公司理財(cái)教學(xué)課件：ch15 Multinational Financial Management

FactorsthatmakemultinationalfinancialmanagementdifferentExchangeratesandtradingInternationalmonetarysystemInternationalfinancialmarketsSpecificfeaturesofmultinationalfinancialmanagementCHAPTER15

MultinationalFinancialManagementWhatisamultinationalcorporation?Amultinationalcorporationisonethatoperatesintwoormorecountries.Atonetime,mostmultinationalsproducedandsoldinjustafewcountries.Today,manymultinationalshaveworld-wideproductionandsales.Whydofirmsexpandinto

othercountries?Toseeknewmarkets.Toseeknewsuppliesofrawmaterials.Togainnewtechnologies.Togainproductionefficiencies.Toavoidpoliticalandregulatoryobstacles.Toreduceriskbydiversification.Whatarethemajorfactorsthatdistinguishmultinationalfromdomesticfinancialmanagement?CurrencydifferencesEconomicandlegaldifferencesLanguagedifferencesCulturaldifferencesGovernmentrolesPoliticalriskArethesecurrencypricesdirectorindirectquotations?SincetheyarepricesofforeigncurrenciesexpressedinU.S.dollars,theyaredirectquotations(dollarspercurrency).Considerthefollowingexchangerates:

U.S.$tobuy 1UnitEuro 0.8000Swedishkrona0.1000

Whatisanindirectquotation?AnindirectquotationgivestheamountofaforeigncurrencyrequiredtobuyoneU.S.dollar(currencyperdollar).Notethananindirectquotationisthereciprocalofadirectquotation.Calculatetheindirectquotationsforeurosandkronas.

#ofUnitsofForeign

CurrencyperU.S.$Euro

1.25Swedishkrona 10.00Euro: 1/0.8000= 1.25.Krona: 1/0.1000= 10.00.Whatisacrossrate?AcrossrateistheexchangeratebetweenanytwocurrenciesnotinvolvingU.S.dollars.Inpractice,crossratesareusuallycalculatedfromdirectorindirectrates.Thatis,onthebasisofU.S.dollarexchangerates.Crossrate =x

=1.25x0.1000

=

0.125euros/krona.Crossrate =x

=10.00x0.8000

=8.00kronas/euro.Calculatethetwocrossratesbetweeneurosandkronas.Euros

Dollars

Dollar Krona

Kronas

Dollars

Dollar EurosThetwocrossratesarereciprocalsofoneanother.Theycanbecalculatedbydividingeitherthedirectorindirectquotations.Note:Targetprice=($1.75)(1.50)=$2.625Spanishprice=($2.625)(1.25euros/$)

=

€3.28.AssumethefirmcanproducealiteroforangejuiceintheU.S.andshipittoSpainfor$1.75.Ifthefirmwantsa50%markupontheproduct,whatshouldthejuicesellforinSpain?2.0euros(8.0kronas/euro)=16kronas.20-16=4.0kronas

profit.Dollarprofit=4.0kronas(0.1000dollarsperkrona)=$0.40.NowthefirmbeginsproducingtheorangejuiceinSpain.Theproductcosts2.0eurostoproduceandshiptoSweden,whereitcanbesoldfor20kronas.Whatisthedollarprofitonthesale?Exchangerateriskistheriskthatthevalueofacashflowinonecurrencytranslatedfromanothercurrencywilldeclineduetoachangeinexchangerates.Forexample,inthelastslide,aweakening

krona(strengtheningdollar)wouldlowerthedollarprofit.Whatisexchangeraterisk?Thecurrentsystemisafloatingratesystem.Priorto1971,afixedexchangeratesystemwasineffect.TheU.S.dollarwastiedtogold.Othercurrenciesweretiedtothedollar.Describethecurrentandformerinternationalmonetarysystems.TheEuropeanMonetaryUnionIn2002,thefullimplementationofthe“euro”isexpectedtobecomplete.Thenationalcurrenciesofthe11participatingcountrieswillbephasedoutinfavorofthe“euro.”ThenewlyformedEuropeanCentralBankwillcontrolthemonetarypolicyoftheEMU.The12MemberNationsoftheEuropeanMonetaryUnionAustriaBelgiumFinlandFranceGermanyIrelandItalyLuxembourgNetherlandsPortugalSpainGreeceEuropeanUnioncountriesnotintheEMU:BritainSwedenDenmarkAcurrencyisconvertiblewhentheissuingcountrypromisestoredeemthecurrencyatcurrentmarketrates.Convertiblecurrenciesaretradedinworldcurrencymarkets.Whatisaconvertiblecurrency?Itbecomesverydifficultformulti-nationalcompaniestoconductbusinessbecausethereisnoeasywaytotakeprofitsoutofthecountry.Often,firmswillbarterforgoodstoexporttotheirhomecountries.Whatproblemsarisewhenafirmoperatesinacountrywhosecurrencyisnotconvertible?Aspotrateistherateappliedtobuycurrencyforimmediatedelivery.Aforwardrateis

