IFM MODULE 5.pdf
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Transcript of IFM MODULE 5.pdf
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International FinancialManagementHARISHA.B.V
AIP(FINANCE AND CONTROL)IIM BANGALORE
MODULE 5
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MODULE 5
FOREIGN INVESTMENTS DECISIONS INTERNATIONAL PORTFOLIO
DIVERSIFICATION
FDI MULTINATIONAL CAPITAL BUDGETING INTERNATIONAL PROJECT APPRAISAL POLITICAL RISK AND COUNTRY RISK
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FOREIGN INVESTMENTS
Why do firms invest abroad? Theories
1. Based on market structurea. Cost of capitalb. Economies of scale
c. Infrastructure for R&Dd. Funds for advertisement etc.
2. Theory of product cycle.( Raymond Vernon)3. Hymers theory of imperfect markets4. Theory of internationalization of markets of
intermediate products.
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Hymers theory of imperfectmarkets
Economies of scaleOrganization of productionOrganization of marketingOrganization of R&DOrganization of human resources
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Theory of internationalization of markets
of intermediate products.
Propounded by P.K. Buckley and
M.casson. Patents, Trade marks and Know-Hows are
intermediate products.
Internationalizing signifies selling patents,licenses etc.
The firm should continue to be the owner .
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5.Theories based on the organization of firms
a. Managerial approach.
b. Strategy of the Enterprise Approach.
Offensive strategy
Defensive strategy.
c. Theories of Y.Tsurumi and K. Kojima.
6.Eclectic Theory of International production
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Eclectic theory
Ownership advantage locational advantage Internationalization advantage
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How to invest abroad?
FDI Cross border M&A
Joint ventures Licensing Franchising Strategic alliance Turnkey projects
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Multinational capitalbudgeting
Mainly discounted cash flowmethod is accepted
NPV is widely used IRR is used in some cases.
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NPV
Cash Inflows Cash outflows
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PROBLEMS
CAPITAL BUDGETINGPROBLEMS.xls
CAPITAL BUDG PROBLEM 2.xls
IRR IRR.xls
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Country risk Analysis
The country risk is the economicopportunity against political odds
Types of country risk1. Political risk2. Sector risk3. Project risk
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Political risk Political risk is the risk that results
from the political changes orinstability in a country .
Factors which affects country risk1. Political factors
2. Economic factors.
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Political factors
Stability of local politicalenvironment.
Consensus regarding priorities Attitude of host and home govts
War
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Economic indicators Inflation rate Current and potential state of the
countrys economy
Resource base Adjustment to external shocks.
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Techniques to AssessCountry Risk
Debt related factors Balance of payments Economic performance Political instability Checklist approach COUNTRY
RISK ANALYSIS.xls
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SECTOR RISK
Many studies have indicated thatcertain sectors are prone to greaterrisk than other in some countries.
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Project risk
The risk is sometimes different fordifferent projects.
Within the same sector different
projects of different size , differentlife , may create this types of risks.
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Thank you.
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