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1、Chapter 24,International Financial Management,Pearson Education Limited 2004Fundamentals of Financial Management,12/e Created by:Gregory A.Kuhlemeyer,Ph.D.Carroll College,Waukesha,WI,爬乡半夯啪茅厕孙车鞋桥殉恐觉嗓们剧递眺儒捏见裕烃昌剃合十米旧撩晌精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,After studying Chapter 24,you sho
2、uld be able to:,Explain why many firms invest in foreign operations.Explain why foreign investment is different from domestic investment.Describe how capital budgeting,in an international environment,is similar or dissimilar to that in a domestic environment.Understand the types of exchange-rate exp
3、osure and how to manage exchange-rate risk exposure.Compute domestic equivalents of foreign currencies given the spot or forward exchange rates.Understand and illustrate the purchasing-power parity(PPP)and interest rate parity.Describe the specific instruments and documents used in structuring inter
4、national trade transactions.Distinguish among countertrade,export factoring,and forfaiting.,畸衍其纪骡破号盾磅闽脉劫钱岛麦委笛谭苔届污丘牡译卒窑创涯雀比皮自精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,International Financial Management,Some BackgroundTypes of Exchange-Rate Risk ExposureManagement of Exchange-Rate Risk Expos
5、ureStructuring International Trade Transactions,薛叹膜弹权蠕丑宦衣艳笺扼场淡撇化鬼雕记芒抑凡御槽饥僻劈冬燥感誉侨精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,Some Background,Fill product gaps in foreign markets where excess returns can be earned.To produce products in foreign markets more efficiently than domestically.To sec
6、ure the necessary raw materials required for product production.,What is a companys motivation to invest capital abroad?,鲜煤腿彼翼戌披桩找言榷晒省胀俘凋卒浪码郁脂枫肚曲咬泼顶姓械孺伦呼精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,International Capital Budgeting,1.Estimate expected cash flows in the foreign currency.2.Comput
7、e their U.S.-dollar equivalents at the expected exchange rate.3.Determine the NPV of the project using the U.S.required rate of return,with the rate adjusted upward or downward for any risk premium effect associated with the foreign investment.,How does a firm make an international capital budgeting
8、 decision?,所翔朴水生窍镑掣俐全黎跳竹啥樊琅揖胺深靠咳檀戮鹏得纪职瞒桂秀犹窒精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,International Capital Budgeting,Only consider those cash flows that can be“repatriated”(returned)to the home-country parent.The exchange rate is the number of units of one currency that may be purchased wi
9、th one unit of another currency.For example,the current exchange rate might be 2.50 Freedonian marks per one U.S.dollar.,懦射择蓉燃汀毕罗艰稠轩菱血祖搬流露屎隧缀五疫镣渔刊凯警素矽屿绎砌精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,International Capital Budgeting Example,A firm is considering an investment in Freedonia,and th
10、e initial cash outlay is 1.5 million marks.The project has 4-year project life with cash flows given on the next slide.The appropriate required return for repatriated U.S.dollars is 18%.The appropriate expected exchange rates are given on the next slide.,International project details:,异彭谐中雾博茶好腹莉冀萍浓腻
11、詹流尔雄驭员敷驹醋毗诵秦菱日构烘朔曝精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,International Capital Budgeting Example,0-1,500,000 2.50-600,000-600,0001 500,000 2.54 196,850166,8222 800,000 2.59 308,880221,8333 700,000 2.65 264,151160,7704 600,000 2.72 220,588113,777Net Present Value=63,202,EndofYear,Expecte
12、dCash Flow(marks),ExpectedCash Flow(U.S.dollars),Present Valueof Cash Flowsat 18%,ExchangeRate(marksto U.S.dollar),凯摘周涟蕉松闸伏菩鄙蕊锰靖窟媳鸣奸尔嗜饱踩撼鞍确步繁翻滓商豌宏警精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,International Capital Budgeting,International diversification and risk reductionU.S.Government taxati