therateappliedtobuycurrencyatsomeagreed-uponfuturedate.Whatisthedifferencebetweenspotratesandforwardrates?Whenistheforwardrateatapremiumtothespotrate?IftheU.S.dollarbuysfewerunitsofaforeigncurrencyintheforwardthaninthespotmarket,theforeigncurrencyissellingatapremium.Intheoppositesituation,theforeigncurrencyissellingatadiscount.Theprimarydeterminantofthespot/forwardraterelationshipisrelativeinterestrates.Whatisinterestrateparity?Interestrateparityimpliesthatinvestorsshouldexpecttoearnthesamereturnonsimilar-risksecuritiesinallcountries:Forwardandspotratesaredirectquotations.rh=periodicinterestrateinthehomecountry.rf=periodicinterestrateintheforeigncountry.ForwardrateSpotrate=1+rh1+rf.Spotrate=$0.8000.rh =6%/2=3%.rf =4%/2=2%.(More...)Assume1euro=$0.8100inthe

180-dayforwardmarketandand180-dayrisk-freerateis6%intheU.S.and4%inSpain.

Doesinterestrateparityhold?Forwardrate0.8000Ifinterestrateparityholds,theimpliedforwardrate,0.8078,wouldequaltheobservedforwardrate,0.8100;soparitydoesn’thold.ForwardrateSpotrate=1+rh1+rf=1.031.02Forwardrate=0.8078.AU.S.investorcoulddirectlyinvestintheU.S.securityandearnanannualizedrateof6%.Alternatively,theU.S.investorcouldconvertdollarstoeuros,investintheSpanishsecurity,andthenconvertprofitbackintodollars.Ifthereturnonthisstrategyishigherthan6%,thentheSpanishsecurityhasthehigherrate.Which180-daysecurity(U.S.orSpanish)offersthehigherreturn?WhatisthereturntoaU.S.investorintheSpanishsecurity?Buy$1,000worthofeurosinthespotmarket:$1,000(1.25euros/$)=1,250euros.Spanishinvestmentreturn(ineuros):1,250(1.02)=1,275euros.(More...)Buycontracttodaytoexchange1,275eurosin180daysatforwardrateof0.8100dollars/euro.Atendof180days,converteuroinvestmenttodollars:

€1,275(0.8100$/€)=$1,032.75.Calculatetherateofreturn:$32.75/$1,000=3.275%per180days=6.55%peryear.(More...)TheSpanishsecurityhasthehighestreturn,eventhoughithasalowerinterestrate.U.S.rateis6%,soSpanishsecuritiesat6.55%offerahigherrateofreturntoU.S.investors.Butcouldsuchasituationexistforverylong?ArbitrageTraderscouldborrowattheU.S.rate,converttopesetasatthespotrate,andsimultaneouslylockintheforwardrateandinvestinSpanishsecurities.Thiswouldproducearbitrage:apositivecashflow,withnoriskandnoneofthetradersownmoneyinvested.ImpactofArbitrageActivitiesTraderswouldrecognizethearbitrageopportunityandmakehugeinvestments.Theiractionswouldtendtomoveinterestrates,forwardrates,andspotratestoparity.Whatispurchasingpowerparity?Purchasingpowerparityimpliesthatthelevelofexchangeratesadjustssothatidenticalgoodscostthesameamountindifferentcountries.

Ph=Pf(Spotrate),or

Spotrate=Ph/Pf.Ifgrapefruitjuicecosts$2.00/literintheU.S.andpurchasingpowerparityholds,whatispriceinSpain?Spotrate=Ph/Pf.$0.8000 =$2.00/PfPf =$2.00/$0.8000=2.5euros.Dointerestrateandpurchasingpowerparityholdexactlyatanypointintime?Lowerinflationleadstolowerinterestrates,soborrowinginlow-interestcountriesmayappearattractivetomultinationalfirms.However,currenciesinlow-inflationcountriestendtoappreciateagainstthoseinhigh-inflationratecountries,sothetrueinterestcostincreasesoverthelifeoftheloan.Whatimpactdoesrelativeinflationhaveoninterestratesandexchangerates?EurodollarmarketsDollarsheldoutsidetheU.S.MostlyEurope,butalsoelsewhereInternationalbondsForeignbonds:Soldbyforeignborrower,butdenominatedinthecurrencyofthecountryofissue.Eurobonds:Soldincountryotherthantheoneinwhosecurrencyitisdenominated.Describetheinternationalmoneyandcapitalmarkets.Towhatextentdocapitalstructuresvaryacrossdifferentcountries?Earlystudiessuggestedthataveragecapitalstructuresvariedwidelyamongthelargeindustrialcountries.However,arecentstudy,whichcontrolledfordifferencesinaccountingpracti