is expected, keep
cash and receivables to a minimum
• Use strategic intra-corporate transfer pricing
6
FINANCING SOURCES
• Equity financing – e.g., via the global
equity market
• Debt financing – via international loans,
the Eurocurrency market, bonds
• Intra-corporate financing
7
Selected Methods for Transferring
Funds within a Typical International Firm
Parent
Firm
invests
equity
capital
remits
dividends;
pays
royalties
provides
fronting
loan
extends
accounts
payable
low transfer prices
Taiwanese
Subsidiary
Mexican
Subsidiary
provides loan
8