Chapter 21

International FinancialManagement

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PPT 21-1FIGURE 21-11 euro (E) to the U.S. $and the British pound

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PPT 21-2

TABLE 21-1International sales ofselected U.S. companies

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PPT 21-3FIGURE 21-2Exchange rates tothe dollar

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PPT 21-4

TABLE 21-2Key currency cross rates(late New York trading,Wednesday, April 30, 2003)

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PPT 21-5

FIGURE 21-3Risk reduction frominternationaldiversification

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PPT 21-4

TABLE 21A-1Cash flow analysis of a foreign investment

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Chapter 21 - Outline LT 21-1

Multinational Corporations (MNCs)Exchange RatesSpot Rates and Forward RatesManaging Foreign Exchange RiskFinancing International Business

Operations

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Multinational Corporations LT 21-2

Multinational Corporations (MNCs) –firms doing business in more than one country

Often 30% or more of a firm’s business activities are carried on outside its national borders

4 basic forms of multinational corporations:– Exporter– Licensing Agreement– Joint Venture– Fully Owned Foreign Subsidiary

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Exchange Rates LT 21-3

The exchange rate is the price or value of one currency in terms of another

Published daily in The Wall Street Journal Factors Influencing Exchange Rates:

– Supply of and Demand for each Currency– Inflation– Interest Rates– Balance of Payments– Government Policies– Other Factors

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Spot Rates and Forward Rates LT 21-4

Spot Rate:– the exchange rate between currencies for immediate

delivery–“on-the-spot” rate

Forward Rate: – the exchange rate that is established for future

delivery– deals with a specified future time

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Managing ForeignExchange Risk LT 21-5

Foreign Exchange Risk refers to the risk involved in fluctuating or changing exchange rates

It affects importers, exporters, investors, and multinational firms

Strategies for Dealing with Foreign Exchange Risk:– Forward Exchange Market Hedge– Money Market Hedge– Currency Futures Market Hedge– Foreign Asset Management Programs

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Financing International Business Operations LT 21-6

There are several ways of funding foreign transactions:– Eximbank (Export-Import Bank)– Loans from the Parent Company or a Sister Affiliate– Eurodollar Loans– Eurobond Market– International Equity Markets– The International Finance Corporation (IFC)