International business

Charles W.L.Hill Financial Management in the International Business Competing in the Global Marketplace CAPITAL BUDGETING QUANTIFIES THE BENEFITS, COSTS AND RISKS OF AN INVESTMENT MANAGERS CAN REASONABLY COMPARE DIFFERENT INVESTMENT ALTERNATIVES WITHIN AND ACROSS COUNTRIES

FINANCIAL MANAGEMENT IN THE INTERNATIONAL BUSINESS Prepared by GenZ MEET  THE TEAM Nguyễn Trường Minh Thục Đồng Võ Uyên Nhã Đoàn Thị Kim Loan Mai Thị Mỹ Linh Trần Thuỵ Thanh Ngân Lưu Tú Phượng Nguyễn  Nhất Linh GEN Z INTRODUCTION INVESTMENT DECISIONS INDEX FINANCING DECISIONS GLOBAL MONEY MANAGEMENT The  efficiency objective GLOBAL MONEY MANAGEMENT The  tax  objective MOVING MONEY ACROSS BORDERS Attaining  efficiencies  and  reducing taxes TECHNIQUES  FOR GLOBAL MONEY MANAGEMENT P&G Scope of financial management INVESTMENT DECISIONS Decisions about what activities to finance FINANCING DECISIONS Decisions about how to finance those activities MONEY MANAGEMENT DECISIONS Decisions about how to manage the firm’s financial resources most efficiently DECISIONS  ARE COMPLICATED BY DIFFERENT Regulations  concerning the flow of capital across borders Norms regarding the financing of business activities  Currencies Tax  regimes Level  of economic  and political risk Financing managers must consider: WHEN DECIDING  WHICH ACTIVITIES TO FINANCE HOW BEST  TO MANAGE THE FIRM'S  FINANCIAL RESOURCES HOW BEST  TO FINANCE THOSE ACTIVITIES HOW BEST  TO PROTECT THE FIRM  FROM POLITICIAL AND ECONOMIC RISKS INVESTMENT  DECISIONS CAPITAL  BUDGETING PROJECT  AND  PARENT CASH FLOWS ADJUSTING  FOR POLITICAL AND ECONOMIC RISKS CAPITAL BUDGETING - QUANTIFIES  THE BENEFITS, COSTS  AND RISKS OF AN INVESTMENT - MANAGERS  CAN REASONABLY COMPARE  DIFFERENT INVESTMENT ALTERNATIVES WITHIN AND ACROSS COUNTRIES FACTORS COMPLICATING HEADING1-A THE  PROCESS Must distinguish between  cash flows to project and those to parent Political  and economic risk  can change the value of a foreign investment Connection  between cash flows to parent and the source  of financing must be  recognized TRANSFER PRICES Price at which goods or services are transferred within a firm's entities Position funds within  a company Movement  can be within subsidiaries or between  the  parent and its subsidiaries BENEFITS OF MANIPULATING TRANSFER PRICES REDUCE TAX LIABILITIES REDUCE FOREIGN EXCHANGE RISK by using transfer fees to shift from a hightax country to a lowtax country exposure to expected currency devaluation by transferring funds CAN BE USED REDUCE IMPORT DUTIES where dividends are restricted or blocked by host-government policy by reducing transfer prices and the value of the goods Problem with transfer pricing Few governments like it  Believe that they are losing revenue Has an impact on management incentives and performance evaluations Inconssistent with a "profit center" Managers can hide inefficiencies Fronting loans Loans between a parent and subsidiary is channeled through a financial intermediary (bank) Allows circumvention of host country restrictions on remittance of funds from subsidiary to parent Provides certain tax advantages Tax advantages of fronting loans Technique for Global Money  Management Technique for Global Money Management Firms use two money management techniques in attempting to manage their global cash resources in the most efficient manner:  Centralized depositories Multilateral netting CENTRALIZED DEPOSITORIES Need cash reserves to service  accounts and  insuring  against  negative  cash flows Should  each subsidiary hold its own cash balance? By pooling, firm can deposit larger cash amounts and earn higher interest rates If located in a major financial center, can get information on good investment opportunities Can reduce the total size of cash pool and invest larger reserves in higher paying, long term, instruments  Multilateral netting Bilateral netting  Without netting  With netting  THANK YOU! ... DIFFERENT Regulations  concerning the flow of capital across borders Norms regarding the financing of business activities  Currencies Tax  regimes Level  of economic  and political risk Financing managers