财务管理-第二十一章-ppt课件.ppt

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1、Chapter 21International Corporate Finance,McGraw-Hill/Irwin,Copyright 2013 by The McGraw-Hill Companies,Inc.All rights reserved.,Key Concepts and Skills,Understand how exchange rates are quoted and what they meanKnow the difference between spot and forward ratesUnderstand purchasing power parity and

2、 interest rate parity and the implications for changes in exchange ratesUnderstand the basics of international capital budgetingUnderstand the impact of political risk on international business investing,21-2,Chapter Outline,TerminologyForeign Exchange Markets and Exchange RatesPurchasing Power Pari

3、tyInterest Rate Parity,Unbiased Forward Rates,and the International Fisher EffectInternational Capital BudgetingExchange Rate RiskPolitical Risk,21-3,Domestic vs.International Financial Management,Considerations in International Financial ManagementNeed to consider the effect of exchange rates when

4、operating in more than one currencyMust consider the political risk associated with actions of foreign governmentsMore financing opportunities when you consider the international capital markets,which may reduce the firms cost of capital,21-4,International Finance Terminology,American Depositary Rec

5、eipt(ADR)Cross-rateEurobondEurocurrency(Eurodollars)Foreign bondsGiltsLondon Interbank Offered Rate(LIBOR)Swaps,21-5,Global Capital Markets,The number of exchanges in foreign countries continues to increase,as does the liquidity on those exchangesExchanges that allow for the flow of capital are extr

6、emely important to developing countriesThe 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,21-6,Exchange Rates,The price of one countrys currency in terms of an

7、otherMost currency is quoted in terms of dollarsConsider the following quote:Euro1.2695.7877The first number(1.2695)is how many U.S.dollars it takes to buy 1 EuroThe second number(.7877)is how many Euros it takes to buy$1The two numbers are reciprocals of each other(1/1.2695=.7877),21-7,Example:Exch

8、ange Rates,Suppose you have$10,000.Based on the rates in Figure 21.1,how many Japanese Yen can you buy?Exchange rate=82.13 Yen per dollarBuy 10,000(82.13)=821,300 YenSuppose 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?Exc

9、hange rate=45.914 rupees per dollarCost=1,000/45.914=$21.78,21-8,Work the Web Example,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?Click on the web surfer to find out,21-9,Example:Triangle Arbitrage,We obser

10、ve the following quotes1 Euro per$12 Swiss Franc per$1.4 Euro per 1 Swiss FrancWhat is the cross rate?(1 Euro/$1)/(2 SF/$1)=.5 Euro/SFWe have$100 to invest:buy low,sell highBuy$100(1 Euro/$1)=100 Euro;use Euro to buy SFBuy 100 Euro/(.4 Euro/1 SF)=250 SF;use SF to buy dollarsBuy 250 SF/(2 SF/$1)=$125

11、Make$25 risk-free,21-10,Types of Transactions,Spot trade exchange currency immediatelySpot rate the exchange rate for an immediate tradeForward trade agree today to exchange currency at some future date and some specified price(also called a forward contract)Forward rate the exchange rate specified

12、in the forward contractIf the forward rate is higher than the spot rate,the foreign currency is selling at a premium(when quoted as$equivalents)If the forward rate is lower than the spot rate,the foreign currency is selling at a discount,21-11,Absolute Purchasing Power Parity,Price of an item should

13、 be the same in real terms,regardless of the currency used to purchase itRequirements for absolute PPP to holdTransaction costs are zeroNo barriers to trade(no taxes,tariffs,etc.)No difference in the commodity between locationsFor most goods,absolute PPP rarely holds in practice,21-12,Relative Purch

14、asing Power Parity,Provides information about what causes changes in exchange ratesThe basic result is that exchange rates depend on relative inflation between countriesE(St)=S01+(hFC hUS)tBecause absolute PPP doesnt hold for many goods,we will focus on relative PPP from here on out,21-13,Example:PP

15、P,Suppose the Canadian spot exchange rate is 1.18 Canadian dollars per U.S.dollar.U.S.inflation is expected to be 3%per year,and Canadian inflation is expected to be 2%.Do you expect the U.S.dollar to appreciate or depreciate relative to the Canadian dollar?Since expected inflation is higher in the

16、U.S.,we would expect the U.S.dollar to depreciate relative to the Canadian dollar.What is the expected exchange rate in one year?E(S1)=1.181+(.02-.03)1=1.1682,21-14,Covered Interest Arbitrage,Examines the relationship between spot rates,forward rates,and nominal rates between countriesAgain,the form

17、ulas will assume that the exchange rates are quoted in terms of foreign currency per U.S.dollarThe U.S.risk-free rate is assumed to be the T-bill rate,21-15,Example:Covered Interest Arbitrage,Consider the following informationS0=.8 Euro/$RUS=4%F1=.7 Euro/$RE=2%What is the arbitrage opportunity?Borro

18、w$100 at 4%Buy$100(.8 Euro/$)=80 Euro and invest at 2%for 1 yearIn 1 year,receive 80(1.02)=81.6 Euro and convert back to dollars81.6 Euro/(.7 Euro/$)=$116.57 and repay loanProfit=116.57 100(1.04)=$12.57 risk free,21-16,Interest Rate Parity,Based on the previous example,there must be a forward rate t

