Background Information Intro - Princeton...
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Why you need to understand International Finance P. Sercu, International Finance: Theory into Practice Part I Intro: Motivation and Background Information
Transcript of Background Information Intro - Princeton...
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
Part I
Intro:Motivation and
Background Information
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
Chapter 1
Why you needto Understand
International Finance
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
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
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
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
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
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
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
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
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
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
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
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
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
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
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
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
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
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
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
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
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Jan-65
Jan-66
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Jan-00
Jan-01
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Jan-03
Jan-04
Jan-05
Jan-06
RPPP actual
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
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
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Jan-65
Jan-66
Jan-67
Jan-68
Jan-69
Jan-70
Jan-71
Jan-72
Jan-73
Jan-74
Jan-75
Jan-76
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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
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
Aim and structure of the courses
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
THB RPPP v actual
0
0.2
0.4
0.6
0.8
1
1.2
Jan-65
Jan-66
Jan-67
Jan-68
Jan-69
Jan-70
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Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
RPPP actual
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
Aim and structure of the courses
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
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
Aim and structure of the courses
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
0
1
2
3
4
Jan-65
Jan-66
Jan-67
Jan-68
Jan-69
Jan-70
Jan-71
Jan-72
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CP
I*
x S
/C
PI_
us
DEM-EUR
JPY
GBP
SAR
THB
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
Aim and structure of the courses
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
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
Aim and structure of the courses
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
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
Aim and structure of the courses
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
Why you need tounderstand
International Finance
P. Sercu,International
Finance: Theory intoPractice
Aim and structure of the courses
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
