財(cái)務(wù)管理課件chap018

1、International Aspects of Financial ManagementChapter 180Key Concepts and SkillsUnderstand how exchange rates are quoted and what they meanKnow the difference between spot and forward ratesUnderstand purchasing power parity and interest rate parity and the implications for changes in exchange ratesUn

2、derstand the types of exchange rate risk and how it can be managedUnderstand the impact of political risk on international business investing1Chapter OutlineTerminologyForeign Exchange Markets and Exchange RatesPurchasing Power ParityExchange Rates and Interest RatesExchange Rate RiskPolitical Risk2

3、Domestic Financial Management and International Financial ManagementConsiderations in International Financial ManagementHave to consider the effect of exchange rates when operating in more than one currencyHave to consider the political risk associated with actions of foreign governmentsMore financi

4、ng opportunities when you consider the international capital markets and this may reduce the firms cost of capital3International Finance TerminologyAmerican Depository Receipt (ADR)Cross-rateEurobondEurocurrency (Eurodollars)Foreign bondsGiltsLondon Interbank Offer Rate (LIBOR)Swaps4Global Capital M

5、arketsThe number of exchanges in foreign countries continues to increase, as does the liquidity on those exchangesExchanges that allow for the flow of capital are extremely important to developing countriesThe United States has one of the most developed capital markets in the world, but foreign mark

6、ets are becoming more competitive and are often willing to try more innovative ways to do business5Work the Web ExampleThinking about going to Mexico for spring break or Japan for your summer vacation?How many pesos or yen can you get in exchange for $1000?Click on the web surfer to find out6Exchang

7、e RatesThe price of one countrys currency in terms of anotherMost currency is quoted in terms of dollarsConsider the following quote:France (Franc).14606.8479The first number (.1460) is how many U.S. dollars it takes to buy 1 French FrancThe second number (6.8479) is how many French Francs it takes

8、to buy $1The two numbers are reciprocals of each other (1/6.8479 = .1460)7Example: Exchange RatesSuppose you have $10,000 . Based on the rates in Figure 18.1, how many Italian Lira can you buy?Exchange rate = 2021.37 Lira per U.S. dollarBuy 10,000(2021.37) = 20,213,700 LiraSuppose you are visiting L

9、ondon and you want to buy a souvenir that costs 1000 British pounds. How much does it cost in U.S. dollars?Exchange rate = .6669 pounds per dollarCost = 1000 / .6669 = $1499.488Example: Triangle ArbitrageWe observe the following quotes10.00 FF per $12.00 DM per $14.00 FF per DMWhat is the cross rate

10、?(10.00 FF/$1) / (2.00 DM/$1) = 5 FF per DMWe have $100 to invest; buy low, sell highBuy $100(10 FF/$1) = 1000 FF, use FF to buy DMBuy 1000FF / (4 FF/DM) = 250 DM, use DM to buy dollarsBuy 250 DM / (2 DM/$1) = $125Make $25 risk-free9Transaction TerminologySpot trade exchange currency immediatelySpot

11、 rate the exchange rate for an immediate tradeForward trade agree today to exchange currency at some future date and some specified price (also called a forward contract)Forward rate the exchange rate specified in the forward contractIf the forward rate is higher than the spot rate, the foreign curr

12、ency is selling at a premium (when quoted as $ equivalents)If the forward rate is lower than the spot rate, the foreign currency is selling at a discount10Absolute Purchasing Power ParityPrice of an item is the same regardless of the currency used to purchase itRequirements for absolute PPP to holdT

13、ransaction costs are zeroNo barriers to trade (no taxes, tariffs, etc.)No difference in the commodity between locationsAbsolute PPP rarely holds in practice for many goods11Relative Purchasing Power ParityProvides information about what causes changes in exchange ratesThe basic result is that exchan

14、ge rates depend on relative inflation between countriesE(St ) = S01 + (hFC hUS)tBecause absolute PPP doesnt hold for many goods, we will focus on relative PPP from here on out12Example: PPPSuppose the Canadian spot exchange rate is 1.4680 Canadian dollars per U.S. dollar. U.S. inflation is expected

15、to be 3% per year and Canadian inflation is expected to be 2%.Do you expect the U.S. dollar to appreciate or depreciate relative to the Canadian dollar?Since inflation is higher in the US, we would expect the US dollar to depreciate relative to the Canadian dollar.What is the expected exchange in on

16、e year?E(S1) = 1.46801 + (.02 - .03)1 = 1.453313Covered Interest ArbitrageExamine the relationship between spot rates, forward rates and nominal rates between countriesAgain, the formulas will assume that the exchange rates are quoted in terms of foreign currency per U.S. dollarThe U.S. risk-free ra

17、te is assumed to be the T-bill rate14Example: Covered Interest ArbitrageConsider the following informationS0 = 2 DM / $RUS = 10%F1 = 1.8 DM / $RG = 5%What is the arbitrage opportunity?Borrow $100 at 10%Buy $100(2 DM/$) = 200 DM and invest at 5% for 1 yearIn 1 year, receive 200(1.05) = 210 DM and con

18、vert back to dollars210 DM / (1.8 DM / $) = $116.67 and repay loanProfit = 116.67 100(1.1) = $6.67 risk free15Interest Rate ParityBased on the previous example, there must be a forward rate that would prevent the arbitrage opportunity.Interest rate parity defines what that forward rate should be16Sh

19、ort-Run ExposureRisk from day-to-day fluctuations in exchange rates and the fact that companies have contracts to buy and sell goods in the short-run at fixed pricesManaging riskEnter into a forward agreement to guarantee the exchange rateUse foreign currency options to lock in exchange rates if the

20、y move against you but benefit from rates if they move in your favor17Long-Run ExposureLong-run fluctuations come from unanticipated changes in relative economic conditionsCould be due to changes in labor markets or governmentsMore difficult to hedgeTry to match long-run inflows and outflows in the

21、currencyBorrowing in the foreign country may mitigate some of the problems18Translation ExposureIncome from foreign operations has to be translated back to U.S. dollars for accounting purposes, even if foreign currency is not actually converted back to dollarsIf gains and losses from this translatio

22、n flowed through directly to the income statement, there would be significant volatility in EPSCurrent accounting regulations require that all cash flows be converted at the prevailing exchange rates with currency gains and losses accumulated in a special account within shareholders equity19Managing

23、 Exchange Rate RiskLarge multinational firms may need to manage the exchange rate risk associated with several different currenciesThe firm needs to consider its net exposure to currency risk instead of just looking at each currency separatelyHedging individual currencies could be expensive and may

24、actually increase exposure20Political RiskChanges in value due to political actions in the foreign countryInvestment in countries that have unstable governments should require higher returnsThe extent of political risk depends on the nature of the businessThe more dependent the business is on other opera