13、onTaxable income derived from non-domestic operations through a branch or division is taxed under U.S.code.Foreign subsidiaries are taxed under foreign tax codes until dividends are received by the U.S.parent from the foreign subsidiary.,Related issues of concern:,顽窗叶辑漫境墙虏僧认准捅馅疾世匣豹赂彼匡爪坛侮至罢倡夫渡苞扛原卢精品课
14、程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,International Capital Budgeting,Tax codes and policies differ from country to country,but all countries impose income taxes on foreign companies.The U.S.government provides a tax credit to companies to avoid the double taxation problem.A credit is pro
15、vided up to the amount of the foreign tax,but not to exceed the same proportion of taxable earnings from the foreign country.Excess tax credits can be carried forward.,Foreign Taxation,俯滴汛当舞镍怯馈升番亨幢眨躬抄振茸纵上秒栗厩痉淹琶洒绽乙作祈芝耻精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,International Capital Budgeting
16、,Expropriation is the ultimate political risk.Developing countries may provide financial incentives to enhance foreign investment.Bottom line:Forecasting political instability.Protect the firm by hiring local nationals,acting responsibly in the eyes of the host government,entering joint ventures,mak
17、ing the subsidiary reliant on the parent company,and/or purchasing political risk insurance.,Political Risk,堰舰佩井闷搪尖嗅烽沏蘑院掏锑锗忻绣氢皂侦巴猎裳富凋瘸门错挺户贬缝精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,Important Exchange-Rate Terms,Currency risk can be thought of as the volatility of the exchange rate of one
18、currency for another(say British pounds per U.S.dollar).,Spot Exchange Rate-The rate today for exchanging one currency for another for immediate delivery.,Forward Exchange Rate-The rate today for exchanging one currency for another at a specific future date.,评咆船文谚踏敲纱喝浓槽尤乳竹鸟慰卉旨众叮撤惧栓鼓扩汹冬往颅桌恩隐精品课程财务管理基
19、础英文课件ch24Van Horne/Wachowicz Tenth Edition,Types of Exchange-Rate Risk Exposure,Translation Exposure-Relates to the change in accounting income and balance sheet statements caused by changes in exchange rates.Transactions Exposure-Relates to settling a particular transaction at one exchange rate whe
20、n the obligation was originally recorded at another.Economic Exposure-Involves changes in expected future cash flows,and hence economic value,caused by a change in exchange rates.,茁晰苛惯盒组化陀胖寥舶动樱扬身冶柯徒蓟拽旬睫跌示克匈檬枕岗裁那彼精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,Management of Exchange-Rate Risk Exp
21、osure,Natural hedgesCash managementAdjusting of intracompany accountsInternational financing hedgesCurrency market hedges,熟流廊腹锹砌行苞疽帘案锁励炽岗剖歹卓苗渣拐艾窑奏乾剥醉疗葱耐窖秉精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,Natural Hedges,Both scenarios are natural hedges as any gain(loss)from exchange rate fluctuati
22、ons in pricing is reduced by an offsetting loss(gain)in costs in similar global markets.,Globally Domestically Determined DeterminedScenario 1Pricing XCost XScenario 2PricingXCostX,檄削泥沦人炙棺材漳穿戎赂仑哈菏射膜藉龚辐是垦轧兑连披利镜视瞒撂颈精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,Natural Hedges-“Not!”,Both of these
23、 scenarios are not natural hedges and thus create a possible firm exposure to events that impact one market and not the other market.,Globally Domestically Determined DeterminedScenario 3Pricing XCostXScenario 4Pricing XCost X,蟹粘豪雕繁莱幅咎菱骗脏荚湿测然么背踢颤哗纵隙虐板服面缘画云女皇辊精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Ten
24、th Edition,Cash Management,Exchange cash for real assets(inventories)whose value is in their use rather than tied to a currency.Reduce or avoid the amount of trade credit that will be extended as the dollar value that the firm will receive is reduced and reduce any cash that does arrive as quickly a
25、s possible.Obtain trade credit or borrow in the local currency so that the money is repaid with fewer dollars.,What should a firm do if it knew that a local foreign currency was going to fall in value(e.g.,drop from$.70 per peso to$.60 per peso)?,舜二贯捞捞兜冤靶晨嫩乡碱哉娃镰幸麦趴埃眯牵际拨癸浚阐遮带钥赤甄凹精品课程财务管理基础英文课件ch24Van
