c hapter 18 l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
c hapter 18 PowerPoint Presentation
Download Presentation
c hapter 18

Loading in 2 Seconds...

play fullscreen
1 / 32

c hapter 18 - PowerPoint PPT Presentation


  • 173 Views
  • Uploaded on

c hapter 18. international financial management. Chapter Objectives 1. Analyze the advantages and disadvantages of the major forms of payment in international trade Identify the primary types of foreign-exchange risk faced by international businesses

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'c hapter 18' - ivanbritt


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
c hapter 18

chapter 18

international financial management

chapter objectives 1
Chapter Objectives 1
  • Analyze the advantages and disadvantages of the major forms of payment in international trade
  • Identify the primary types of foreign-exchange risk faced by international businesses
  • Describe the techniques used by firms to manage their working capital

18-2

chapter objectives 2
Chapter Objectives 2
  • Evaluate the various capital budgeting techniques used for international investments
  • Discuss the primary sources of investment capital available to international businesses

18-3

financial issues in international trade
Financial Issues in International Trade
  • Which currency to use for the transaction
  • When and how to check credit
  • Which form of payment to use
  • How to arrange financing

18-4

method of payment
Payment in advance

Open account

Documentary collection

Letters of credit

Credit cards

Countertrade

Method of Payment

18-5

advantages disadvantages of documentary collection
Advantages

Reasonable fees

Enforceable debt instrument

Simple collections process

Prompt payments

Disadvantages

Refusal of shipments

Decline draft acceptance

Potential for default

Advantages/Disadvantages of Documentary Collection

18-7

documentation for letters of credit
Documentation for Letters of Credit

Export

licenses

Certificates of

product origin

Inspection

certificates

18-9

types of letters of credit
Types of Letters of Credit

Advised letter of credit

Confirmed letter of credit

Irrevocable letter of credit

Revocable letter of credit

18-10

forms of countertrade
Forms of Countertrade

Barter

Counterpurchase

Buy-back

Offset purchase

18-12

foreign exchange exposure
Foreign-Exchange Exposure

Transaction

exposure

Translation

exposure

Economic

exposure

18-14

transaction exposure
Transaction Exposure

A firm faces transaction exposure when the financial benefits and costs of an international transaction can be affected by exchange rate movements that occur after the firm is legally obligated to complete the transaction.

18-15

transactions leading to transaction exposure
Transactions Leading to Transaction Exposure

Product purchases

Product sales

Credit extensions

Money borrowing

18-16

options for responding to transaction exposure
Options for Responding to Transaction Exposure

Go naked

Buy forward currency

Buy currency option

Acquire an offsetting asset

18-17

go naked
To ‘go naked’ is to ignore transaction exposure and assume foreign-exchange risk.

Characteristics

Does not require advance capital

Offers potential for currency appreciation

Creates risk for depreciation of exchange currency

Avoids fees to intermediaries

Go Naked

18-18

buy forward currency
Buying the exchange currency forward in the foreign-exchange market locks in the ‘price’ to be paid.

Characteristics

Guarantees price

Protects against decline in value of currency

No capital up front

Eliminates potential for profits associated with currency appreciation

Requires fees to intermediaries

Buy Forward Currency

18-19

buy currency option
Buying currency options gives buyer the opportunity, but not the obligation to buy currency at a given price in the future.

Characteristics

Guarantees price

May exercise option or let it expire depending upon currency values

More expensive than other hedging choices

Allows for appreciation benefits while avoiding risk of depreciation

Buy Currency Option

18-20

acquire an offsetting asset
Acquiring an offsetting asset of equivalent size denominated in purchase currency eliminates net transaction exposure.

Characteristics

Eliminates exposure

Requires effort and expense to arrange transaction

Lost opportunity for capital gain if home currency appreciates

Acquire an Offsetting Asset

18-21

translation exposure
Translation Exposure

Translation exposure is the impact on the firm’s consolidated financial statements of fluctuations in exchange rates that change the value of foreign subsidiaries as measured in the parent’s currency.

18-23

economic exposure
Economic Exposure

Economic exposure is the impact on the value of a firm’s operations of unanticipated exchange rate changes.

18-24

corporate financial goals
Corporate Financial Goals

Minimize working-capital balances

Minimize currency conversion costs

Minimize foreign-exchange risk

18-26

minimizing currency conversion costs
Minimizing Currency Conversion Costs

Bilateral

netting

Multilateral

netting

18-28

evaluating investment projects
Evaluating Investment Projects

Net

present value

Internal

rate of return

Payback

period

18-29

using the net present value approach
Using the Net Present Value Approach

Risk adjustment

Choice of currency

Perspective

18-30

external sources of funding
External Sources of Funding

Investment bankers

Sale of stock

Loans

Swaps

18-32