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There is an enormous influence of global brands like ³Coca-Cola,´ ³Canon,´ or ³BMW´ across the
world. These are multinational brands. A Multinational Corporation (MNC) is a company that has
been incorporated in one country and has production and sales operations in other countries. Often
30% or more of sales and profits of multinationals are generated outside national borders. A typical
multinational company consists of a parent company located in the home country and at least five or
six foreign subsidiaries, with a high degree of strategic interaction among them.

Firms can be defined as ³multinational´ on many dimensions, including the following:

 The degree of foreign sales

 The degree of foreign assets
 Source of labour and production
 Source of capital funding

An MNC is a corporation with substantial direct investments in foreign countries (it is not just an
export business) and is engaged in the active management of these off-shore assets (it is not just
holding a passive financial portfolio).

MNCs are a recent phenomenon (mainly after World War II) and they affect all the sectors of activity
(even the service sector). There are about 60,000 MNCs in the world. While not all MNCs are large,
most large companies are MNCs. Multinationals now account for about 10% of world GDP.

Why do companies expand into other countries and become multinationals? Some of the possible
reasons are:

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+ Saturated home markets ask for market development abroad (Coca
Cola, Mac Donald¶s etc.). Multinationals seek new markets to fill product gaps in foreign
markets where excess returns can be earned.
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+ Multinationals secure the necessary raw materials required to
sustain primary business line (Exxon; Wal-Mart). Multinationals also seek to obtain easy
access to oil exploration, mining, and manufacturing in many developing nations.
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+Multinationalsseek leading scientific and design ideas.
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by shifting to low cost regions (GE).
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import quota, regulatory measures of governments, trade
barriers, etc.
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What is special about multinational management?

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+ Multinationals operate under a diverse pattern of consumer
preferences, distribution channels, legal frameworks and financial infrastructures.

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+ Multinationals have to mesh corporate strategy with host
country industrial development policies; thus there is a potential for conflict.

" %   $#  + Multiple market access and various global scale economies allow
companies new competitive strategic options.

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+Theeconomic performance of a multinational is

measured in multiple currencies which result in accounting, transaction and economic exposure.

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      is the exchange of goods and services across international boundaries. The
world trade in goods and services has grown much faster than world GDP since 1960. Since 1960,
global trade has grown twice as fast as the global GDP. The share of international trade in national
economies has, in most cases, increased dramatically over the past few decades. In most countries,
international trade represents a significant share of GDP.

  

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 $  , ,  + A relative increase in a country¶s inflation rate will decrease its current
account, as imports increase and exports decrease.
 $  ,)    +A relative increase in a country¶s income level will decrease its
current account, as imports increase.
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+ A government may reduce its country¶s imports by
imposing a tariff on imported goods, or by enforcing a quota. Some trade restrictions may be
imposed on certain products for health and safety reasons.
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+If a country¶s currency begins to rise in value, its current account
balance will decrease as imports increase and exports decrease.

The factors interact, such that their simultaneous influence on the balance of trade is complex.

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' $ is an agreement to exchange cash flows at specified future times according to certain
specified rules. The two  $ 
in a swap agree to exchange or swap cash flows at periodic
intervals.

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‡ 
 1  ' $ ± An exchange of fixed-rate interest payments for floating-rate interest
payments.
‡  & ' $ ± An exchange of interest payments and principal in one currency for interest
payments and principal in another currency.
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1 ' $- An exchange of floating rate interest payments and principal
in one currency for fixed rate interest payments and principal in another currency.