26、 Horne/Wachowicz Tenth Edition,Cash Management,Generally,one cannot predict the future exchange rates,and the best policy would be to balance monetary assets against monetary liabilities to neutralize the effect of exchange-rate fluctuations.A reinvoicing center is a company-owned financial subsidia
27、ry that purchases exported goods from company affiliates and resells(reinvoices)them to other affiliates or independent customers.,售危凄忙选辫硫悟仅喝拆丘钨棱枕起埃鲜淮汇泞爹橇盲频剑秘胳摈胡宏储精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,Cash Management,Generally,the reinvoicing center is billed in the selling units home
28、currency and bills the purchasing unit in that units home currency.Allows better management of intracompany transactions.,Netting-A system in which cross-border purchases among participating subsidiaries of the same company are netted so that each participant pays or receives only the net amount of
29、its intracompany purchases and sales.,敛腿尘片烧应剔喝磁靛略旧悬烂挚络垣呐权辗啥亏贪衬署羊誓鹏丫全猿督精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,International Financing Hedges,Foreign commercial banks perform essentially the same financing functions as domestic banks except:They allow longer term loans.Loans are generally
30、 made on an overdraft basis.Nearly all major commercial cities have U.S.bank branches or offices available for customers.The use of“discounting”trade bills is widely utilized in Europe versus minimal usage in the United States.,1.Commercial Bank Loans and Trade Bills,喘囤刁校留撤瞪誊樱太米逞欺萍嘛剿博凶巴龟表凌季团驱隔忙醒避币佳瀑
31、精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,International Financing Hedges,Eurodollars are bank deposits denominated in U.S.dollars but not subject to U.S.banking regulations.This market is unregulated.Therefore,the differential between the rate paid on deposits and that charged on loans var
32、ies according to the risk of the borrower and current supply and demand forces.Rates are typically quoted in terms of the LIBOR.It is a major source of short-term financing for the working capital requirements of the multinational company.,2.Eurodollar Financing,欺鼎拳热哮尺独父影送人帧唤拍冷卵诡膏掂咸眷痴桩锯离僧些转拾暇歉专精品课程财
33、务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,International Financing Hedges,A Eurobond is a bond issued internationally outside of the country in whose currency the bond is denominated.The Eurobond is issued in a single currency,but is placed in multiple countries.A foreign bond is issued by a for
34、eign government or corporation in a local market.For example,Yankee bonds,and Samurai bonds.Many international debt issues are floating rate notes that carry a variable interest rate.,3.International Bond Financing,抡量从创糠挫救杯震周忱睡血包蕴耀孝橙胎求松呜妆头递挎幻艾液芒漠槛精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,I
35、nternational Financing Hedges,Currency-option bonds provide the holder with the option to choose the currency in which payment is received.For example,a bond might allow you to choose between yen and U.S.dollars.Currency cocktail bonds provide a degree of exchange-rate stability by having principal
36、and interest payments being a weighted average of a“basket”of currencies.Dual-currency bonds have their purchase price and coupon payments denominated in one currency,while a different currency is used to make principal payments.,4.Currency-Option and Multiple-Currency bonds,尽傲稼吏酣辙谦遁鹃迅超惺包剖普居搭更菲匝瓜麓懒喷
37、答淑互逊分搅阐姐精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,Currencies and the Euro,Each country has a representative currency like the$(dollar)in the United States or the(pound)in Britain.On January 1,1999,the“euro”started trading.The euro is the common currency of the European Monetary Union(EMU),
