Bohui Zhang

Education: NTU, Singapore, Ph.D. Finance; HKUST, M.Sc. Economics;

Tsinghua, B.Eng. Engineering Mechanics.
Academic experience: UNSW Australia, Associate Professor of Finance;
Tsinghua University, Visiting Professor (2014-2015); University of
Wisconsin, Milwaukee, Visiting Professor (2011-2012)

FINS5516
International Corporate Finance

Research interests: International capital markets (empirical asset

pricing, institutional investors, market microstructure, financial
accounting, and corporate governance)

Week 1 Introduction

Others: https://www.business.unsw.edu.au/our-people/bohuizhang
Phone: 9385 5834
Office: ASB 314 (west lobby)
Email: bohui.zhang@unsw.edu.au
Consultation time: Tuesday 14:00 to 16:00
Teaching: weeks 1-6
1-1

1-2

Top ten MNCs around the world (2015)

The objective of this course

This

course is concerned
corporations (MNCs)

with

multinational

Rank

It

takes the perspective of a financial manager in a

multinational corporation

It

develops framework for evaluating the

opportunities, costs, and risks of operating in the
worlds markets for goods, services, and financial
assets

Name
Walmart, general merchandiser, the U.S.

Sinopec Group, petroleum refining, China

Royal Dutch Shell, petroleum refining, Netherlands

China National Petroleum, petroleum refining, China

Exxon Mobil, petroleum refining, the U.S.

BP, petroleum refining, the U.K.

State Grid, utilities, China

Volkswagen, motor vehicles, Germany

Toyota Motor, motor vehicles, Japan

10

1-3

Brand

Glencore, mining, Switzerland

1-4

Coverage

Textbook and Reference

Textbook:

Bekaert, Geert, and Robert Hodrick, 2012, International

Financial Management, 2nd ed., Pearson

Reference:

Butler, Kirt, 2012, Multinational Finance, 5th ed., Wiley

1-5

Week
1
2
3
4
5
6
7
8
9
10
11
12

Topic
Introduction
Exchange Rate Systems
The Foreign Exchange Market
Forward Markets and Exchange Risk
Interest Rate Parity and Speculation
Financing International Trade and International
Debt Financing
International Equity Financing
International Capital Market Equilibrium
Purchasing Power Parity
International Capital Budgeting
Additional Topics in International Capital Budgeting
Foreign Currency Futures and Options

Readings
Ch. 1
Ch. 5
Ch. 2
Ch. 3 & 17
Ch. 6
Ch. 11 & 18
Ch. 12
Ch. 13
Ch. 8
Ch. 15
Ch. 16
Ch. 20

1-6

Assessment

Mid-session Exam

Group Discussion and Participation (at most 4 in a group)

10%
- Attendance
5%
- Participation
5%

Mid Session
- Week 7 Saturday morning (Sep. 12th)
- Coverage: Week 1 to 6

35%

Group project

20%

Final Examination
- Formal exam period
- Coverage: Week 7-12

35%

Total

100%

It

includes 50 multiple choice questions

Closed
One

book

and a half hours

Details

will be discussed in week 6

1-7

1-8

Study Tools
Stock exchanges:
ASX (http://www.asx.com.au/) SHSE (http://www.sse.com.cn/)
NYSE (https://www.nyse.com/index)
Central banks:
RBA (http://www.rba.gov.au/) PBC (http://www.pbc.gov.cn/)
FRB(http://www.federalreserve.gov/)
World map
Google (http://maps.google.com/)
Economic and financial news:
Bloomberg.com (http://www.bloomberg.com/news/)
Economist.com (http://www.economist.com/)

1. Australia

Research data:
WRDS (http://wrds-web.wharton.upenn.edu/wrds/)
Fama-French factors (http://mba.tuck.dartmouth.edu/pages/faculty/ken.french
/data_library.html)
NBSPRC (http://www.stats.gov.cn/) World Bank (http://data.worldbank.org/ )
Journals:
Economics: QJE, AER, JPE, RES, and Econometrica
Finance: JF, JFE, RFS
Accounting: JAR, JAE, and TAR
1-9

GDP per capita (2013)

GDP ranking (2013)

Rank
1
2
3
4
5
6
7
8
9
10
11
12

Country
The U.S.
China
Japan
Germany
France
The U.K.
Brazil
Italy
Russia
India
Canada
Australia

1-10

GDP (Mn.)
16,768,050
9,181,204
4,898,532
3,730,261
2,806,432
2,678,455
2,243,854
2,149,485
2,096,774
1,937,797
1,838,964
1,531,282

1-11

1-12

Australia's top 10 goods and services

exports in 2013

Main sectors in Australia in 2013

Mining

Agriculture

Wealth
Management

Tourism

Education

1-13

1-14

The new normal of China

Australia's top 10 export markets in 2013

The new normal of China is

A shift from high speed growth to a medium-to-high one
A shift from focusing on quantity and speed to quality and
efficiency in growth model
A shift from stressing production expansion to improving
current production
1-15

1-16

Economic growth, interest rate, and exchange rate

in Australia

Australian dollar

1-17

Top ten MNCs in Australia(2014)

Rank

Name

Industry

Size

BHP Billiton

Mining

$72.1bn

Rio Tinto

Mining

$59.8bn

Wesfarmers

Retail

$58.4bn

Woolworths

Retail

$55.5bn

NAB

Financial

$48.5bn

Commonwealth

Financial

$47.1bn

Westpac

Financial

$42.3bn

ANZ

Financial

$40.0bn

Telstra

Telecom.

