Chapter 31 notes

Chapter 31 notes - Chapter 31 discusses international...

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Chapter 31 discusses international financial management . Terminology : American Depository Receipt (ADR) – security issued in the U.S. that represents shares in a foreign company. Cross-rate – exchange rate between two currencies implied by the exchange rates of each currency with a third. Eurobond – bonds issued in many countries but denominated in a single currency. Eurocurrency – money deposited in the bank of a foreign country (dollars deposited in a French bank are called Eurodollars). Eurodollars are “deposits of U.S. dollars in banks located outside the United States.” Eurodollars are not actual U.S. currencies deposited in a bank, but are bookkeeping entries on a bank’s ledger. These deposits are loaned to the Euro bank’s U.S. affiliate to meet liquidity needs, or the funds might be loaned to a corporation abroad that needs the loan denominated in U.S. dollars. Money does not normally leave the country of its origination; merely the ownership is transferred to another country. A dollar-denominated Eurobond is free of exchange rate risk for a U.S. investor, regardless of where it is issued. A foreign bond would be subject to this risk if it is
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Chapter 31 notes - Chapter 31 discusses international...

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