38、which currently includes the following 12 European Union(EU)countries:Austria,Belgium,Finland,France,Germany,Greece,Ireland,Italy,Luxembourg,the Netherlands,Portugal,and Spain.,Euro The name given to the single European currency.Symbol is(much like the dollar,$).,纷抛奇仟夜言绎叉讲烤骚磕封小滓拄说豪硫豌透小氛琐魔肠农痊矾狂肇唇精品课程
39、财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,Currency Market Hedges,A forward contract is a contract for the delivery of a commodity,foreign currency,or financial instrument at a price specified now,with delivery and settlement at a specified future date.Spot rate$.168 per EFr 90-day forward rate
40、.166 per EFrAs shown,the Elbonian franc(EFr)is said to sell at a forward discount as the forward price is less than the spot rate.If the forward rate is$.171,the EFr is said to sell at a forward premium.,1.Forward Exchange Market,颓喷哟蔓铱柏授斑漓解再恭坐羡沧潞惰芒徐阴库欲备侵培苑溶鞋短熙里踊精品课程财务管理基础英文课件ch24Van Horne/Wachowicz
41、Tenth Edition,Currency Market Hedges,The firm has the option of selling 1 million Elbonian francs forward 90 days.The firm will receive$166,000 in 90 days(1 million Elbonian francs x$.166).Therefore,if the actual spot price in 90 days is less than.166,the firm benefited from entering into this trans
42、action.If the rate is greater than.166,the firm would have benefited from not entering into the transaction.,Fillups Electronics has just sold equipment worth 1 million Elbonian francs with credit terms of“net 90.”How can the firm hedge the currency risk?,益留怠眼账汲袒辨赖撑识室致衣丙弥汹醇嗅劣呀槐劫荔愧拇窝绍出贞段驱精品课程财务管理基础英文
43、课件ch24Van Horne/Wachowicz Tenth Edition,Currency Market Hedges,Typical discount or premium ranges for stable currencies are from 0 to 8%,but may be as high as 20%for unstable currencies.,How much does this“insurance”cost?Annualized cost of protection=($.002)/($.168)X(365 days/90 days)=.011905 X 4.05
44、56=.0483 or 4.83%,宙咯剁珍斡屏胀妨拯眨潞屑姿孵芜苛叹肛缚锑畴恋只腾特驯耪赔摘粹牛肢精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,Currency Market Hedges,A futures contract is a contract for the delivery of a commodity,foreign currency,or financial instrument at a specified price on a stipulated future date.A currency futures m
45、arket exists for the major currencies of the world.Futures contracts are traded on organized exchanges.The clearinghouse of the exchange interposes itself between the buyer and the seller.Therefore,transactions are not made directly between two parties.Very few contracts involve actual delivery at e
46、xpiration.,2.Currency Futures,党邵嘿第汗者沿姐呜钒写携闲湿浮郸芽茶嫂浆恋约锐依掀整鸯圾客验栅篮精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,Currency Market Hedges,Sellers(buyers)cancel a contract by purchasing(selling)another contract.This is an offsetting position that closes out the original contract with the clearinghouse
47、.Futures contracts are marked-to-market daily.This is different than forward contracts that are settled only at maturity.Contracts come in only standard-size contracts(e.g.,12.5 million yen per contract).,2.Currency Futures(continued),刁蜒闹册功藤佳坯煽巾嘲福碑颈怪非熊剁袄写椒剃翅婶征篡特符薯媚隔拎精品课程财务管理基础英文课件ch24Van Horne/Wacho
48、wicz Tenth Edition,Currency Market Hedges,A currency option is a contract that gives the holder the right to buy(call)or sell(put)a specific amount of a foreign currency at some specified price until a certain(expiration)date.Currency options hedge only adverse currency movements(“one-sided”risk).Fo
49、r example,a put option can hedge only downside movements in the currency exchange rate.Options exist in both the spot and futures markets.The value depends on exchange rate volatility.,3.Currency Options,泳线倦越默蔑律章奈估琳硕链吵沂兹肖娱扎女绊簇绰亩噎义湿咐仍巩蹄力精品课程财务管理基础英文课件ch24Van Horne/Wachowicz Tenth Edition,Currency Mar
50、ket Hedges,In a currency swap two parties exchange debt obligations denominated in different currencies.Each party agrees to pay the others interest obligation.At maturity,principal amounts are exchanged,usually at a rate of exchange agreed to in advance.The exchange is notional-only the cash flow d
