International Financial Management and
International Environment
Introduction
FINA 20051A - International Financial Management
Course 1
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Overview of Introduction Part
1. Course Schedule
2. Learning Material
3. Course Organization
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1. Course Schedule (in HEC en ligne)
Day and time
Dates
Lecturer
Thursday
Course in English
Exams
Midterm
Day and time
Sunday
Sunday
Dates
To be determined
To be determined
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2. Learning Material
Complementary Bibliographic Resource:
• Eiteman, David Kurt & Stonehill, Arthur I & Moffett,
Michael H (2013). Multinational business finance,
Boston, Pearson xix, 628 p.; p. ISBN: 9780132743464
• Available at the school library
• 15th Edition on Reserve at the library
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3. Course Organization
• HEC en ligne gives you the time
schedule of the classes and the
midterm and final exams.
• The Course Outline is your primary
source of information
• Familiarize yourself with its content
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3. Course Organization
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3. Course Organization
• What you need to do to better succeed :
Before the lesson
• Read the PowerPoint document in the Course Outline
• Get ready to do the exercises or mini-case
During the lesson
• Clarifications, pitfalls to avoid, answers to your questions
related to the course topics
• Exercises and mini-case to put theory in practice
After the lesson in the Course Outline
• Complete and review exercises or mini-case
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3. Course Organization
List of Assessments:
• Location: at school - Format: electronic with «Tests & Quizzes»
1. Exams : Midterm 30% on February 25, - Final 40% on April 21
• Location: at home - Format: electronic with «Tests & Quizzes»
2. Quizzes : 3 X 10% each = 30%
• One attempt allowed
• Time allotted - 60 minutes
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3. Course Organization
FINA 20051A: International Financial Management
Gradebook from Zone Cours :
• The scores of all your evaluations will be available under the tab
«Gradebook» in Zone Cours, while your final grade in letter format will be
in HEC en ligne.
Click on the course FINA 20051A, you will see in the tool list the
tab «Gradebook».
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Overview of course 1
1. The Global Financial Marketplace
2. Difference between International Financial Management and
Domestic Financial Management
3. Globalization Processs
4. Financial Goal and Corporate Governance
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International Financial Management and
International Environment
1. The Global Financial Marketplace
FINA 20051A - International Financial Management
Course 1
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1. Global Financial Marketplace
Securities are financial assets
• Financial assets, such as debt securities issued by governments, Treasury Bonds «T-bills», bank loans, corporate bonds,
and equities «stock», derivatives.
• T-bills and government bonds are said to be risk-free; they form the foundation for the price/interest rate of other
financial securities. Government securities are frequently used to expand or contract access to credit.
Institutions
• Within their monetary policy framework, central banks are responsible to control money supply of their country.
They create or contract money supply.
• The central bank interest rate sets the tone to other interest rate offered by commercial banks.
• Commercial banks collect and lend money. Global banks extend their activities abroad. Commercial banks and other
financial institutions «FI» trade securities and derivatives. These FIs are highly regulated to ensure the health and
security of the global financial system.
Linkages
• The interbank networks, using currency and financial assets, facilitate the movement of funds, it forms the fluid of
the financial marketplace.
• Exchange of currencies, via domestic and international interbank market, makes it possible to conduct financial
trading and to finance international trade.
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1. Global Financial Marketplace
Mortgage Loan
Bank
Interbank Market
SOFR - SONIA – €STR
CORRA
Corporate Loan
Corporate Bond
Public Debt
Bank
Currency
Currency
Currency
Private Debt
Private Equity
Bank
Central Bank
Institutions (commercial, investment banks,
not-for-profit banks like World Bank, and IMF)
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1. Global Financial Marketplace
Examples of risk-free rate «RFR»
Canada
Canadian Overnight Repo Rate Average Secured overnight repo rate
CORRA enhanced
Calculated and administered by Bank of
Canada
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1. Global Financial Marketplace
What you need to know and remember:
1. What is a risk-free interest rate or return?
2. What is a Treasury bill?
3. Is there a difference between Treasury bills and bonds issued by a government?
4. What is sovereign debt?
5. What is the difference between a central bank and a commercial bank?
6. How does a central bank add or withdraw liquidity from the markets?
7. What are benchmark rates used for?
8. What distinguishes the money market from the capital market?
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International Financial Management and
International Environment
2. Differences between Domestic Financial Management and
International Financial Management
FINA 20051A - International Financial Management
Course 1
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2. Differences between Domestic Financial Management and
International Financial Management
1.
