International Finance Lecture Notes 1-14

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Lecture 1 – Multinational Financial Management: An Overview

Review goals of multinational corporations (MNCs) and conflicts with those goals.

Describe the key theories that justify international business.

To explain the common methods used to conduct international business.

Multinational Corporations

Goal of the MNC – maximize shareholder wealth

Conflicts against this goal

Agency problems – managers act in their own interest to the detriment of the shareholders.

Expansion

Unnecessary perks

Fear of job loss

Philosophy of foreign managers

Subsidiary vs. parent
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Instability (1914-1946) – international trade declined and isolationism was prevalent.

Exchange Rate History

Bretton Woods (1946-1971) – each government pledged to maintain a fixed exchange rate to the dollar. The dollar was fixed to gold.

IMF created

Coordinated government intervention

International trade flourished.

Vietnam war and other factors cause its collapse.

Smithsonian Agreement (1971-1973) – extension of Bretton Woods with expanded bands of fluctuation.

Free Floating (1973-current)

OPEC and the Oil Crisis (1973-1974)

U.S. Dollar Crisis (1977-1978)

Rising Dollar (1980-1985)

Recent History (1988-2000)

Exchange Rate History

European Monetary System (1979) – 11 founding member agree to move toward a single currency.

Euro launch (1999) – euro was phased in and used by banks, foreign exchange dealers, large firms, and stock markets.

Euro becomes cash currency (2002) – euro replaces currency of 12 countries for 300 million citizens.

European Monetary System (cont)

Consequences of the euro

Lower cross-border currency conversion
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