GLOBAL

FINANCE AND
ELECTRONIC
BANKING

Mrs. Elizabeth B.
Agol-Proel, CPA
INSTRUCTOR
UNDERSTANDING
INTERNATIONAL
FINANCIAL
ENVIRONMENT

MODULE 1
GLOBALIZATION
AND THE MULTI-
NATIONAL
CORPORATIONS

LESSON 1
MODULE 1
 INTRODUCTION

• Why do we need to study “International”

financial management?

• BECAUSE We are now living in a

highly globalized and integrated
world economy.
 INTRODUCTION

• Continued liberalization of
international trade is certain to
further internationalize
consumption patterns around the
world.
 INTRODUCTION

• What’s Special about International

Finance?
 INTRODUCTION
• Three major dimensions set
international finance apart from
domestic finance.
a) Foreign exchange and
Political Risk.
b) Market Imperfections
c) Expanded opportunity set.
 FOREIGN EXCHANGE RISK

In a domestic economy this risk is generally

ignored because a single national currency
serves as the main medium of exchange within
a country. However, when different national
currencies are exchanged, there is definite risk
of volatility in foreign exchange rates. Variability
of exchange rates is widely regarded as the
most serious international financial problem
facing policymakers and corporate managers.
 FOREIGN EXCHANGE RISK

In a domestic economy this risk is gen-

rally ignored because a single national
currency serves as the main medium
of exchange within a country.
 FOREIGN EXCHANGE RISK

How-ever, when different national

currencies are exchanged, there is
definite risk of volatility in foreign
exchange rates.
 POLITICAL RISK

It is risk of loss (or gain) from

unforeseen government action or
other events of political character,
such as acts of terrorism.
 MARKET IMPERFECTIONS

• The world markets are highly

imperfect, in the sense that a
variety of barriers still hamper free
movements of people, goods,
services, and capital across
national boundaries
 MARKET IMPERFECTIONS

Companies are motivated to invest

capital in abroad for the following
reasons:
 MARKET IMPERFECTIONS

reasons:

• Efficiently produce products in

foreign markets than that
domestically.
 MARKET IMPERFECTIONS

reasons:

Obtain the essential raw

materials needed for production.
 EXPANDED OPPORTUNITY SET

• When firms go global, they get

benefited from the expanded
opportunities available globally.
 EXPANDED OPPORTUNITY SET

• They can locate production in any

country or region to maximize their
performance and raise funds in any
capital market where the cost of
capital is the lowest.
 EXPANDED OPPORTUNITY SET

• They can also gain from greater

economies of scale when tangible
and intangible assets are deployed
on a global basis.
GLOBALIZATION
 GLOBALIZATION

• Globalization is the word used to

describe the growing interdependence
of the world’s economies, cultures,
and populations, brought about by
cross-border trade in goods and
services, technology, and flows of in-
vestment, people, and information.
 GLOBALIZATION

• The wide-ranging effects of

globalization are complex and
politically charged
 GLOBALIZATION

• As with major technological advances,

globalization benefits society as a
whole, while harming certain groups.
 GLOBALIZATION

• Understanding the relative costs and

benefits can pave the way for
alleviating problems while sustaining
the wider payoffs.
 UNDERSTANDING GLOBALIZATION

• Corporations gain a competitive ad-

vantage on multiple fronts through
globalization.
 UNDERSTANDING GLOBALIZATION

• They can reduce operating costs by

manufacturing abroad, buy raw
materials more cheaply because of
the reduction or removal of tariffs, and
most of all, they gain access to
millions of new consumers.
 UNDERSTANDING GLOBALIZATION

• Globalization is a social, cultural,

political, and legal phenomenon .
 UNDERSTANDING GLOBALIZATION

• Socially, it leads to greater interaction

among various populations.

• Culturally, globalization represents

the exchange of ideas, values, and
artistic expression among cul-tures.
 UNDERSTANDING GLOBALIZATION

• Globalization also represents a trend

toward the development of a single
world culture.