2.
3.
4.
5.
Differences in culture, history and institutions
Corporate governance
Foreign exchange risk
Political risk
Modification of domestic finance theories:
Such as working capital management, sourcing financing (debt and equity)
borrowing, credit analysis, taxation
6. Modification of domestic financial instruments such as: options,
swaps, forwards, letters of credit and letters of guarantee
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2. Differences between Domestic Financial Management and
International Financial Management
Foreign exchange risk exists because value of currencies fluctuates
For the GBP «pound sterling» change from January 5 to 6, 2022
𝟏.𝟑𝟓𝟐𝟑−𝟏.𝟑𝟓𝟓𝟕
𝟏.𝟑𝟓𝟓𝟕
=
-0.0025, the GBP has depreciated by 0.25% against the USD
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2. Differences between Domestic Financial Management and
International Financial Management
Foreign exchange risk exists because value of currencies fluctuates
For the GBP «pound sterling» change from January 4 to 5, 2023
𝟏.𝟏𝟖𝟖𝟏−𝟏.𝟐𝟎𝟓𝟓
𝟏.𝟐𝟎𝟓𝟓
=
-0.0174, the GBP has depreciated by 1.74% against the USD
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2. Differences between Domestic Financial Management and
International Financial Management
Foreign exchange risk exists because value of currencies fluctuates
For the GBP «pound sterling» change from July 25 to 26, 2023
𝟏.𝟐𝟗𝟐𝟏−𝟏.𝟐𝟗𝟎𝟐
𝟏.𝟐𝟗𝟎𝟐
=
+0.001473, the GBP has appreciated by 0.15% against the USD
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2. Differences between Domestic Financial Management and
International Financial Management
Foreign exchange risk exists because value of currencies fluctuates
For the GBP «pound sterling» change from December 21 to 22, 2023
𝟏.𝟐𝟕𝟐𝟐−𝟏.𝟐𝟔𝟗𝟎
𝟏.𝟐𝟔𝟗𝟎
=
+0.002522, the GBP has appreciated by 0.25% against the USD
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International Financial Management and
International Environment
3.Globalization Process
FINA 20051A - International Financial Management
Course 1
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3. Globalization Process
Initial strategy: develops a sustainable competitive advantage on
the local market. Buys and sells locally in local currency.
Might be impacted by foreign competitors.
1. Domestic Phase
Increase of capital base with an initial public offering «IPO»
2. International Trade Phase
3. Multinational Phase
Strategies: expand by exporting (Sells abroad directly or via an agent
or franchises), buys directly from foreign suppliers
Challenges − Deals with other currencies, must evaluate the credit
quality of new foreign customers and suppliers
Strategies : sells on the most lucrative markets and produces
on less costly markets. (Improves its competitive advantage)
Requires foreign direct investment «FDI»
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3. Globalization Process
MNEs look for market imperfections (products, production
factors, financial assets)
MNE is better able to exploit these imperfections than local
competitors:
1.Easier to realize economies of scale
2.Dispose of managerial and technological expertise
3.Product differentiation
4.Better access to funds
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3. Globalization Process
Strategic Motives
Market
Seekers
Production
Efficiency
Seekers
Host
Country
• Develop new market
• Increase or protect existing market share
• Improve sources of supply
• Reduce production costs, gain advanced technology
• Access to low-cost qualified manpower
• Political climate open to foreign investments (laws, tax reduction,
government grant)
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3. Globalization Process
MNE
Greater Foreign Presence
Change Competitive
Advantage
Exploit Existing Advantage
Abroad
Produce from Existing Plan
and Export to New Market
Requires a higher level of
managerial intensity
Production Abroad
Licensed Manufacturing
Control/Own Assets Abroad
Joint Venture
Greater foreign investment
More uncertainties
More funds at risk
Wholly Owned Subsidiary
Greenfield Investment
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Brownfield Investment
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International financial management and
international environment
4. Financial Goal and Corporate Governance
FINA 20051A - International Financial Management
Course 1
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4. Financial Goal and Corporate Governance
Who own(s) the business?
