International Aspects of Finance

International Aspects of Finance - International Aspects Of...

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International Aspects Of Finance This chapter lecture discusses aspects of international finance. This lecture will discuss exchange rates, factors that determine exchange rates, and consider different aspects of foreign exchange risk and how to manage it. I. All firms engaged in international business transactions face unique problems and risks not encountered by firms that operate in only one country. A. Business enterprises participate in the global marketplace in a wide variety of ways. 1. The simplest case would be firms that only import or export finished products or raw materials. 2. At the other extreme are multinational corporations, which have direct investments in manufacturing and/or distribution facilities in more than one country. B. Firms that are engaged in international financial transactions face the following problems: 1. Firms doing business in different currencies are concerned with fluctuations in the exchange rates between currencies. 2. Firms doing business in foreign countries face different governmental regulations, tax laws, business practices, and political environments. II. The exchange rate is the number of units of one currency which may be exchanged for another currency. If a U.S. company buys materials from a foreign supplier, the foreign company usually prefers payment in its own currency. In order to pay for these goods, or to invest or repay loans, companies will have to exchange dollars for the foreign currency at some exchange rate. (For example, the exchange rate could be 2.4080 dollars per pound, or reciprocally, 0.4153 pounds per dollar, as derived by 1/ 2.4080) A. A Eurocurrency is a currency that is deposited in a bank located outside of the country of origin. For example, Eurodollars are dollars deposited in a bank outside of the United States. 1. An example is dollars deposited in a German bank or a German branch of a U.S. bank. 1
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2. The Eurocurrency market is an important alternative to domestic sources of funds for multinational funds. The interest rate in the Eurodollar market is usually related to the London interbank offer rate, or LIBOR. B.
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International Aspects of Finance - International Aspects Of...

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