Modern System of International Financial Management in - - PowerPoint PPT Presentation

Modern System of International Financial Management in Multinational Companies

by Oksana Bulkot PhD (Economics), Lecturer, Kyiv Natl. University, Ukraine

Introduction

Multinational Companies (MNCs) are unique economic entities because of their turnover, sales, global production activity and financial system. The defining feature of the MNCs functioning is their ability to get free access to any resources in globalized economy.

PURPOSE

• To summarize contemporary

theoritical and practical approaches to MNCs intl. financial mngt. as well as to disclose the special features

• f its functioning in

contemporary global economy

MNCs finance is correct to define as a system of monetary relations, Resulting in the economic activities of MNCs and is necessary for the accumulation, allocation and efficient use of capital and income funds. MNCs finance is special because

• f the fact that the financial system
• f MNC itself affects the state of

national economies and entire global finance.

RESULTS

Six Basic Elements That Form The System of Financial Mngt of MNC

• Short-Term or Working Capital Mngt.
• Long-Term Financial Mngt. or Strategic Financial Mngt.
• Associated w/ the structure & characteristics of the methods of

financing the activities of MNC & particularly w/ funds obtaining.

• Related to element no. 3 and covers the problem of financing

the subsidiaries of MNCs.

• System Planning and Forecasting
• Strong correlated with theoritical/mathematical substantiation of

MNCs final decision.

• 1. Short-term or Working Capital Mngt

Two Basic Objectives 1. Accelarating cash inflows & delaying cash outflows 2. Managing blocked funds. 3. Leading ang lagging strategy. 4. Capital Budgeting. 5. Using netting/clearing to reduce

• verall transaction cost

6. Instrument of international transfer pricing for the purposeof minimizing the tax on cash flow. 7. Accounts receivable mngt. Investing the excess cash - demonstrate the interrelation between cash mngt & intl financial markets. IMPORTANT ASPECTS 1. To define the investment strategy. 2. To define the country & the market for investment. 3. To divesify its securities portfolio acriss the countries w/ diff. currency denominations.

OPTIMIZING CASH FLOW MOVEMENTS INVESTING EXCESS CASH

• 2. Long-term Financial Mngt. or Strategic

Financial Mngt.

It encompasses long-term directions & priorities of intl. financial activity of MNCs:

• 1. Development & implementation of MNCs financial policy & strategy.
• 2. Development & realization of real investments and investment portfolio.
• 3. Perspective budgeting.
• 4. Mechanism of long-term financial resources generating.
• 5. Maximization of market value of MNC.
• 6. Formation of optimal capital structure.
• 7. International tax mngt.
• 8. Global allocation assests.
• 9. Factor analysis of global financial environment.
• 10. International risk-management.

• The main purpose of strategic

financial mngt. is to increase the financial capacity of MNC that means its ability to use effectively its own financial resources and to attract debt capital.

• The key priorities in strategic

financial mngt for MNC remain globalization of its activities through foreign direct investment & intl production.

MNCs Global Financial Strategy has to focus on:

• 1. Providing effective producing

competitive products.

• 2. Host country resource

mobilization.

• 3. Maximum reduction of production

cost.

• 4. Formation & distribution of income
• 5. Effective use of capital.

• 3. Associating W/ the Structure &

Characteristics of Methods of Financing the Activities of MNC

Long-term funds of financial resources are:

• 1. Financing from creditors.
• 2. Financing from investors.
• 3. Eurocurrency financing.
• 4. Foreign financing.
• 5. Official financing.

Benifits from MNC international financing are caused by several factors:

• 1. MNCs tend to have a high credit

rating, and thus, access to cheaper resources. 2 . M N C s a re r a p i d l y g ro w i n g c o m p a n i e s t h a t u s e m a r k e t s

• pportunities around the worldthe

provide sales growth.

• 3. Widely diversified MNCs activities

provide their financial stability and extend the opportunities for obtaining capital.

• 4. MNCs are tightly integrated into the

global financial system.

• 4. Related to 3rd element & covers the

problem of financing the subsidiaries of MNCs.

• Three main groups of financial funds available in

sudsidiaries financing.

• 1. Funds generated internally by the foreign

subsidiaries

• 2. Funds from within MNC
• 3. Funds external to MNC

• 5. System Planning and

Forecasting

Several methods of financial palanning are used for effective allocation of worldwide generalized profits...

• 1. Flexible budget
• 2. Percent of sales
• 3. Breakeven analysis
• 4. Cost mngt.
• 5. Situation plan analysis

Effective planning of financing activities and global strategy of MNCs development largely depends on the purpose and orientation of top mngt. its

• rganizational capacity &

intuition.

• 6. Theoritical/Mathematical Substantiation
• f MNCs financial decisions

Mathematical approaches to management of MNCs finance & the cost of its capital are:

• 1. Instrument for assets evaluation in balance sheet
• 2. Instrument for assets liabilities in balance sheet

"To use financial management models that are based on the criteria of their impact on the assets and liabilities of the MNC as well as on its market values"

–Group 7

“Enjoy The Month of Ramadhan.”