FIN 363 Class 7

FIN 363 Class 7 - FIN 363 Class 7 International Finance...

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FINA 363 Fall 2011 Professor Grieves FIN 363 Class 7 International Finance 11 FINA 363 Fall 2011 Professor Grieves
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FINA 363 Fall 2011 Professor Grieves iClicker Q20 As a corporate investor paying a marginal tax rate of 34 percent, if 70 percent of dividends are excludable, what would be your after-tax dividend yield on preferred stock with a 16 percent before-tax dividend yield? a.6.36% b.7.36% c.12.19% d.13.01% e.14.37%
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FINA 363 Fall 2011 Professor Grieves Q20 Solution Tax bill: 16% x .3 x .34 = 1.632% Aftertax yield: Pretax yield – Taxes = 16% - 1.632% = 14.368% FINA 363 Fall 2011 Professor Grieves 3
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FINA 363 Fall 2011 Professor Grieves New Example As a corporate investor paying a marginal tax rate of 39 percent, if 70 percent of dividends are excludable, what would be your after-tax dividend yield on preferred stock with a 10 percent before-tax dividend yield? a.6.10% b.7.00% c.8.83% d.9.30% e.9.61%
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FINA 363 Fall 2011 Professor Grieves New Example Tax bill: 10% x .3 x .39 = 1.170% Aftertax yield: Pretax yield – Taxes = 10% - 1.170% = 8.83% FINA 363 Fall 2011 Professor Grieves 5
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FINA 363 Fall 2011 Professor Grieves Multinational Corporations Operate in more than one country To seek new markets To seek raw materials To seek new technology To seek production efficiency To avoid political and regulatory hurdles
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FINA 363 Fall 2011 Professor Grieves Multinational versus Domestic Managerial Finance Different currency denominations Economic and legal ramifications Language differences Cultural differences Role of governments Political risk
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FINA 363 Fall 2011 Professor Grieves We will talk about currency rates, exclusively
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FINA 363 Fall 2011 Professor Grieves Everything is connected to everything Triangular arbitrage Covered interest arbitrage Purchasing Power Parity (PPP)
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FINA 363 Fall 2011 Professor Grieves Exchange Rate Quotes Direct quote = units of domestic currency per unit of foreign currency, e.g. 1.61USD/GBP Indirect quote = units of foreign currency per unit domestic currency, e.g. 77JPY/USD (Notice, the first quote is indirect in England and the second quote is direct in Japan.)
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FINA 363 Fall 2011 Professor Grieves Loonie/Toonie (Moonie) 1.01USD/CAD 0.99CAD/USD
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FINA 363 Fall 2011 Professor Grieves Triangular arbitrage JPY/GPB USD/GBP JPY/USD
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FIN 363 Class 7 - FIN 363 Class 7 International Finance...

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