International Finance by qfc86623

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									 International Finance


          Essentials of Corporate Finance
          Chapter 18



Materials Created by Glenn Snyder – San Francisco State University
 Topics

     International Financial Analysts
     Why is International Finance Different?
          Time Zones / Communication
          Currency
          Culture
          Global Political Implications
          Markets
          Language
          Foreign Laws and Restrictions
          Foreign Accounting
          Strategies
     Career Advice for an International Financial Analyst
February 26, 2007     Materials Created by Glenn Snyder – San Francisco State University   2
 International Financial Analysts
     An International Financial Analyst typically works in the corporate
      headquarters, internally supporting and analyzing the company’s
      international operations.

     An International Financial Analyst is different from other Internal
      Financial Analysts by:
       Currency

       Culture

       Global Political Implications

       Market Complexities

                   Sophistication of the Consumers
          Language
          Foreign Laws and Restrictions
          Foreign Accounting

February 26, 2007             Materials Created by Glenn Snyder – San Francisco State University   3
 Currency

     Currency fluctuations can change the value and
      importance of an international operation
 Currency                1/3/00 (in USD) 1/1/07 (in USD) % Change
 Canadian Dollar                  1.4465                            1.1652               19%
 Euro                           0.984736                          0.757748               23%
 Japanese Yen                     103.90                            119.02               (15%)
 Brazilian Real                    1.805                            2.1342               (18%)
 Chinese Yuan                     8.2798                            7.8041                6%
 South Korean Won                   1128                               930               18%
 South African Rand                6.126                            7.0375               (15%)


February 26, 2007   Materials Created by Glenn Snyder – San Francisco State University           4
 Time Zones / Communications

     Communicating with international offices is
      not just difficult because of language and
      cultural differences, but time zones as well
          If a San Francisco based company wants to talk
           with a subsidiary in India at 1:30 pm Indian local
           time, the San Francisco employee must call India
           at 1:00 am Pacific Standard Time
          If a New York based company wants to talk with a
           subsidiary in Japan at 9:00 am Japanese local
           time, the New York employee must call Japan at
           7:00 pm Pacific Standard Time

February 26, 2007   Materials Created by Glenn Snyder – San Francisco State University   5
 Culture

     An International Financial Analyst must understand
      the differences between cultures
          In Italy, employees have a minimum of 5 weeks of vacation
           per year
          In many Asian cultures, it is customary to drink and go to
           bars after work
          In many Middle Eastern cultures, women must be dressed
           from head to toe
     These customs and cultures are important when
      communicating (email or phone) or visiting the
      international office

February 26, 2007     Materials Created by Glenn Snyder – San Francisco State University   6
 Global Political Implications

     An International Financial Analyst must
      understand what is going on in world politics
      and the implications on their company
          India and Pakistan testing nuclear weapons
          North Korea testing nuclear weapons
          Venezuela cutting off access for American oil
           companies
          Iraq war
          Riots in Paris in 2005
          Subway bombings in Madrid and London

February 26, 2007   Materials Created by Glenn Snyder – San Francisco State University   7
 Markets

     An International Financial Analyst must
      understand the complexities and trends of the
      international market place
          Sophistication of Consumers
                   Financial Services Industry – Many consumers in
                    emerging market countries don’t understand equities
                    and derivatives
                   Telecommunications – In countries like Brazil, most of
                    the population does not have home phone lines
                   Automotive Industry – Europe has gasoline prices close
                    to 4 times the price of the U.S., with smaller roads and
                    fewer parking spaces

February 26, 2007           Materials Created by Glenn Snyder – San Francisco State University   8
 Language

     An International Financial Analyst must be
      able to communicate clearly with members of
      the international offices
          In Japan, it is a sign of respect to add “san” to the
           end of a person’s last name


     Chevy Nova example
          Chevrolet marketed their Nova vehicle to Latin
           America, without changing the name
                   In Spanish, “No Va” means No Go
February 26, 2007          Materials Created by Glenn Snyder – San Francisco State University   9
 Foreign Laws and Restrictions

     Most countries have laws and restrictions
      very different to those of the United States
          China requires at most 33% foreign ownership
                   U.S. Companies must enter China through joint ventures
                   U.S. Companies do not have control of their China
                    operations
     When a company opens an office in another
      country, it must set up a new legal entity in
      that country
          The local country will want to receive tax revenue
           for any income earned in that country
February 26, 2007           Materials Created by Glenn Snyder – San Francisco State University   10
 Foreign Laws and Restrictions

     Tax Havens
          Tax Havens are countries with very low or no
           corporate income tax
          Examples are:
                   The Bahamas
                   Grand Cayman
                   Singapore
                   Luxembourg
          Income earned in tax havens cannot be
           repatriated into the United States without paying
           U.S. taxes
February 26, 2007         Materials Created by Glenn Snyder – San Francisco State University   11
 Foreign Accounting

     Differences in Accounting Standards
          Different countries offer different tax incentives.
                   German firms tend to stretch the definition of a
                    liability and tend to understate inventory for tax
                    purposes.
                   Sweden offers accelerated depreciation and
                    inventory write-offs, which differ from the U.S.
                    accounting standards.
                   Most countries have only one set of reports used for
                    both taxes and public reporting. The U.S. reports
                    these differently.
February 26, 2007           Materials Created by Glenn Snyder – San Francisco State University   12
 Foreign Accounting

     Each foreign office typically keeps two sets of
      books
          One is for local reporting and taxes
          One is based on the company’s chart of accounts
           for consolidation purposes

     Foreign offices must have their financial
      statements translated and merged into the
      home country’s financials to produce
      consolidated financial statements

February 26, 2007   Materials Created by Glenn Snyder – San Francisco State University   13
 Strategies

     An International Financial Analyst must take
      into account all of the previous items when
          Developing a strategic plan of an international
           office
          Analyzing budget variances
          Analyzing impacts to consolidated financials
          Analyzing strategic projects or international
           expansion
          Evaluating management, efficiency, or production
           levels

February 26, 2007   Materials Created by Glenn Snyder – San Francisco State University   14
 Career Advice for an International
 Financial Analyst
     Understand cultural differences
     Be open minded, the U.S. way is not always the
      best
     Learn foreign languages
          At least learn a few phrases in many different languages
     Stay current with global politics and happenings
     Most people are not hired into international
      positions, they begin their careers in a domestic
      position for a global organization, then transfer when
      they’ve gained specific expertise

February 26, 2007     Materials Created by Glenn Snyder – San Francisco State University   15

								
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