Chapter 21, international financial management. After studying this chapter you will be able to: How exchange rates are quoted, what they mean, and the difference between spot and forward exchange rates; purchasing power parity, interest rate parity, unbiased forward rates, uncovered interest rate parity, and the international Fisher effect and their implications for exchange rate changes; the different types of exchange rate risk and ways firms manage exchange rate risk; the impact of political risk on international business investing. | Fundamentals of Corporate Finance, 3/e Robert Parrino, . David S. Kidwell, . Thomas W. Bates, . 1 Copyright© 2015 John Wiley & Sons, Inc. Chapter 21: International Financial Management Learning Objectives Discuss how the basic principles of finance apply to international financial transactions Differentiate among the spot rates, the forward rate, and the cross rate in the foreign exchange markets, perform foreign exchange and cross rate calculations, and hedge an asset purchase where payment is made in a foreign currency Discuss the importance of the Euromarkets to large . multinational firms and calculate the cost of borrowing in the Eurobond market Copyright© 2015 John Wiley & Sons, Inc. 3 Learning Objectives Identify the major factor that distinguishes international from domestic capital budgeting, explain how the capital budgeting process can be adjusted to account for these factors, and compute the NPV for a typical international capital project Explain how large . money center banks make and price Eurocredit loans to their customers and compute the cost of a Eurocredit bank loan Copyright© 2015 John Wiley & Sons, Inc. 4 Globalization of the World Economy Refers to removal of barriers to free trade and closer integration of national economies Consumers in many countries buy goods that are purchased from a number of countries other than just their own Today, on average, large corporations, whether they are based in the United States or another country, generate around half of their sales revenue overseas The production of goods and services has also become highly globalized Like product markets, the financial system has also become highly integrated Rise of Multinational Corporations A multinational corporation is a business firm that operates in more than one country but is headquartered or based in its home country Multinationals are owned by a mixture of domestic and foreign stockholders Transnational corporations are multinational firms . | Fundamentals of Corporate Finance, 3/e Robert Parrino, . David S. Kidwell, . Thomas W. Bates, . 1 Copyright© 2015 John Wiley & Sons, Inc. Chapter 21: International Financial Management Learning Objectives Discuss how the basic principles of finance apply to international financial transactions Differentiate among the spot rates, the forward rate, and the cross rate in the foreign exchange markets, perform foreign exchange and cross rate calculations, and hedge an asset purchase where payment is made in a foreign currency Discuss the importance of the Euromarkets to large . multinational firms and calculate the cost of borrowing in the Eurobond market Copyright© 2015 John Wiley & Sons, Inc. 3 Learning Objectives Identify the major factor that distinguishes international from domestic capital budgeting, explain how the capital budgeting process can be adjusted to account for these factors, and compute the NPV for a typical international capital project Explain how large
