Introduction to Multinational Corporation

CHAPTER 1: INTRODUCTION TO MULTINATIONAL CORPORATION Meaning of International Finance? Study of the institutions, policies, and practices that govern global financial management and/or financial aspects of global business International finance is the branch of economics that studies the dynamics of exchange rates, foreign investment, and how these affect international trade. DEFINITION Multinational Corporation (MNC) is defined as a firm that engaged in some form of international business Any transaction between parties from more than one country is part of international business International Business is transaction conducted across the boundary of a country THEORIES OF INTERNATIONAL BUSINESS Theory of Comparative Advantage Countries tend to use their advantages to specialized in their production of goods that can be produced with relative efficiency Comparative Advantages allow firms to penetrate foreign markets Revenues earned from specialized products is used to import products rather  than attempting to produce all the products that they need Imperfect Market Theory Countries differ with respect to resources available for the production of goods Market were perfect if factors of production would be mobile and freely transferable The unrestricted mobility of factors would be equality in costs and return Imperfect markets provide an incentive for firms to seek out foreign opportunities Product Cycle Theory Firms become established in the domestic market The competition is readily available in the market Other way to expand their businesses is going to foreign market As their products reach maturity, or declining stages at home country, the firm has to produces in another country while the product is still new to these country     RISE OF THE MNCs Raw material seekers This firm aims to exploit the raw materials that could be found overseas Example: Dunlop in Malaysia used rubber to produce tyre. Market seekers Multinational firms that go overseas to produce

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