Financial Institutions, Markets, and Money, Eleventh Edition

CHAPTER FOURTEEN

International Banking

IMAGINE ADVISING A FIRM THAT invests billions of dollars in a foreign currency to gain access to local natural resources and markets. The firm must manage the currency risk that results from changes in the value of the foreign currency relative to the U.S. dollar, as well as political risks, environmental concerns, and cultural differences. This is the situation facing Alcoa, a large U.S. aluminum company.

Alcoa is planning to invest over $10 billion to develop an integrated industrial complex in Saudi Arabia, including a mine, a refinery, and other facilities. The new venture plans to start production in 2013. Given the nature of the Saudi Arabia economy, Alcoa must deal with an infrastructure that is not as developed as the U.S. market with respect to banking, transportation, and most areas related to business.

Alcoa has made great strides in linking overseas investment with their corporate social responsibility plans. Since 2005, Alcoa has consistently achieved the top ranks in the Basic Resources sector in the Covalence Ethical Rankings, an index of ethical performance developed by the Geneva-based company, Covalence. Alcoa has also been a member of the Dow Jones Sustainability Index and a founding member of the U.S. Climate Action Partnership. Philosophical policies and plans such as these represent an important departure from some of the early foreign investments abroad, especially in the raw materials industry.

Tokyo, New York, and ...