ch 19 - Multinational Financial Management Chapter 19...

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Unformatted text preview: Multinational Financial Management Chapter 19 Multinational vs. Domestic Financial Management Exchange Rates and Trading in Foreign Exchange International Money and Capital Markets 19-1 What is a multinational corporation? 19-2 A corporation that operates in two or more countries. Decision making within the corporation may be centralized in the home country, or may be decentralized across the countries in which the corporation does business. Why do firms expand into other countries? 1. To seek production efficiency. 2. To avoid political and regulatory hurdles. 3. To seek new markets. 4. To seek raw materials and new technology. 5. To protect processes and products. 6. To diversify. 7. To retain customers. 19-3 Multinational Financial Management vs. Domestic Financial Management 1. Different currency denominations. 2. Political risk 3. Economic and legal ramifications. 4. Role of governments 5. Language and cultural differences. 19-4 Consider the Following Exchange Rates Are these currency prices direct or indirect quotations? Since they are prices of foreign currencies expressed in dollars, they are direct quotations. 19-5 US $ to Buy 1 Unit Japanese yen 0.009 Australian dollar 0.650 What is an indirect quotation? The number of units of a foreign currency needed to purchase one U.S. dollar, or the reciprocal of a direct quotation. 19-6 Calculate the Indirect Quotations for Yen and Australian Dollars Simply find the inverse of the direct quotations. 19-7 # of Units of Foreign Currency per US $ Japanese yen 111.11 Australian dollar 1.5385 What is a cross rate? The exchange rate between any two currencies. Cross rates are actually calculated on the basis of various currencies relative to the U.S. dollar. Cross rate between Australian dollar and the Japanese yen. Cross rate = (Yen/US Dollar) x (US Dollar/A. Dollar) = 111.11 x 0.650 = 72.22 Yen/A. Dollar The inverse of this cross rate yields: 0.0138 A. Dollars/Yen 19-8 Orange Juice Project: Setting the Appropriate Price A firm can produce a liter of orange juice and ship it to Japan for $1.75 per unit. If the firm wants a 50% markup on the project, what...
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ch 19 - Multinational Financial Management Chapter 19...

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