$25.6bn

10

Xstrata
Holdings

Mining

$23.1bn
1-18

Three phases of business

Three

broad phases in the evolution of a firm

Domestic phase: operations are confined within
the boundaries of one country

2. Introduction of multinational corporations

International trade phase: the firm

materials or export its product or both
Multinational
phase:
operations overseas

the

firm

1-19

imports

establishes

1-20

Structure of a multinational corporation

Y1905
Local business

Board of directors
Australian mills

Rio Tinto
Y1990

Managers

Export
Chinese mills

Rio Tinto

Shareholders

Y2001
Foreign operation
Rio Tinto

Debt

Grasberg Joint
Venture,
Indonesia

Assets

1-21

Equity
1-22

The goal of a multinational corporation

Goal

of a MNC
Maximize shareholder wealth (US, UK, Australia)
Maximize stakeholder wealth (Europe and Asia)

Conflict

of interest between shareholders

managers
Independent board of directors
Concentrated ownership
Executive compensation
Shareholder activism and litigation
Hostile takeovers

and

1-23

3. Opportunities of multinational operations

1-24

Theoretical support for multinational

operations
Theory

of comparative advantage: a country

should produce and export goods if it can
produce with relative efficiency and import goods
from other nations which can produce more
efficiently.

For

example:
Australia: mining and agricultural industries
India: IT industry
Japan/Germany: manufacturing
Saudi Arabia: oil-based industries
1-26

How do MNCs enter foreign markets?

Four methods
Licensing: gives local firms right to manufacture their
products in exchange for fees
Brand
Profits (10%)

Franchising: provides specialized sales or service strategies

in exchange for fees
Brand+rules
Profits (20%)

A local supermarket
in India

A local supermarket
in India

Joint venture: jointly invest and operate a business with a

foreign company
Investment

Profits (100%)

A new supermarket
in India

Foreign direct investment: starts a company from scratch

Investment
Profits (100%)

A new supermarket
in India

1-28

Political

risk
The risk that a host government will change the
rules of the game under which business is
conducted.
Due to unexpected political changes within a host
country or to the hosts relationship with other
governments.

4. Challenges of multinational operations

Financial

risk
Foreign exchange risk: the risk of an unexpected
change in the value of the firm due to an unexpected
change in exchange rates
Financial crises

Cultural

culture

1-29

risk is the risk of dealing with an unfamiliar

1-30

Example:
Political

risk
The dispute between US and Iranian governments in
1970s

Financial

risk

Jul. 2008
Nov. 2008
Nov. 2011

5. International partners of MNCs

1A$=0.97 US$
1A$=0.61 US$
1A$=1.09 US$

Culture

risk
Does everyone around the world like Starbucks coffee?
Alcohol in Dubai?
1-31

1-32

International Banks
e.g. BGI, Citibank, ANZ, and Commonwealth

International Institutions
--The International Monetary Fund (IMF)
--The World Bank
--Regional development banks e.g. The Asian Development
Bank (ADB)
--The World Trade Organization (WTO)
--The Organization for Economic Cooperation and
Development (OECD)
--The Bank for International Settlements (BIS)
--The European Union (EU)

6. The impact of MNCs

Governments

Individual and Institutional Investors

e.g. hedge funds, private equity firms, and sovereign wealth
funds

1-33

Globalization
Definition:

increasing connectivity and integration

of countries and corporations and the people within
them in terms of their economic, political, and social
activities

Implication:

Integration of the markets for goods and services

Integration of international financial markets

1-35

1-34

Recent integration of global markets for goods &

services:

1960s only 20% of countries were open; By 2000,

over 70% of countries were open
Free trade agreements: 1995 creation of the World
Trade Organization (WTO)
1999 creation of the euro and its adoption by an
expanding set of European countries
Outsourcing shifting of non-strategic functions
to specialist firms

1-36

International Trade as a Percentage of GDP

WTO
members in
January
2012
1-38

Stock exchanges around the world (2015)

Recent integration of financial markets:

Financial market liberalization in both developed

and emerging markets in 1980s and 1990s

Rank

Exchange

Country

Headquarters Market
cap. (bn.)

Trading
vol. (bn.)

NYSE

The U.S.

New York

19,223

1,520

NASDAQ

The U.S.

New York

6,831

1,183
165

LSE

The U.K.

London

6,187

Increasingly interdependent national financial

markets, including cooperative linkages among
securities exchanges

TSE

Japan

Tokyo

4,485

402

SHSE

China

Shanghai

3,986

1,278

HKSE

Hong Kong

Hong Kong

3,325

155

Euronext

N.B.P.F.

A.B.L.P.

3,321

184

Derivative contracts and securitization techniques

become more popular

SZSE

China

Shenzhen

2,285

800

TMX Group

Canada

Toronto

1,939

120

10

Deutsche Brse Germany

Frankfurt

1,762

142

1-39

WTO
members

1-40