INS Chapter 16 Additional Topics in International Capital Budgeting questions 1. Why should the required rate of return for a capital budgeting problem be project specific? Doesn’t the firm just have to satisfy an overall cost-of-capital requirement? Answer: The required rate of return for a capital budgeting problem is project specific because the firm is viewed as a portfolio of projects owned by the shareholders. It is the shareholder’s perspective that matters‚ and it is their
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physical commodity‚ for example gold. The only thing that gives money value is its relative scarcity and the confidence placed in it by the people that use it. Fiat money enables currency speculation and arbitrage to increase‚ for example the East Asian crisis 1997. The proposed gold dinar will not replace the domestic currencies. It will be used only for external trade among the participating countries. For the initial stage‚ gold dinar will be used for Bilateral Payment Agreements (BPAs) and will be
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This study examined the role of foreign exchange risk management (FERM) on performance management of exporting firms in developing countries taking Uganda as the case study. The conceptual framework relating to FERM attributes (currency risk assessment and currency risk management strategies) and the indicators of performance (profitability and sales growth) were constructed. A cross section and descriptive research design was adopted using a representative sample of 51 exporting firms and
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April 2010 from $1.3 trillion in April 2007." - BIS Structure * Decentralised ’interbank’ market * Main participants: Central Banks‚ commercial and investment banks‚ hedge funds‚ corporations & private speculators * The free-floating currency system arose from the collapse of the Bretton Woods agreement in 1971 * Online trading began in the mid to late 1990’s Source: BIS Triennial Survey 2010 Trading Hours * 24 hour market * Sunday 5pm EST through Friday 4pm EST. *
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measures. But exchange rates matter on a smaller scale as well: they impact the real return of an investor’s portfolio. Here we look at some of the major forces behind exchange rate movements. A higher currency makes a country’s exports more expensive and imports cheaper in foreign markets; a lower currency makes a country’s exports cheaper and its imports more expensive in foreign markets. A higher exchange rate can be expected to lower the country’s balance of trade‚ while a lower exchange rate would
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3. MONEY Money is everything that serves as universally excepted medium of exchange or means of payment. Functions of money: Medium of exchange – enables people to exchange goods and services for other commodities Store of value – at home money loses value because of inflation so it is better to deposit financial assets with a bank. Money can also be stored in other forms – securities (cenné papiry)‚ shares‚ or bonds (dluhopisy‚ obligace). We can also invest in properties‚ lands‚ arts‚ jewelry
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Union use the Euro as their common currency. Using the functions of money described in chapter 3‚ what are the advantages of a common currency? Money has 3 functions. It serves as a medium of exchange‚ a unit of account and as a store of value. Currency unions‚ such as the Euro‚ are aided by all three of these functions of money. By serving as a medium of exchange a common currency facilitates international transactions in the Eurozone. Without a common currency transaction between individuals
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SAMPLE TEST QUESTIONS I. Economics You have just been transferred to Sydney and cover Australia and New Zealand on the sovereign research desk. Australia and New Zealand operate under a free trade agreement. No barriers to trade exist‚ and both currencies float. In this environment‚ an increase in expected inflation in New Zealand would most likely cause what effect? Choose One Answer o o o An increase in exports from New Zealand to Australia An increase in imports to New Zealand from Australia
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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 the risk that the currency could depreciate over time Advantages of Fixed Exchange Rates to MNCs. In a fixed exchange rate environment‚ MNCs may be able to engage in international trade‚ direct foreign
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CPA REVIEWS NOTES- INTERNATIONAL FINANCE TOPIC 1: INTRODUCTION TO INTERNATIONAL FINANCE Learning objectives After reading this topic you should be able to: • • • • • • Understand the background of international finance Define international finance Explain the reason for studying international finance Explain the roles of international financial manager Understand the background of multinational corporations Distinguish between international finance and domestic finance 1.1 BACKGROUND TO INTERNATIONAL
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