Chapter 21 International Financial Management
Jan 17, 2018
Chapter 21
International FinancialManagement
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PPT 21-1FIGURE 21-11 euro (E) to the U.S. $and the British pound
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PPT 21-2
TABLE 21-1International sales ofselected U.S. companies
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PPT 21-3FIGURE 21-2Exchange rates tothe dollar
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PPT 21-4
TABLE 21-2Key currency cross rates(late New York trading,Wednesday, April 30, 2003)
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PPT 21-5
FIGURE 21-3Risk reduction frominternationaldiversification
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PPT 21-4
TABLE 21A-1Cash flow analysis of a foreign investment
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Chapter 21 - Outline LT 21-1
Multinational Corporations (MNCs)Exchange RatesSpot Rates and Forward RatesManaging Foreign Exchange RiskFinancing International Business
Operations
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Multinational Corporations LT 21-2
Multinational Corporations (MNCs) –firms doing business in more than one country
Often 30% or more of a firm’s business activities are carried on outside its national borders
4 basic forms of multinational corporations:– Exporter– Licensing Agreement– Joint Venture– Fully Owned Foreign Subsidiary
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Exchange Rates LT 21-3
The exchange rate is the price or value of one currency in terms of another
Published daily in The Wall Street Journal Factors Influencing Exchange Rates:
– Supply of and Demand for each Currency– Inflation– Interest Rates– Balance of Payments– Government Policies– Other Factors
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Spot Rates and Forward Rates LT 21-4
Spot Rate:– the exchange rate between currencies for immediate
delivery–“on-the-spot” rate
Forward Rate: – the exchange rate that is established for future
delivery– deals with a specified future time
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Managing ForeignExchange Risk LT 21-5
Foreign Exchange Risk refers to the risk involved in fluctuating or changing exchange rates
It affects importers, exporters, investors, and multinational firms
Strategies for Dealing with Foreign Exchange Risk:– Forward Exchange Market Hedge– Money Market Hedge– Currency Futures Market Hedge– Foreign Asset Management Programs
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Financing International Business Operations LT 21-6
There are several ways of funding foreign transactions:– Eximbank (Export-Import Bank)– Loans from the Parent Company or a Sister Affiliate– Eurodollar Loans– Eurobond Market– International Equity Markets– The International Finance Corporation (IFC)