FINC3240
International Finance
Chapter 1
Introduction
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Topics
A. Multinational corporation (MNC) and
international financial management
B. Why firm do international business
C. How firms conduct international
business
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Multinational Corporation (MNC)

Firms that engage in some form of
international business.
import;
export;
direct foreign investment (DFI)
The focus of this course is on the U.S.-based
MNC whose parents wholly own any foreign
subsidiaries.
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International Financial Management

International financial management is
important to both MNC and companies
that have no international business.
financial Management includes: financial analysis, how to
raise capital, project evaluation (capital budgeting), etc.
no-international-business firms’ competitors will be affected.
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Why Doing International Business
A.
Comparative advantage
B.
Imperfect Market
C.
Product Cycle
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A.



Comparative advantage Theory
Japan and U.S. vs. Mexico and China
What is their advantage in technology, capital, labor, raw
material, etc.?
Specialization by country
What are their typical products and goods?
comparative advantage allows firms to penetrate foreign
markets and benefit from savings in cost.
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B.
Imperfect Market Theory
factors of production (such as labor and other resources)
are somewhat immobile due to restrictions and costs of
transportation.
MNC do direct foreign investment (DFI) in other countries.
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C.
Product Cycle Theory
home market becomes mature and need to expand in
foreign market.
export was replace by producing locally to reduce cost.
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Types of International Business


International trade(import and export)
Licensing
Direct Foreign Investment (DFI)




Franchising
Joint ventures
Acquisitions of existing operations
Establishing new subsidiaries
Advantage vs. disadvantage?
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DFI Risk
Franchising
and
Joint Ventures
Foreign
Acquisitions
New
Foreign
Subsidiaries
LEAST
RISK
MOST
RISK
Degrees of Risk to MNC
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Questions and Applications
page 21, #17
In-class discussion
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Homework 1
Homework 1: Q&A, 2, 4, 10, 13, 14.
The next in-class discussion topic:
The wage and house price rise in China and its
potential effects on MNC’s strategy and global
production.
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