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Lecture Essentials of corporate finance (2/e) – Chapter 18: International aspects of financial management

Chapter 18 decribes international aspects of financial management. In this chapter you will understand how exchange rates are quoted and what they mean, know the difference between spot and forward rates, understand purchasing power parity and interest rate parity and the implications for changes in exchange rates, understand the types of exchange rate risk and how they can be managed, understand the impact of political risk on international business investing. | International aspects of financial management Chapter 18 Key concepts and skills Understand how exchange rates are quoted and what they mean Know the difference between spot and forward rates Understand purchasing power parity and interest rate parity and the implications for changes in exchange rates Understand the types of exchange rate risk and how they can be managed Understand the impact of political risk on international business investing 18- Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh Chapter outline Terminology Foreign exchange markets and exchange rates Purchasing power parity Exchange rates and interest rates Exchange rate risk Political risk 18- Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh Domestic financial management and international financial management Considerations in international financial management Have to consider the effect of exchange rates when operating in more than one currency Have to consider the political risk associated with actions of foreign governments More financing opportunities when you consider the international capital markets and this may reduce the firm’s cost of capital 18- Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh International finance terminology Cross-rate Implicit exchange rate between two currencies when both are quoted in a third (usually dollars) currency Eurobond Bond issued in multiple countries but denominated in the issuer’s home currency Eurocurrency (Eurodollars) Money deposited in a financial centre outside the country of the currency involved Eurodollars are US dollars deposited in a foreign bank Foreign bonds Sold by foreign borrower . | International aspects of financial management Chapter 18 Key concepts and skills Understand how exchange rates are quoted and what they mean Know the difference between spot and forward rates Understand purchasing power parity and interest rate parity and the implications for changes in exchange rates Understand the types of exchange rate risk and how they can be managed Understand the impact of political risk on international business investing 18- Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh Chapter outline Terminology Foreign exchange markets and exchange rates Purchasing power parity Exchange rates and interest rates Exchange rate risk Political risk 18- Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh Domestic financial management and .