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,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,Click to edit Master title style,Copyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.,21-,#,CHAPTER 21,INTERNATIONAL CORPORATE FINANCE,Copyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.,CHAPTER 21INTERNATIONAL CORPOR,1,Define how exchange rates are quoted,what they mean,and the difference between spot and forward exchange rates,Explain purchasing power parity,interest rate parity,unbiased forward rates,uncovered interest rate parity,and the international Fisher effect and their implications for exchange rate changes,Illustrate the different types of exchange rate risk and ways firms manage exchange rate risk,Show the impact of political risk on international business investing,Key Concepts and Skills,Copyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.,Define how exchange rates are,Terminology,Foreign Exchange Markets and Exchange Rates,Purchasing Power Parity,Interest Rate Parity,Unbiased Forward Rates,and the International Fisher Effect,International Capital Budgeting,Exchange Rate Risk,Political Risk,Chapter Outline,Copyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.,TerminologyChapter OutlineCopy,Considerations in International Financial Management,Need to consider the effect of exchange rates when operating in more than one currency,Must consider the political risk associated with actions of foreign governments,More financing opportunities when you consider the international capital markets,which may reduce the firms cost of capital,Domestic vs.International Financial Management,Copyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.,Considerations in Internationa,American Depositary Receipt(ADR),Cross-rate,Eurobond,Eurocurrency(Eurodollars),Foreign bonds,Gilts,London Interbank Offered Rate(LIBOR),Swaps,International Finance Terminology,Copyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.,American Depositary Receipt(A,The number of exchanges in foreign countries continues to increase,as does the liquidity on those exchanges.,Exchanges that allow for the flow of capital are extremely important to developing countries.,The United States has one of the most developed capital markets in the world,but foreign markets are becoming more competitive and are often willing to try more innovative ways to do business.,Global Capital Markets,Copyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.,The number of exchanges in for,The price of one countrys currency in terms of another countrys currency,Most currency is quoted in terms of dollars.,Consider the following quote:,Euro1.18360.8449,The first number(1.1836)is how many U.S.dollars it takes to buy 1 Euro.,The second number(0.8449)is how many Euros it takes to buy$1.,The two numbers are reciprocals of each other(1/1.1836=0.7210).,Exchange Rates,Copyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.,The price of one countrys cur,Suppose you have$10,000.Based on the rates in Figure 21.1,how many Japanese Yen can you buy?,Exchange rate=102.32 Yen per dollar,Buy$10,000(102.32)=1,023,200 Yen,Suppose you are visiting Mumbai and you want to buy a souvenir that costs 1,000 Indian Rupees.How much does it cost in U.S.dollars?,Exchange rate=60.150 rupees per dollar,Cost=1,000/60.150=$16.63,Example:Exchange Rates,Copyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.,Suppose you have$10,000.Base,Thinking about going to Mexico for spring break or Japan for your summer vacation?,How many pesos or yen can you get in exchange for$1,000?,Go to the,XE website,to find out.,Work the Web Example,Copyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.,Thinking about going to Mexico,We observe the following quotes:,1 Euro per$1,2 Swiss Franc per$1,0.4 Euro per 1 Swiss Franc,What is the cross rate for Euros per Swiss Franc?,(1 Euro/$1)/(2 SF/$1)=0.5 Euro/SF,This is not the same as the quote above(0.4 Euro per Swiss Franc).,Triangle Arbitrage is the act of exchanging through three currencies to exploit a mispriced trio of currency quotes.,Example:Triangle Arbitrage,Copyrig
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