ch19 跨国财务管理

1、19-1CHAPTER 19Multinational Financial ManagementnMultinational vs. domestic financial managementnExchange rates and trading in foreign exchangenInternational money and capital markets19-2What is a multinational corporation?nA corporation that operates in two or more countries.nDecision making within

2、 the corporation may be centralized in the home country, or may be decentralized across the countries the corporation does business in.19-3Why do firms expand into other countries?1.To seek new markets.2.To seek raw materials.3.To seek new technology.4.To seek production efficiency.5.To avoid politi

3、cal and regulatory hurdles. 6.To diversify.19-4What factors distinguish multinational financial management from domestic financial management?1.Different currency denominations.2.Economic and legal ramifications.3.Language differences.4.Cultural differences.5.Role of governments.6.Political risk.19-

4、5Consider the following exchange ratesUS $ to buy 1 unitJapanese yen0.009Australian dollar0.650nAre these currency prices direct or indirect quotations?nSince they are prices of foreign currencies expressed in dollars, they are direct quotations.19-6What is an indirect quotation?nThe number of units

5、 of a foreign currency needed to purchase one U.S. dollar, or the reciprocal of a direct quotation.nAre you more likely to observe direct or indirect quotations?nMost exchange rates are stated in terms of an indirect quotation.nExcept the British pound, which is usually in terms of a direct quotatio

6、n.19-7Calculate the indirect quotations for yen and Australian dollar# of units of foreign currency per US $Japanese yen111.11Australian dollar1.5385nSimply find the inverse of the direct quotations.19-8What is a cross rate?nThe exchange rate between any two currencies. Cross rates are actually calc

7、ulated on the basis of various currencies relative to the U.S. dollar.nCross rate between Australian dollar and the Japanese yen.nCross rate = (Yen / US Dollar) x (US Dollar / A. Dollar)= 111.11 x 0.650= 72.22 Yen / A. DollarnThe inverse of this cross rate yields: 0.0138 A. Dollars / Yen19-9Orange j

8、uice project:Setting the appropriate pricenA firm can produce a liter of orange juice and ship it to Japan for $1.75 per unit. If the firm wants a 50% markup on the project, what should the juice sell for in Japan? Price = (1.75)(1.50)(111.11)= 291.66 yen19-10Orange juice project:Determining profita

9、bilitynThe product will cost 250 yen to produce and ship to Australia, where it can be sold for 6 Australian dollars. What is the U.S. dollar profit on the sale?nCost in A. dollars = 250 yen (0.0138) = 3.45 A. dollarsnA. dollar profit = 6 3.45 = 2.55 A. dollarsnU.S. dollar profit = 2.55 / 1.5385 = $

10、1.66 19-11What is exchange rate risk?nThe risk that the value of a cash flow in one currency translated to another currency will decline due to a change in exchange rates.nFor example, in the last slide, a weakening Australian dollar (strengthening dollar) would lower the dollar profit.nThe current

11、international monetary system is a floating rate system.19-12European Monetary UnionnIn 2002, the full implementation of the “euro” was completed. The national currencies of the 12 participating countries were phased out in favor of the “euro.” The newly formed European Central Bank controls the mon

12、etary policy of the EMU.19-13Member nations of the EMUnAustrianBelgiumnFinlandnFrancenGermanynGreecenIrelandnItalynLuxembourgnNetherlandsnPortugalnSpainnNotable European Union countries not in the EMU:nBritain, Sweden, and Denmark19-14What is a convertible currency?nA currency is convertible when th

13、e issuing country promises to redeem the currency at current market rates.nConvertible currencies are traded in world currency markets.19-15What problems may arise when a firm operates in a country whose currency is not convertible?nIt becomes very difficult for multi-national companies to conduct b

14、usiness because there is no easy way to take profits out of the country.nOften, firms will barter for goods to export to their home countries.19-16What is difference between spot rates and forward rates?nSpot rates are the rates to buy currency for immediate delivery.nForward rates are the rates to

15、buy currency at some agreed-upon date in the future.19-17When is the forward rate at a premium to the spot rate?nIf the U.S. dollar buys fewer units of a foreign currency in the forward than in the spot market, the foreign currency is selling at a premium.nIn the opposite situation, the foreign curr

16、ency is selling at a discount.nThe primary determinant of the spot/forward rate relationship is relative interest rates.19-18What is interest rate parity?nInterest rate parity holds that investors should expect to earn the same return in all countries after adjusting for risk.country foreign in rate

17、interest periodic kcountry home in rateinterest periodic krate exchangespot stoday erate exchange forward period-t fk 1k 1 ef fh0tfh0t19-19Evaluating interest rate paritynSuppose one yen buys $0.0095 in the 30-day forward exchange market and kNOM for a 30-day risk-free security in Japan and in the U

18、.S. is 4%.nft = 0.0095nkh = 4% / 12 = 0.333%nkf = 4% / 12 = 0.333%19-20Does interest rate parity hold?nTherefore, for interest rate parity to hold, e0 must equal $0.0095, but we were given earlier that e0 = $0.0090.1 e0.00951.00331.0033 e0.00950019-21Which security offers the highest return?nThe Jap

19、anese security.nConvert $1,000 to yen in the spot market. $1,000 x 111.111 = 111,111 yen.nInvest 111,111 yen in 30-day Japanese security. In 30 days receive 111,111 yen x 1.00333 = 111,481 yen.nAgree today to exchange 111,481 yen 30 days from now at forward rate, 111,481/105.2632 = $1,059.07.n30-day

20、 return = $59.07/$1,000 = 5.907%, nominal annual return = 12 x 5.907% = 70.88%.19-22What is purchasing power parity (PPP)?nPurchasing power parity implies that the level of exchange rates adjusts so that identical goods cost the same amount in different countries.Ph = Pf(e0) -OR-e0 = Ph/Pf19-23If gr

21、apefruit juice costs $2.00 per liter in the U.S. and PPP holds, what is the price of grapefruit juice in Australia? e0 = Ph/Pf $0.6500 = $2.00/Pf Pf= $2.00/$0.6500 = 3.0769 Australian dollars.19-24What impact does relative inflation have on interest rates and exchange rates?nLower inflation leads to

22、 lower interest rates, so borrowing in low-interest countries may appear attractive to multinational firms.nHowever, currencies in low-inflation countries tend to appreciate against those in high-inflation rate countries, so the effective interest cost increases over the life of the loan.19-25Intern

23、ational money and capital marketsnEurodollar marketsna source of dollars outside the U.S.nInternational bondsnForeign bonds sold by foreign borrower, but denominated in the currency of the country of issue.nEurobonds sold in country other than the one in whose currency the bonds are denominated.19-2

24、6To what extent do average capital structures vary across different countries?nPrevious studies suggested that average capital structures vary among the large industrial countries.nHowever, a recent study, which controlled for differences in accounting practices, suggests that capital structures are more similar across different countries than previously thought.19-27Impact of multinational operationsnCash managementnDistances are greater.nAccess to more markets for loans and for temporary investments.n