• Culturally, globalization represents

the exchange of ideas, values, and
artistic expression among cul-tures.
 UNDERSTANDING GLOBALIZATION

• Politically, globalization has shifted

attention to intergovernmental
organizations like the United Nations
(UN) and the World Trade
Organization (WTO). .
 UNDERSTANDING GLOBALIZATION

• Legally, globalization has altered how

international law is created and
enforced
 UNDERSTANDING GLOBALIZATION

• On one hand, globalization has

created new jobs and economic
growth through the cross-border flow
of goods, capital, and labor.
 UNDERSTANDING GLOBALIZATION

• On the other hand, this growth and

job creation are not distributed evenly
across industries or countries.
 UNDERSTANDING GLOBALIZATION

• Specific industries in certain

countries, such as textile
manufacturing in the U.S. or corn
farming in Mexico, have suffered
severe disruption or outright collapse
as a result of increased international
competi-tion.
 UNDERSTANDING GLOBALIZATION

• Globalization's motives are idealistic,

as well as opportunistic, but the
development of a global free market
has benefited large corporations
based in the Western world.
 REPORT TOPICS

1. UNDERSTANDING GLOBALIZATION

a) Socially
b) Culturally
c) Politically
d) Legally
 REPORT TOPICS

1. UNDERSTANDING GLOBALIZATION
e) Development of a global free
market: Advantages and
Disadvantages
 REPORT TOPICS

2. THE MULTINATIONAL CORPORATIONS

a) How a Multinational Corporation
(MNC) Works?
b) Effect of MNCs locally
c) Transnational business is considered
diversifying the investment.
c) Types of Multinationals
 REPORT TOPICS

2. THE MULTINATIONAL CORPORATIONS

d) Types of Multinationals
e)
MULTINATIONAL
CORPORATIONS
MULTINATIONAL CORPORATIONS

• An MNC is an international
corporation that derives at least a
quarter of its revenues outside its
home country.

• are based in developed nations.

MULTINATIONAL CORPORATIONS

• MNCs create high-paying jobs

• MNCs are technologically

advanced goods in countries that
otherwise would not have access
to such opportunities or goods.
MULTINATIONAL CORPORATIONS

Critics of MNCs
1. have undue political influence
over governments
2. exploit developing nations
3. create job losses in their own
home countries
MULTINATIONAL CORPORATIONS

• One of the first MNC arose in

1600: The East India Company,
founded by the British.

• It was headquartered in London,

and took part in international
trade and exploration, with trading
posts in India.
MULTINATIONAL CORPORATIONS

• Other examples of earliest MNCs:

- the Swedish Africa Company,
founded in 1649

- the Hudson's Bay Company,

which was incorporated in the 17th
century.
 TYPES OF MNCs

1. Decentralized corporation –
has a strong presence in its home
country.

2. Global centralized corporation

– acquires cost advantage where
cheap resources are available
 TYPES OF MNCs

3. Global corporation –
that builds on the parent
corporation’s R&D.

4. Transnational corporation –
uses all three categories
 BENEFITS OF GLOBALIZATION

1. Increased capital mobility–

Capital can now flow more
freely across borders, allowing
investors to diversify their portfolios
globally and enabling businesses to
access financing from international
markets.
 BENEFITS OF GLOBALIZATION

2. Global Financial Markets

- financial markets are no
longer confined to individual
countries.
- Stock exchanges, bond
markets, and other financial markets
have become interconnected,
 BENEFITS OF GLOBALIZATION

2. Global Financial Markets

- allowing for easier access to
international financial instruments.
BENEFITS OF GLOBALIZATION

3. Foreign Exchange Markets

- Globalization has expanded

the scope of forex markets, where
currencies are traded.
 BENEFITS OF GLOBALIZATION

3. Foreign Exchange Markets

- As countries engage in more
cross-border transactions, the
demand for foreign currencies
increases, influencing exchange
rates and creating new opportunities
for currency speculation and
international trade.
 BENEFITS OF GLOBALIZATION

4. Global Financial Institutions

- International financial
institutions such as the International
Monetary Fund (IMF), World Bank,
and the World Trade Organization
(WTO) play a crucial role in
supporting and regulating the global
financial system.
ADVANTAGES OF
GLOBALIZATION
ADVANTAGES OF GLOBALIZATION

1. Economic Growth
- Globalization helps economies
grow by increasing access to
international markets. Businesses
can expand beyond borders, reach
larger customer bases, and increase
their sales and profits.
ADVANTAGES OF GLOBALIZATION

