FM8e- ch26 - 26 - 1 CHAPTER 26 Multinational Financial...

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26 - 1 Factors that make multinational financial management different Exchange rates and trading International monetary system International financial markets Specific features of multinational financial management CHAPTER 26 Multinational Financial Management
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26 - 2 What is a multinational corporation? A multinational corporation is one that operates in two or more countries. At one time, most multinationals produced and sold in just a few countries. Today, many multinationals have world-wide production and sales.
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26 - 3 Why do firms expand into other countries? To seek new markets. To seek new supplies of raw materials. To gain new technologies. To gain production efficiencies. To avoid political and regulatory obstacles. To reduce risk by diversification.
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26 - 4 What are the major factors that distinguish multinational from domestic financial management? Currency differences Economic and legal differences Language differences Cultural differences Government roles Political risk
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26 - 5 Are these currency prices direct or indirect quotations? Since they are prices of foreign currencies expressed in U.S. dollars, they are direct quotations (dollars per currency) . Consider the following exchange rates: U.S. $ to buy 1 Unit Euro 0.8000 Swedish krona 0.1000
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26 - 6 What is an indirect quotation? An indirect quotation gives the amount of a foreign currency required to buy one U.S. dollar (currency per dollar). Note than an indirect quotation is the reciprocal of a direct quotation.
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26 - 7 Calculate the indirect quotations for euros and kronas. # of Units of Foreign Currency per U.S. $ Euro 1.25 Swedish krona 10.00 Euro: 1 / 0.8000 = 1.25 . Krona: 1 / 0.1000 = 10.00 .
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26 - 8 What is a cross rate? A cross rate is the exchange rate between any two currencies not involving U.S. dollars. In practice, cross rates are usually calculated from direct or indirect rates. That is, on the basis of U.S. dollar exchange rates.
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26 - 9 Cross rate = x = 1.25 x 0.1000 = 0.125 euros/krona . Cross rate = x = 10.00 x 0.8000 = 8.00 kronas/euro . Calculate the two cross rates between euros and kronas. Euros Dollars Dollar Krona Kronas Dollars Dollar Euros
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The two cross rates are reciprocals of one another. They can be calculated by dividing
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This note was uploaded on 08/29/2009 for the course FM Finance taught by Professor Unknown during the Spring '09 term at DeVry Addison.

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FM8e- ch26 - 26 - 1 CHAPTER 26 Multinational Financial...

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