International Finance Essay

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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