Background Information Intro - Princeton...

Why you need tounderstand

International Finance

P. Sercu,International

Finance: Theory intoPractice

Part I

Intro:Motivation and

Background Information

Chapter 1

Why you needto Understand

Aim and structure of the book

To provide a framework for making financial decisionsasked from an international finance manager

B � management-oriented, not macro Int Fin

B � finance sensu stricto (financial investments; funding)� risk management, esp. hedging (risk reduction)� help in decision making, by offering valuation of commercial or

investment proposals

These tasks are often hard to separate:� loan can serve as a hedge� hedging sometimes facilitates valuation

B Evaluate an export offer price in HrivniaB Black Merton Scholes

� business decisions may depend on hedging/not hedging

Aim and structure of the courses

decisions asked from an international finance manager:B � nominal exchange rates & risks (⇐ own currencies)

real exchange risk (⇐ goods-market segmentation)�� extra credit risks (⇐ legal/judicial segmentation)� capital market segmentation—incl Corp Gov issues� international tax issues� political risks in international trade & investments

JPY RPPP v actual

Jan-65

Jan-66

Jan-67

Jan-68

Jan-69

Jan-70

Jan-71

Jan-72

Jan-73

Jan-74

Jan-75

Jan-76

Jan-77

Jan-78

Jan-79

Jan-80

Jan-81

Jan-82

Jan-83

Jan-84

Jan-85

Jan-86

Jan-87

Jan-88

Jan-89

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

RPPP actual

decisions asked from an international finance manager:B � nominal exchange rates & risks (⇐ own currencies)

JPY RPPP v actual

Jan-65

Jan-66

Jan-67

Jan-68

Jan-69

Jan-70

Jan-71

Jan-72

Jan-73

Jan-74

Jan-75

Jan-76

Jan-77

Jan-78

Jan-79

Jan-80

Jan-81

Jan-82

Jan-83

Jan-84

Jan-85

Jan-86

Jan-87

Jan-88

Jan-89

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

RPPP actual

international finance manager:B � nominal exchange rates & risks (⇐ own currencies)

THB RPPP v actual

Jan-65

Jan-66

Jan-67

Jan-68

Jan-69

Jan-70

Jan-71

Jan-72

Jan-73

Jan-74

Jan-75

Jan-76

Jan-77

Jan-78

Jan-79

Jan-80

Jan-81

Jan-82

Jan-83

Jan-84

Jan-85

Jan-86

Jan-87

Jan-88

Jan-89

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

RPPP actual

international finance manager:B � nominal exchange rates & risks (⇐ own currencies)� real exchange risk (⇐ goods-market segmentation)

extra credit risks (⇐ legal/judicial segmentation)�� capital market segmentation—incl Corp Gov issues� international tax issues� political risks in international trade & investments

international finance manager:B � nominal exchange rates & risks (⇐ own currencies)� real exchange risk (⇐ goods-market segmentation)

extra credit risks (⇐ legal/judicial segmentation)�� capital market segmentation—incl Corp Gov issues� international tax issues� political risks in international trade & investments

Cumulative RPPP, Jan1965=1.00

Jan-65

Jan-66

Jan-67

Jan-68

Jan-69

Jan-70

Jan-71

Jan-72

Jan-73

Jan-74

Jan-75

Jan-76

Jan-77

Jan-78

Jan-79

Jan-80

Jan-81

Jan-82

Jan-83

Jan-84

Jan-85

Jan-86

Jan-87

Jan-88

Jan-89

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

DEM-EUR

international finance manager:B � nominal exchange rates & risks (⇐ own currencies)� real exchange risk (⇐ goods-market segmentation)� extra credit risks (⇐ legal/judicial segmentation)

capital market segmentation—incl Corp Gov issues�� international tax issues� political risks in international trade & investments

international finance manager:B � nominal exchange rates & risks (⇐ own currencies)� real exchange risk (⇐ goods-market segmentation)� extra credit risks (⇐ legal/judicial segmentation)� capital market segmentation—incl Corp Gov issues

international tax issues�� political risks in international trade & investments

international finance manager:B � nominal exchange rates & risks (⇐ own currencies)� real exchange risk (⇐ goods-market segmentation)� extra credit risks (⇐ legal/judicial segmentation)� capital market segmentation—incl Corp Gov issues� international tax issues

political risks in international trade & investments

international finance manager:�B � nominal exchange rates & risks (⇐ own currencies)� real exchange risk (⇐ goods-market segmentation)� extra credit risks (⇐ legal/judicial segmentation)� capital market segmentation—incl Corp Gov issues� international tax issues� political risks in international trade & investments

Background Information Intro - Princeton...

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