2. Access to New Markets

- Companies can reach global
markets for their products and
services, increasing opportunities for
revenue generation and expanding
their business operations. .
ADVANTAGES OF GLOBALIZATION

3. Job Creation
- Globalization can lead to the
creation of jobs in developing
countries, as multinational
companies invest in production,
infrastructure, and services abroad.
 ADVANTAGES OF GLOBALIZATION

4. Technology and Knowledge Transfer

- Globalization encourages the
transfer of technology, skills, and
knowledge across borders. Developing
countries can access advanced
technologies and expertise from
developed nations, helping to improve
productivity and innovation.
ADVANTAGES OF GLOBALIZATION

5. Improved Standard of Living

- As trade increases, the
availability of goods and services
grows, leading to lower prices and
better quality products. Consumers
can benefit from more choices and
affordable options.innovation.
ADVANTAGES OF GLOBALIZATION

6. Increased Cultural Exchange

- Globalization fosters cultural
exchange, allowing people from
different parts of the world to learn
from each other, experience different
cultures, and increase understand-
ing and tolerance across societies.
ADVANTAGES OF GLOBALIZATION

7. Investment in Infrastructure
- As countries become more
integrated into the global economy,
they often invest in better infrastruct-
ure (roads, telecommunications,
energy). This can enhance efficiency
and connectivity, benefiting both
businesses and communities.
ADVANTAGES OF GLOBALIZATION

8. Better Access to Resources

- Globalization allows countries
to access resources that they might
not have domestically, such as raw
materials, talent, and investment.
This can help industries thrive by
ensuring they have what they need
to be competitive..
ADVANTAGES OF GLOBALIZATION
9. Increased Competition and Innovation
- The global market encourages
competition, which can drive
innovation, improve the quality of
products, and lower prices.
Companies must continuously
innovate to stay competitive on the
international stage.
ADVANTAGES OF GLOBALIZATION
10. Global Collaboration on Global Issues
- Globalization enables
international cooperation on issues
such as climate change, disease
prevention, and poverty alleviation.
Working together globally can lead to
more effective solutions for common
challenges.
DISADVANTAGES OF GLOBALIZATION
1. Income Inequality
- Globalization often exacerbates income
inequality, both within and between
countries. While multinational corporations
and highly skilled workers can benefit from
global trade, lower-skilled workers and
small businesses in certain industries may
struggle, leading to a widening income
gap..
DISADVANTAGES OF GLOBALIZATION

2. Exploitation of Workers
- In countries with less stringent labor laws,
multinational companies may exploit
workers by paying low wages, offering poor
working conditions, or ignoring safety
standards. This can lead to social unrest
and human rights violations.
DISADVANTAGES OF GLOBALIZATION

3. Environmental Degradation
- Globalization has led to increased
industrial activity, transportation, and
consumption, which can have negative
environmental impacts. This includes
pollution, deforestation, resource depletion,
and increased carbon emissions,
contributing to climate change..
DISADVANTAGES OF GLOBALIZATION

4. Loss of Cultural Identity

- Globalization can lead to the erosion of
local cultures and traditions. As global
media, entertainment, and consumer
products dominate, local customs,
languages, and traditions may be
overshadowed or lost, leading to cultural
homogenization.
DISADVANTAGES OF GLOBALIZATION

5. Dependence on Global Markets

- Countries and industries that rely heavily
on global trade may become vulnerable to
fluctuations in international markets, such
as price volatility, trade barriers, or shifting
demand. This can destabilize local
economies, particularly in developing
nations.
 DISADVANTAGES OF GLOBALIZATION

6. Loss of Sovereignty
- Countries may face pressure to con-
form to international standards or reg-
ulations imposed by global institutions or
trade agreements, which can limit their
ability to make independent deci-sions
on issues like labor rights, environ-
mental protection, or public health.
 DISADVANTAGES OF GLOBALIZATION

7. Increased Risk of Pandemics

- The ease of international travel and
trade can facilitate the spread of diseas-
es across borders. Globalization has
made it easier for pandemics, such as
COVID-19, to spread rapidly and affect
many countries simultaneously, putting
a strain on health systems worldwide.
INTERNATIONAL
FLOW OF FUNDS
INTERNATIONAL FLOW OF
FUNDS