Chapter 13
Global Cost and Availability of Capital
◼ Learning Objectives
1. Explore the evolution of how corporate strategy and financial globalization may align
2. Examine how international portfolio theory and diversification alter the global cost of
capital
3. Describe how international portfolio investors impact the cost of capital
4. Compare the weighted average cost of capital for an MNE with its domestic counterpart
◼ Chapter Outline
I. Financial Globalization and Strategy
A. Cost of Capital
B. Cost of Equity
C. Cost of Debt
II. International Portfolio Theory and Diversification
D. Portfolio Risk Reduction
E. Foreign Exchange Risk
F. International CAPM (ICAPM)
G. Sample Calculation: Ganado’s Cost of Capital
H. ICAPM Considerations
I. Global Betas
J. Equity Risk Premiums
III. The Role of International Portfolio Investors
A. The Link Between Cost and Availability of Capital
Improving Market Liquidity
Market Segmentation
The Effect of Market Liquidity and Segmentation
B. Globalization of Securities Markets
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5. Equity Risk Premiums. What is an equity risk premium? For an equity risk premium to be
truly useful, what need it do?
6. Portfolio Investors. Both domestic and international portfolio managers are asset
allocators. What is their portfolio management objective?
7. International Portfolio Management. What is the main advantage that international
portfolio managers have compared to portfolio managers limited to domestic-only asset
allocation?
8. International CAPM. What are the fundamental distinctions which the international
CAPM tries to capture that traditional domestic CAPM does not?
© 2018 Pearson Education, Inc.
18. Emerging Market Listings. Why might emerging market multinationals list their shares
abroad?