19、hat would prevent the arbitrage opportunity.Interest rate parity defines what that forward rate should be:,21-17,Unbiased Forward Rates,The current forward rate is an unbiased estimate of the future spot exchange rateThis means that,on average,the forward rate will equal the future spot rateIf the f

20、orward rate is consistently too highThose who want to exchange yen for dollars would only be willing to transact in the future spot marketThe forward price would have to come down for trades to occurIf the forward rate is consistently too lowThose who want to exchange dollars for yen would only be w

21、illing to transact in the future spot marketThe forward price would have to come up for trades to occur,21-18,Uncovered Interest Parity,What we know so far:PPP:E(S1)=S01+(hFC hUS)IRP:F1=S01+(RFC RUS)UFR:F1=E(S1)Combining the formulas we get:E(S1)=S01+(RFC RUS)for one periodE(St)=S01+(RFC RUS)t,21-19

22、,International Fisher Effect,Combining PPP and UIP we can get the International Fisher EffectRUS hUS=RFC hFCThe International Fisher Effect tells us that the real rate of return must be constant across countriesIf it is not,investors will move their money to the country with the higher real rate of

23、return,21-20,Overseas Production:Alternative Approaches,Home Currency ApproachEstimate cash flows in foreign currencyEstimate future exchange rates using UIPConvert future cash flows to dollarsDiscount using domestic required returnForeign Currency ApproachEstimate cash flows in foreign currencyUse

24、the IFE to convert domestic required return to foreign required returnDiscount using foreign required returnConvert NPV to dollars using current spot rate,21-21,Home Currency Approach,Your company is looking at a new project in Mexico.The project will cost 9 million pesos.The cash flows are expected

25、 to be 2.25 million pesos per year for 5 years.The current spot exchange rate is 10.91 pesos per dollar.The risk-free rate in the US is 4%,and the risk-free rate in Mexico 8%.The dollar required return is 15%.Should the company make the investment?,21-22,Foreign Currency Approach,Use the same inform

26、ation as the previous example to estimate the NPV using the Foreign Currency ApproachRelative inflation difference from the International Fisher Effect is 8%-4%=4%Required Return=(1.15*1.04 1)=19.6%PV of future cash flows=6,788,537 pesosNPV=6,788,537 9,000,000=-2,211,463 pesosNPV=-2,211,463/10.91=-2

27、02,701,21-23,Repatriated Cash Flows,Often,some of the cash generated from a foreign project must remain in the foreign country due to restrictions on repatriationRepatriation can occur in several waysDividends to parent companyManagement fees for central servicesRoyalties on the use of trade names a

28、nd patents,21-24,Short-Run Exposure,Risk from day-to-day fluctuations in exchange rates and the fact that companies have contracts to buy and sell goods in the short-run at fixed pricesManaging riskEnter into a forward agreement to guarantee the exchange rateUse foreign currency options to lock in e

29、xchange rates if they move against you,but benefit from rates if they move in your favor,21-25,Long-Run Exposure,Long-run fluctuations come from unanticipated changes in relative economic conditionsCould be due to changes in labor markets or governmentsMore difficult to hedgeTry to match long-run in

30、flows and outflows in the currencyBorrowing in the foreign country may mitigate some of the problems,21-26,Translation Exposure,Income from foreign operations must be translated back to U.S.dollars for accounting purposes,even if foreign currency is not actually converted back to dollarsIf gains and

31、 losses from this translation flowed through directly to the income statement,there would be significant volatility in EPSExisting accounting regulations require that all cash flows be converted at the prevailing exchange rates with currency gains and losses accumulated in a special account within s

32、hareholders equity,21-27,Managing Exchange Rate Risk,Large multinational firms may need to manage the exchange rate risk associated with several different currenciesThe firm needs to consider its net exposure to currency risk instead of just looking at each currency separatelyHedging individual curr

33、encies could be expensive and may actually increase exposure,21-28,Political Risk,Changes in value due to political actions in the foreign countryInvestment in countries that have unstable governments should require higher returnsThe extent of political risk depends on the nature of the businessThe

34、more dependent the business is on other operations within the firm,the less valuable it is to othersNatural resource development can be very valuable to others,especially if much of the ground work in developing the resource has already been doneLocal financing can often reduce political risk,21-29,

35、Quick Quiz,What does an exchange rate tell us?What is triangle arbitrage?What are absolute purchasing power parity and relative purchasing power parity?What are covered interest arbitrage and interest rate parity?What are uncovered interest parity and the International Fisher Effect?What are the two

36、 methods for international capital budgeting?What is the difference between short-run interest rate exposure and long-run interest rate exposure?How can you hedge each type?What is political risk,and what types of businesses face the greatest risk?,21-30,Ethics Issues,You are“stuck”in a customs line

37、 entering into a foreign country.A$20“expediting fee”could be paid to forgo the line and enter immediately.What do you do?,21-31,Comprehensive Problem,Assume that one U.S.dollar buys 115 Japanese Yen,and one U.S.dollar buys.54 Pound Sterling.What must the dollar pound exchange rate be in order to prevent triangular arbitrage(ignore transaction costs)?,21-32,End of Chapter,21-33,