1. International Finance and Development (B 645)
D.K. Malhotra

2. Introduction to International Finance
Meaning of International Finance
Multinational Firm
Why study International Finance?
Why Companies go Global?
Modes of International Business

3. Meaning of International Finance
What is International Finance?
A study of the institutions, policies, and practices that govern global financial management and/or financial aspects of global business
A firm that is engaged in cross-border business is defined as Multinational Corporation

4. Why Study International Finance?
International business distinguishes itself from domestic business due to
Exchange Rate
Cross-border Barriers
Economic barriers
Cultural barriers
Political and Legal barriers
Ethical Issues
Financing Opportunities in Global Market

5. Exchange Rate Risk
Changing value of U.S. dollar versus other currencies since 1973
Declining dollar good for U.S. exporters, but bad for imports
Rising dollar good for U.S. imports/outsourcing, but bad for exports

6. Economic Barriers Tariffs, Import Duties, Quota Restrictions
Restrictions on remittance of profits and repatriation of capital
Restrictions on foreign equity participation
Trading blocks

7. Cultural Barriers Language Examples of Language Barriers
“Please leave your values at the desk” (France)
“The manager has personally passed all the water served here” (Mexico; to assure safety of drinking water at the hotel)
“You are invited to take advantage of the chambermaid” (Japan)
“Ladies are requested not to have children in the bar” (Norway)
“Because of the impropriety of entertaining guests of the opposite sex in the bedroom, it is suggested that the lobby be used for this purpose” (Switzerland)
“We will execute customers in strict rotation.” (Greece)

8. Cultural Barriers Contd…
Hand Gestures
Religion
Hinduism
Islam
Judaism
Christianity
Buddhism
Significance of Religion and Values
Customs/Traditions

9. Political/Legal Barriers
Political Ideology
Opinions of Political Leadership
Civil disorder
External relations
Attitude towards foreign capital
Legal System

10. Ethical Barriers
Definition of “Ethics” in your country versus definition of “Ethics” in a foreign country
Ethics and the society
Firm’s role in education
Firm’s role in health care
Ethics and the environment

11. Who should study international finance?
A company that engages in global business
A pure domestic company

12. Why companies go global?
To seek raw material
To seek new markets
To minimize cost
Overall goal, shareholder wealth maximization

13. Modes of International Business
Exporting
Licensing
Franchising
Joint Ventures
Direct Foreign Investment