Advertising Online: Strategy and Tactics for Enrollment Success
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© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-1
GLOBAL BUSINESS AND ACCOUNTING
Chapter
15
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-2
The process of managers assessing the impact of international activities on the future of their company.
The process of managers assessing the impact of international activities on the future of their company.
Globalization typically progresses through an outward growth path.
Globalization typically progresses through an outward growth path.
GlobalizationGlobalization
ExportingGlobal
SourcingLicensing &
Joint VentureWholly Owned Subsidiaries
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-3
EconomicEconomic
GlobalizationGlobalization
TechnologicalTechnological
Environmental Forces Shaping Globalization
Environmental Forces Shaping Globalization
CulturalCulturalPolitical/LegalPolitical/Legal
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-4
Environmental Forces Shaping Globalization
Environmental Forces Shaping Globalization
EconomicEconomic
GlobalizationGlobalization
TechnologicalTechnological
Political/LegalPolitical/Legal
•Businesses
•Transfer Risk
•Control Risk
•Reporting
•Individuals
•Tax Laws
•Policies
•Businesses
•Transfer Risk
•Control Risk
•Reporting
•Individuals
•Tax Laws
•Policies
CulturalCultural
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-5
GlobalizationGlobalization
EconomicEconomic
Economic SystemObtaining Capital
Industrial Organization
Exchange Rate Fluctuation
Economic SystemObtaining Capital
Industrial Organization
Exchange Rate Fluctuation
TechnologicalTechnological
Environmental Forces Shaping Globalization
Environmental Forces Shaping Globalization
Political/LegalPolitical/Legal CulturalCultural
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-6
Environmental Forces Shaping Globalization
Environmental Forces Shaping Globalization
EconomicEconomic
GlobalizationGlobalization
TechnologicalTechnological
CulturalCultural
Individualism vs. Collectivism
Uncertainty Avoidance
Short vs. Long Horizon
Power Distance
Individualism vs. Collectivism
Uncertainty Avoidance
Short vs. Long Horizon
Power Distance
Political/LegalPolitical/Legal
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-7
GlobalizationGlobalization
EconomicEconomic TechnologicalTechnological
Education LevelInfrastructure
Knowledge Transfer
Education LevelInfrastructure
Knowledge Transfer
Environmental Forces Shaping Globalization
Environmental Forces Shaping Globalization
Political/LegalPolitical/Legal CulturalCultural
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-8
Foreign Currencies and Exchange Rates
Foreign Currencies and Exchange Rates
Each country uses its own currency for internal economic transactions.
To make transactions in another country, units of that country’s currency must be acquired.
The cost of those currencies is called the exchange rate.
Each country uses its own currency for internal economic transactions.
To make transactions in another country, units of that country’s currency must be acquired.
The cost of those currencies is called the exchange rate.
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-9
Exchange RatesExchange Rates
Exchange rates fluctuate daily.
Daily exchange rates are published in the financial press, such as the Wall Street Journal.
The process of restating a foreign currency amount into a domestic currency amount is called “translation”.
Exchange rates fluctuate daily.
Daily exchange rates are published in the financial press, such as the Wall Street Journal.
The process of restating a foreign currency amount into a domestic currency amount is called “translation”.
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-10
Exchange RatesExchange Rates
When the US $ price of a foreign currency
unit rises, we say that the US $ is
“weaker”.
When the US $ price of a foreign currency
unit rises, we say that the US $ is
“weaker”.
When the US $ price of a foreign currency unit falls, we say that
the US $ is “stronger”.
When the US $ price of a foreign currency unit falls, we say that
the US $ is “stronger”.
I noticed that the $ is stronger against the Yen
today.
Yes. Yesterday, Yen cost $0.0106, but
today, Yen only cost $0.0100!
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-11
When a transaction is denominated in a foreign
currency . . . And the transaction occurs on
one date (for example a credit sale) . . .
. . . but the cash flow is at a later date . . .
. . . fluctuating exchange rates can result in exchange rate
gains or losses.
When a transaction is denominated in a foreign
currency . . . And the transaction occurs on
one date (for example a credit sale) . . .
. . . but the cash flow is at a later date . . .
. . . fluctuating exchange rates can result in exchange rate
gains or losses.
?12/10/02 1 DM = $.55
US
1/9/03 1 DM = $.53 US
Accounting for Transactions with Foreign Companies
Accounting for Transactions with Foreign Companies
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-12
Exchange Rate IssuesExample
Exchange Rate IssuesExample
On 9/10/02, BobCo (a US firm) sells inventory to Knight Corp. (a UK firm) on credit. Knight will pay BobCo
10,000 British pounds in 3 months.The current exchange rate is $1 = .6093 £.
On 9/10/02, what is the expected US $ value of the 10,000 £ that BobCo expects to collect on 12/10/02?
On 9/10/02, BobCo (a US firm) sells inventory to Knight Corp. (a UK firm) on credit. Knight will pay BobCo
10,000 British pounds in 3 months.The current exchange rate is $1 = .6093 £.
On 9/10/02, what is the expected US $ value of the 10,000 £ that BobCo expects to collect on 12/10/02?
On September 10, BobCo would expect to be able to convert the 10,000 £ into $16,412.27 on December 10,
2002 based on the current exchange rate.
10,000£ ÷ .6093 = $16,412.28
On September 10, BobCo would expect to be able to convert the 10,000 £ into $16,412.27 on December 10,
2002 based on the current exchange rate.
