Overview of Multinational
Financial Management and the
Multinational Corporation
International Financial
Management
Dr. Andrea DeMaskey
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Learning Objectives
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What is multinational financial management
and why do we need to study it?
What are the goals of multinational financial
management?
What are the key trends in the world
economy?
What is a multinational corporation and what
are the basic types?
How does multinational financial
management differ from domestic financial
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management?
What is so special about
International Finance?

Foreign exchange and political risk
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Market imperfections
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Expanded opportunity set
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What is the Goal of Multinational
Financial Management?
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Corporate Goals
– Shareholder Wealth Maximization
– Corporate Wealth Maximization
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Operational Goals
– Maximizing consolidated profits after taxes
– Minimizing the firm’s effective global tax burden
– Correct positioning of the firm’s income, cash
flows, and available funds
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Goals of Management
Shareholder Wealth Maximization
(Anglo-American Model)
Corporate Wealth Maximization
(Non-Anglo American Model)
Shareholders
Shareholders
Firm
(Management)
Banks
Main Banks
Firm
(Management)
Employees
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Conflict and Constraints with
the MNC’s Goal
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Agency problem
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Environmental constraints
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Regulatory constraints
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Ethical constraints
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Globalization of the World
Economy
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Emergence of Globalized Financial
Markets
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Trade Liberalization and Economic
Integration

Privatization
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Growth in International Trade
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Consistently lower for the U.S.
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Generally much larger for Canada and
European countries.
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Has increased over time.
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Growth in Foreign Direct
Investment
In the 1990s, annual growth rate of
10%, compared to 3.5% in
international trade.
 In 1998, MNCs’ worldwide sales
reached $11 trillion, compared to about
$7 trillion of world exports.
 In 2000, FDI reached $1.27 trillion.
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What are the Characteristics
of the MNC?
Controls Subsidiaries in Several Host
Countries
 Derives a Significant Proportion of its
Revenues from Foreign Subsidiary Sales
 Makes Financial Decisions that Reflect
its Multinational Orientation
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What is a MNC?

The MNC is a firm engaged in producing
and selling goods or services in more
than one country.
U.S Parent
British
Affiliate
German
Affiliate
Japanese
Affiliate
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Why do Firms Internationalize?

Raw Material Seekers
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Market Seekers
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Cost Minimizers
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Knowledge Seekers
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Political Safety Seekers
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What Are the Benefits to
MNCs?
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Economies of scale
– Costs
– Purchasing power
– Know-how
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
Access to underpriced labor services and
special R&D capabilities
Global presence will boost profit margins and
create shareholder value
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Basic Concepts for the Study
of International Finance
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Arbitrage
– Tax arbitrage
– Risk arbitrage
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Market Efficiency
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Capital Asset Pricing
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