International Finance Essay
Autor: barbaratalp • April 9, 2015 • Course Note • 1,069 Words (5 Pages) • 1,506 Views
International Finance
Textbook: Multinational Business Fiance - Eiteman, Stonehill, Moffett
International finance through the scope of multinational companies. How to hegde their risks.
SEANCE 1
Why are companies multinational?
-> to benefit from tax reductions (a company pays taxes in the country its headquarters are located in; lowest in EUrope: Ireland 12% for production, 0% on financial transactions)
A tax shield = using debt to reduce your revenues by paying interest, in order to pay less tax
Leverage = using debt to increase the value of equity / debt is cheaper than equity to finance a company
-> customs, importation and exportation regulations and rates
(importation taxes = to protect industries that are not mature enough)
Is protectionism good or bad? It's good for the state and to protect new industries, it's bad because it doesnt involve market mecanisms, and it increases prices
80/90's: free trade movement, measures taken by the IMF and the World Bank to eliminate trade barriers (no more taxes) => price decreases, higher competitiveness
but => the cost structures are not the same in every country, creates barriers to entry
-> currency differences, fluctuation risks
exchange rate = the price of a currency
direct code = nb of domestic units you need to buy another currency
indirect = nb of units of the other currency you need to buy one unit of the domestic currency
the law of one price = det by supply and demand
a monetary policy -> impacts supply and demand
interest rate = the price of money
high demand on cash => increase of the interest rate
to increase the investment of a country -> decrease the cost of debt = decrease the interest rate
NPV net present value
selling securities to the market, issuing bonds (only if they have good ratings - whether you are able to pay debt back, if not no one will buy them) => cash withdrawal from the market => increase interest rate
Role of ratings = to anticipate the impact of a good or bad rating on the market and on the interest rates
2 countries with the same grade
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