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1、19 - 1Copyright 2001 by Harcourt, Inc.All rights reserved.nMultinational vs. domestic financial management nExchange rates and trading in foreign exchange nInternational monetary system nInternational money and capital marketsCHAPTER 19 Multinational Financial Management19 - 2Copyright 2001 by Harco
2、urt, Inc.All rights reserved.What is a multinational corporation?A corporation that operates in two or more countries.19 - 3Copyright 2001 by Harcourt, Inc.All rights reserved.1. To seek new markets. 2. To seek raw materials. 3. To seek new technology. 4. To seek production efficiency. 5. To avoid p
3、olitical and regulatory hurdles. 6.To diversify.Why do firms expand into other countries?19 - 4Copyright 2001 by Harcourt, Inc.All rights reserved.1. Different currency denominations. 2. Economic and legal ramifications. 3. Language differences. 4. Cultural differences. 5. Role of governments. 6. Po
4、litical risk.What are the six major factors that distinguish multinational from domestic financial management?19 - 5Copyright 2001 by Harcourt, Inc.All rights reserved.U.S. $ to buy1 Unit Japanese yen 0.009 Australian dollar 0.650 nAre these currency prices direct or indirect quotations?l Since they
5、 are prices of foreign currencies expressed in dollars, they are direct quotations.Consider the following exchange rates:19 - 6Copyright 2001 by Harcourt, Inc.All rights reserved.The number of units of foreign currency needed to purchase one U. S. dollar, or the reciprocal of a direct quotation.What
6、 is an indirect quotation?19 - 7Copyright 2001 by Harcourt, Inc.All rights reserved.Calculate the indirect quotations for yen and Australian dollars.# of Units of ForeignCurrency per U.S. $ Japanese yen 111.11 Australian dollar1.5385Yen: 1/0.009 = 111.11. A. Dollar: 1/0.650 = 1.5385.19 - 8Copyright
7、2001 by Harcourt, Inc.All rights reserved.The exchange rate between any two currencies. Cross rates are actually calculated on the basis of various currencies relative to the U. S. dollar.What is a cross rate?19 - 9Copyright 2001 by Harcourt, Inc.All rights reserved.nCross rate = x= 111.11 x 0.650 =
8、 72.22 yen/A. dollar.nCross rate = x= 1.5385 x 0.009 = 0.0138 A. dollars/yen.Calculate the two cross rates between yen and Australian dollars.Yen U.S. Dollars U.S. Dollar A. DollarA. Dollars U.S. Dollars U.S. Dollar Yen19 - 10Copyright 2001 by Harcourt, Inc.All rights reserved.nThe two cross rates a
9、re reciprocals of one another.nThey can be calculated by dividing either the direct or indirect quotations.Note:19 - 11Copyright 2001 by Harcourt, Inc.All rights reserved.Price = (1.75)(1.50)(111.11)= 291.66 yen.The firm can produce a liter of orange juice and ship it to Japan for $1.75. If the firm
10、 wants a 50% markup on the product, what should the juice sell for in Japan?19 - 12Copyright 2001 by Harcourt, Inc.All rights reserved.250 yen= 250(0.0138) = 3.45 A. dollars.6 3.45= 2.55 Australian dollar profit. 1.5385 A. dollars = 1 U. S. dollar. Dollar profit = 2.55/1.5385 = $1.66.Now the firm be
11、gins producing the orange juice in Japan. The product costs 250 yen to produce and ship to Australia, where it can be sold for 6 Australian dollars. What is the dollar profit on the sale?19 - 13Copyright 2001 by Harcourt, Inc.All rights reserved.The risk that the value of a cash flow in one currency
12、 translated to another currency will decline due to a change in exchange rates.For example, in the last slide, a weakening Australian dollar (strengthening dollar) would lower the dollar profit.What is exchange rate risk?19 - 14Copyright 2001 by Harcourt, Inc.All rights reserved.nThe current system
13、is a floating rate system.nPrior to 1971, a fixed exchange rate system was in effect.l The U.S. dollar was tied to gold.l Other currencies were tied to the dollar.Describe the current and former international monetary systems.19 - 15Copyright 2001 by Harcourt, Inc.All rights reserved.The European Mo
14、netary UnionIn 2002, the full implementation of the “euro” is expected to be complete. The national currencies of the 11 participating countries will be phased out in favor of the “euro.” The newly formed European Central Bank will control the monetary policy of the EMU.19 - 16Copyright 2001 by Harc
15、ourt, Inc.All rights reserved.The 11 Member Nations of the European Monetary UnionAustriaBelgiumFinlandFranceGermanyIrelandItalyLuxembourgNetherlandsPortugalSpainEuropean Union countries not in the EMU: Britain Sweden Denmark Greece19 - 17Copyright 2001 by Harcourt, Inc.All rights reserved.nA currency is convertible when the issuing country promises to redeem the currency at current market rates.nConvertible currencies are traded in world currency markets.What is a convertible currency?19 - 18Copyright 2001 by Harcourt, Inc.All rights reserved.nIt becomes very di
