Study Notes: Multinational Financial Management (Chapters 1 & 2)
1.1 THE RISE OF THE MULTINATIONAL CORPORATION
Defines MNCs as firms operating in multiple countries, coordinating across parent and subsidiaries. Discusses the
limitations of classical trade theory and the emergence of globally integrated corporations.
1.1.1 Evolution of the Multinational Corporation
Describes how MNCs, although few in number, dominate employment, exports, and innovation. Shows global revenue
dependence of companies like Apple and Coca-Cola.
1.1.2 The Process of Overseas Expansion by Multinationals
Outlines a typical expansion path: exporting, sales subsidiaries, licensing, and local production. Emphasizes the value of
gradual risk-managed learning.
1.1.3 A Behavioral Definition of the MNC
Emphasizes global mindset in decision-making, seeking the best locations for all operations.
1.1.4 The Global Manager
Global managers must be culturally adaptable, strategically flexible, and innovation-focused.
1.2 THE INTERNATIONALIZATION OF BUSINESS AND FINANCE
Discusses how companies adapt to global opportunities. Highlights GE and India's textile sector. Explores the depth of
globalization.
1.2.1 Political and Labor Union Concerns About Global Competition
Concerns revolve around job losses and sovereignty. Contrasts fears with actual benefits of foreign investment.
1.2.2 Consequences of Global Competition
Examines trade impacts, like NAFTA's restructuring of North American industries and job creation data disproving
anti-trade arguments.
Study Notes: Multinational Financial Management (Chapters 1 & 2)
1.3 MULTINATIONAL FINANCIAL MANAGEMENT: THEORY AND PRACTICE
Focuses on maximizing shareholder value, leveraging MNC advantages in tax, capital, and diversification.
1.3.1 Functions of Financial Management
Details the investment and financing functions, and their complexity within MNCs.
1.3.2 Theme of This Book
Highlights how international finance builds on domestic finance and addresses cross-border challenges.
1.3.3 Relationship to Domestic Financial Management
States that basic principles hold, but MNCs deal with added layers of complexity.
1.3.4 The Global Financial Marketplace
Markets are interconnected; managers must navigate interest rates, currency values, and risk.
1.3.5 The Role of the Financial Executive in an Efficient Market
Value is created through smart, strategic financial management in an imperfect global system.
Appendix: The Origins and Consequences of International Trade
Explains comparative advantage, specialization, trade gains, and how monetary exchange and tariffs affect trade.
2.1 SETTING THE EQUILIBRIUM SPOT EXCHANGE RATE
Describes how exchange rates are set via supply and demand dynamics in the forex market.
2.1.1 Factors That Affect the Equilibrium Exchange Rate
Covers inflation, interest rates, account balances, public debt, and political stability.
2.1.2 Calculating Exchange Rate Changes
Study Notes: Multinational Financial Management (Chapters 1 & 2)
Explains appreciation/depreciation and how to calculate percentage changes.
2.2.2 Central Bank Reputations and Currency Values
A trustworthy central bank leads to stronger currencies due to investor confidence.
2.3 THE FUNDAMENTALS OF CENTRAL BANK INTERVENTION
Outlines why and how central banks intervene in currency markets.
2.3.1 How Real Exchange Rates Affect Relative Competitiveness
Real exchange rates consider inflation and affect a country's export competitiveness.
2.3.2 Foreign Exchange Market Intervention
Details sterilized vs. unsterilized interventions and real-world examples.
2.3.3 The Effects of Foreign Exchange Market Intervention
Market expectations and trust in central banks determine the success of interventions.