Shareholders
A person, a group of people, family(ies), one or
more organizations, gouvernement
Who manages and/or controls the business?
Group of managing officers (CEO, CFO,
COO) comprising of hired professionals
One or a group of controlling
shareholders
Their respective interest are not aligned:
Agency theory
Inherent conflict of interest between
the principal and his agent.
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4. Financial Goal and Corporate Governance
Two most widely accepted capitalism models
Stakeholder Capitalism
Model «SCM»
Shareholder Wealth
Maximization «SWM»
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Philosophy of the SWM
4. Financial Goal and Corporate Governance
Shareholder is viewed as an
external investor
Two types of risk:
To maximize the rate of
return for a given level of
risk and to minimize the risk
for a given rate of return
SWM
1 – the operational risk which can
be eliminated through a portfolio
diversification by investors
2 – the systematic risk which
cannot be eliminated
Stock market is efficient,
Share price captures the
investors expectations in
terms of return and risk
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4. Financial Goal and Corporate Governance
Returns to Investors in Publicly Traded Firms
Shareholder
Return
Dividend
Price1
Price2 – Price1
Price1
Price2 = Selling Price or price at the end of the period
Price1 = Buying price or initial price
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Philosophy of the SCM
4. Financial Goal and Corporate Governance
Controlling shareholders receive
pressure from other
stakeholders like labour union,
government, local community,
lenders
Controlling shareholder(s)
participate(s) and influence(s)
corporate strategies
SCM
Risk is global:
The operational risk and financial
risk are viewed as a whole
Risk is measured on product
market variability rather than
the short-term variation in
earnings and share price
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4. Financial Goal and Corporate Governance
• Prioritizes return to shareholders
• Short-term focus «impatient capitalism»
• Focuses on the ability to generate sustainable
earnings over time
• Patient capitalism, focus on long-term
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4. Financial Goal and Corporate Governance
OECD
Recommendations
cover 5 primary
areas of
governance
1. Shareholder rights
2. Equitable treatment of shareholders
3. Board responsibilities
4. Stakeholder rights
5. Transparency and disclosure
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4. Financial Goal and Corporate Governance
Corporate Governance Mechanisms
Internal Mechanisms
External Mechanisms
1. Role and responsibilities of the CEO,
CFO, COO
2. Composition and responsibilities of
the Board of Directors
3. Compensation of the Directors
4. Shareholders identity
5. Concentration and structure of
shareholders
•
•
•
•
Legal system
Equity and debt
Regulators (SEC, NYSE, AMF, CSA, TSX, SOX)
Accounting principles (IFRS, IAS, or ASPE
(GAAP) or US GAAP)
• External auditors
• Frameworks and reporting on ESG
(Environment, Social and Governance),
Sustainable Development, CSR (Corporate
Social Responsibility) Ethical governance
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4. Financial Goal and Corporate Governance
Sarbanes-Oxley (SOX) Act
• A law passed in 2002 by the US Congress.
• Act established to restore confidence in published financial
statements by establishing controls over audit procedures.
• Several other countries have taken the same initiative.
• In April 2003, Canada passed Bill C-sox to protect investors from
financial scandals.
• On August 1, 2003, the "LSF" financial security law was promulgated
in France.
• The European Economic Community has also adopted certain
directives similar to SOX Act.
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Sarbanes-Oxley (SOX) Act
4. Financial Goal and Corporate Governance
1. CEO and CFO are personally liable for the financial statements and the
effectiveness of the internal control
2. External and internal auditors report directly to the Audit Committee of the
Board of Directors
3. Other than their compensation, no financial assistance is provided to directors
or administrators
4. Obligation to test the internal control against fraud
5. No consulting or non-audit services given to the external auditors
6. Restrictions on hiring employee of the auditing firm or the opposite, unless
after a cool-off period of five years
7. The lead audit partner must be rotated every 5 years
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