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A standard fixed-to-floating interest rate swap (also referred to as "exchange of borrowings") is an
agreement between two parties, in which each contracts to make payments to the other on
particular dates in the future till a specified termination date. One party, known as the fixed rate
payer, makes fixed payments all of which are determined at the outset. The other party known as
the floating rate payer will make payments the size of which depends upon the future evolution of
a specified interest rate index (such as the 6-month LIBOR). The floating "leg" is typically
periodically reset. The fixed and floating payments are calculated as if they were interest
payments on a specified amount borrowed or lent. It is notional because the parties do not
exchange this amount at any time; it is only used to compute the sequence of payments. In a
standard swap, the notional principal remains constant through the life of the swap. An agreement
by a company to receive 6-month LIBOR & pay a fixed rate of 5% per annum every 6 months for 3
years on a notional principal of $100 million is an example of an interest rate swap.
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In an interest rate swap the principal is not exchanged. In a currency swap the principal is
exchanged at the beginning and the end of the swap. A currency swap is an agreement between
two parties in which one party promises to make payments in one currency and the other
promises to make payments in another currency. An example would be a U.S. company needing
Euros to fund a project in Germany. It has a choice to either issue a fixed-rate bond in Euros or
issue a fixed-rate bond in dollars and convert those dollars to Euros. It may be much easier for the
company to raise funds in dollars in USA where it is well-known, than to raise funds in Euros in
Germany where it may not be so well-known. Therefore, the company chooses to issue a fixed
rate bond in dollars and convert them to Euros. One way to convert the dollars to Euros is to
construct a dollar/Euro currency swap. And one of the simplest ways to do this is at the beginning
of the transaction, the company takes the dollars received from the issue of the dollar
denominated bond and pays them up front to a swap dealer who pays the company an equivalent
amount in Euros. The swap dealer pays interest payments in dollars to the company which it can
use to pay the dollar coupon interest to the bondholders in USA from whom it has raised money.
At the same time, the company pays an agreed-upon amount of Euros to the swap dealer. At
maturity the company and the swap dealer re-exchange the principal; the company pays the same
amount of Euros to the swap dealer as it had received at the initiation of the swap and receives
the same amount of dollars it had given to the swap dollar in exchange. Thus, upon maturity, the
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company has converted a dollar denominated loan into a Euro-denominated loan.
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A fixed-to-floating currency swap also known as cross-currency swap will have one payment
calculated at a floating interest rate while the other is at a fixed interest rate. It is a combination of
a fixed-to-fixed currency swap and a fixed-to-floating interest rate swap. Each counterparty to a
currency swap can be described in terms of the type of interest (fixed or floating), and the
currency that he pays and also the type of interest and the currency that he receives. For
example, in a cross currency interest rate swap, one of the counterparties may be a payer of a six
month dollar LIBOR and a receiver of a five year sterling fixed interest. (The other counterparty
therefore will pay a five year sterling fixed interest and receive six month dollar LIBOR).
Cross-currency interest rate swaps allow a company to switch from one currency to another. For
example, a French company wishing to start operations in the USA can tap a source of fixed rate
funds in the euro market, where its name may be well-known and its credit well-perceived, and
swap it into floating rate dollars, to achieve funding at a level significantly better than what a direct
issue in floating rate dollar market would offer.

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A country¶s foreign bond market is that market in which the bonds of issuers not domiciled in that
country are sold and traded. For example, the bonds of a German company issued in the U.S. or
traded on the U.S. secondary markets would be part of the U.S. foreign bond market. The definition
of "foreign" refers to the nationality of the issuer in relation to the market place. For example, a US
dollar bond sold in the United States by the Swedish car producer Volvo is classified as a foreign
bond while one issued by General Motors is a domestic bond.
  
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1. Foreign bonds are sold in the currency of the local economy.
2. Foreign bonds are subject to the regulations governing all securities traded in the national market
and sometimes special regulations governing foreign borrowers (e.g., additional registration).
3. Foreign bonds provide foreign companies access to funds they often use to finance their
operations in the country where they sell the bonds.

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ü. Foreign bonds are regulated by the domestic market authorities. The issuer must satisfy all
regulations of the country in which it issues the bonds.
The difference between a domestic and a foreign bond is that the issuer of the latter is a foreign
entity which may be beyond investors¶ legal reach in the event of default. However, since investors in
foreign bonds are usually the residents of the domestic country, investors find them attractive
because they can add foreign content to their portfolios without the added exchange rate exposure.
Foreign bonds are known by different names in different countries. They are called Yankee bond,
Samurai bonds, Matador bonds, Bulldog bonds and Rembrandt bonds in USA, Japan, Spain, UK
and Netherlands respectively.