CH17 - 17-1Chapter 17Exchange Rates &...

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Unformatted text preview: 17-1Chapter 17Exchange Rates & International Investment17-2International InvestmentAdvantageIncreased portfolio diversificationDisadvantagesReturns affected by exchange ratesForeign information is harder to obtainFinancial disclosure may differ17-3Disadvantages continuedAccounting definitions may varyPolitical risksRisk of exchange controlsHigher transactions costs17-4Two Ways of Stating Exchange Rates1.# units of domestic per unit of foreign$1.50 = 1 (pound).1.# units of foreign per domestic unit of currency$1.501= 0.6667 = $1.00.17-5Changing Exchange RatesTime 0: 125 (yen) = $1.00.Time 1: 100 = $1.00.Dollar depreciations (i.e., one dollar buys fewer yen).Yen appreciations (i.e., fewer yen are required to buy one dollar).17-6Exports and ImportsDollarDepreciatesExports from US to JapanImports from Japan to USTime 0125 = $1$1 = 1 cigar125 = 1 cigar1 radio = 12,500 1 radio = $100Time 1100 = $11 cigar = 100 1 radio = $125(12,500/100)US exports cheaper in yenImports into US more expensive in dollars17-7...
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CH17 - 17-1Chapter 17Exchange Rates &...

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