10,000£ ÷ .6093 = $16,412.28
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-13
On December 10, 2002, BobCo would actually collect $16,353.23, an exchange loss of of $59.05 since
September 10!
10,000£ ÷ .6115 = $16,353.23
On December 10, 2002, BobCo would actually collect $16,353.23, an exchange loss of of $59.05 since
September 10!
10,000£ ÷ .6115 = $16,353.23
Exchange Rate IssuesExample
Exchange Rate IssuesExample
By 12/10/02, the foreign exchange rate haschanged to $1 = .6115 £.
After receiving the British £ from Knight, and exchanging them into US $, how much will BobCo
have actually received?
By 12/10/02, the foreign exchange rate haschanged to $1 = .6115 £.
After receiving the British £ from Knight, and exchanging them into US $, how much will BobCo
have actually received?
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-14
Adjustment of Foreign Currency Transaction at the Balance Sheet Date
Adjustment of Foreign Currency Transaction at the Balance Sheet Date
Occasionally, a transaction occurs in one fiscal period, but
cash is not received or paid until the next fiscal
period.
Occasionally, a transaction occurs in one fiscal period, but
cash is not received or paid until the next fiscal
period.At the balance sheet
date, any outstanding foreign currency
receivables or payables must be “remeasured”
using the spot rate available on the balance
sheet date.
At the balance sheet date, any outstanding
foreign currency receivables or payables must be “remeasured”
using the spot rate available on the balance
sheet date.
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-15
Adjustment of Foreign Currency Transaction at the Balance Sheet Date
Adjustment of Foreign Currency Transaction at the Balance Sheet Date
On 12/1/02, Balloon Co., a US balloon manufacturer sells balloons to Maison Rue., a french company, for 20,000
french francs on credit. Payment is due in 90 days.The current exchange rate is $0.1575 per FF.Prepare Balloon Co.’s 12/1/02 journal entry.
On 12/1/02, Balloon Co., a US balloon manufacturer sells balloons to Maison Rue., a french company, for 20,000
french francs on credit. Payment is due in 90 days.The current exchange rate is $0.1575 per FF.Prepare Balloon Co.’s 12/1/02 journal entry.
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-16
Adjustment of Foreign Currency Transaction at the Balance Sheet Date
Adjustment of Foreign Currency Transaction at the Balance Sheet Date
On 12/1/02, Balloon Co., a US balloon manufacturer sells balloons to Maison Rue., a french company, for 20,000
french francs on credit. Payment is due in 90 days.The current exchange rate is $0.1575 per FF.Prepare Balloon Co.’s 12/1/02 journal entry.
On 12/1/02, Balloon Co., a US balloon manufacturer sells balloons to Maison Rue., a french company, for 20,000
french francs on credit. Payment is due in 90 days.The current exchange rate is $0.1575 per FF.Prepare Balloon Co.’s 12/1/02 journal entry.
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-17
Adjustment of Foreign Currency Transaction at the Balance Sheet Date
Adjustment of Foreign Currency Transaction at the Balance Sheet Date
On 12/31/02, the value of the foreign currency receivable must be adjusted based on the
12/31/02 spot rate of $0.1500 per FF.Adjust the original receivable:
On 12/31/02, the value of the foreign currency receivable must be adjusted based on the
12/31/02 spot rate of $0.1500 per FF.Adjust the original receivable:
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-18
Adjustment of Foreign Currency Transaction at the Balance Sheet Date
Adjustment of Foreign Currency Transaction at the Balance Sheet Date
On 12/31/02, the value of the foreign currency receivable must be adjusted based on the
12/31/02 spot rate of $0.1500 per FF.Adjust the original receivable:
On 12/31/02, the value of the foreign currency receivable must be adjusted based on the
12/31/02 spot rate of $0.1500 per FF.Adjust the original receivable:
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-19
Strategies to Avoid Losses from Rate Fluctuations
Strategies to Avoid Losses from Rate Fluctuations
Insist that the transaction is consumated in
your own currency (US $).
Insist that the transaction is consumated in
your own currency (US $).
Hedging! Hedging!
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-20
The practice of minimizing or eliminating risk of loss associated with foreign currency fluctuations by using forward exchange rates to offset changes in spot rates.
The practice of minimizing or eliminating risk of loss associated with foreign currency fluctuations by using forward exchange rates to offset changes in spot rates.
Spot RatesThe exchange rates that are
available today.
Forward Exchange RatesThe exchange rates that can be
locked in today for expected future exchange transactions.
Spot RatesThe exchange rates that are
available today.
Forward Exchange RatesThe exchange rates that can be
locked in today for expected future exchange transactions.
HedgingHedging
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-21
This forward contract allows us to purchase 1,000,000 ¥ at a price
of $.0080 US in 30 days.
Good. If the spot rate is $.0090 US in 30 days,
we only have to pay $.0080 US, and we
avoid a $1,000 loss!
HedgingHedging
A forward contract requires the purchase ofcurrency units at a future date at the
contracted exchange rate.
A forward contract requires the purchase ofcurrency units at a future date at the
contracted exchange rate.
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Slide 15-22
Record anddisclose all
paym ents, properor im proper.
Influencepeddling is
illegal.(1986 Am endm ent)
Facilitatingpaym ents are
not illegal.(1986 Am endm ent)
Bribery ofgovernm entoffic ials is
illegal.
M aintain anadequatesystem of
internal controls.
Foreign Corrupt PracticesAct of 1977
Foreign Corrupt PracticesAct of 1977