m5l6 - UGBA 10 Module 5 Lecture 6 More International...

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Lecture 6: More  International Business May 5, 2008 UGBA 10 Module 5
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Module Overview Strategy International Business Why trade? Foreign currency exchange Managing currency risk Doing business abroad Entrepreneurship
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Currencies Fluctuate Dollar versus the  Euro
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An Example (Another Opportunity to Make Money) (Another Opportunity to Make Money) Your firm sells European toys Exchange rate  today  is about $1.50/ Have to order toys  today , but you pay  for them  later . Consider a particular toy that a German  firm sells for 20 . Your  demand for the toy is 50,000 -  10,000 × Price
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More Rules I will pay you $10 per $1000 of profits you  make. Assume 50% chance dollar depreciates to  $2.00/ ; 50% chance it remains at $1.50/ . Timing:  Place order today. Coin flip to  determine exchange rate. Price the toy.   Get profits.
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A Change in the  Rules Choose your order (call that amount  N ). You can buy up to 20 × euros today at  $1.50/ . Any remaining euros needed to pay for  your order, you buy at the future  exchange rate.
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Lesson You Can Manage Your Exchange Risk
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