Lecture 1 – Multinational Financial Management: An Overview Review goals of multinational corporations (MNCs) and conflicts with those goals. Describe the key theories that justify international business. To explain the common methods used to conduct international business. Multinational Corporations Goal of the MNC – maximize shareholder wealth Conflicts against this goal Agency problems – managers act in their own interest
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purchase a currency futures contract for the currency that it will be required. A forward hedge differs from a futures hedge in that forward contracts are used instead of futures contract to lock in the future exchange rate at which the firm will buy or sell a currency .An exposure to exchange rate movements need not necessarily be hedged‚ despite the ease of futures and forward hedging. Based on the firm’s degree of risk aversion‚ the hedge-versus-no-hedge decision can be made by comparing the known
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CHAPTER 6 Fixed Exchange Rate System In a fixed exchange rate system‚ exchange rates are either held constant or allowed to fluctuate only within very narrow boundaries. A fixed exchange rate would be beneficial to a country for the following reasons. First‚ exporters and importers could engage in international trade without concern about exchange rate movements of the currency to which their local currency is linked. Any firms that accept the foreign currency as payment would be insulated from
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Monetary-Non-monetary Method‚ Temporal Method‚ and the Current Rate Method. 2. Under the current-non-current method‚ current assets and current liabilities were translated using the current exchange rate‚ while non-current assets and liabilities were translated using historical exchange rate(s). Later‚ amendments changed certain assets and liabilities to the current rate. Income statement items‚ for the most part‚ were translated using the average exchange rate for the period. The translation gain or loss
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2.Should Blades allow its yen position to be unhedged? Describe the tradeoff. The case stated that “the futures price on yen has historically exhibited a slight discount from the existing spot rate”. In this case‚ the exercise price of the option may be higher relative to the future spot rate encouraging the investor to let the option expire. If the option were to expire the corporation would still have to pay the premium and any other non-exercise costs. An unhedged position might be the
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Exchange Rate This is the rate at which the currency of one country would change hands with currency of another country. E.g. $1 = SLR 130 Types of Exchange Rate 1. Floating Rate This rate depends on a levels of the international trade of a country and it does not interfere with the government of that country. 2. Fixed Rate This is the rate that the government of the country would set its own currency rate and it is not depending on the market rate. 3. Dirty Float This is the rate that
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describe in your own words the significance and differences in foreign currency exchange rates. Foreign Currency Exchange Rate is significant because it’s the way a country exchanges one currency for another. It can also be referred to simply as an exchange rate. Foreign Currency Exchange is important because it determines the value of foreign investments. Importing and exporting is greatly affected in each country by the rate at which goods and supplies are sold. This in turn affects the country’s financial
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are two sides of the same coin. 2. The nominal exchange rate is the relative price of the currency of two countries. The real exchange rate‚ sometimes called the terms of trade‚ is the relative price of the goods of two countries. It tells us the rate at which we can trade the goods of one country for the goods of another. 3. A cut in defense spending increases government saving and‚ hence‚ increases national saving. Investment depends on the world rate and is unaffected. Hence‚ the increase in saving
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Chapter 3 International Financial Markets South-Western/Thomson Learning © 2006 Chapter Objectives To describe the background and corporate use of the following international financial markets: foreign exchange market‚ international money market‚ international credit market‚ international bond market‚ and international stock markets. 3-2 Motives for Using International Financial Markets • The markets for real or financial assets are prevented from full
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currencies‚ evaluating the sum of adjustment required on the exchange rate between states sequentially for the exchange being equal to (or on par with) purchasing power of every currency (Balassa‚ 2004). This theory asks how much capital would be required for purchasing the similar goods and services in 2 states‚ and utilizes that to estimate the implicit foreign exchange rate (Redding‚ 2000). By means of that purchasing power parity rate‚ the amount of capital therefore has the similar purchasing
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