Date post: | 14-Sep-2014 |
Category: |
Economy & Finance |
View: | 814 times |
Download: | 1 times |
Chapter 18 - 1
Chapter 18
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
International Financial Management
Chapter 18 - 2
Learning Objectives
• Analyze the pros and cons of major payment forms in international trade
• Identify types of foreign-exchange risk faced by international businesses
• Learn how firms manage working capital• Evaluate capital budgeting techniques• Explore sources of investment capital
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Chapter 18 - 3
Financial Issues in Foreign Trade
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Chapter 18 - 4
Choice of Currency
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Importer’s Currency
Exporter’s Currency
Third Currency
Chapter 18 - 5Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Credit Checking
Credit References
EstablishedSources
BankingOperations
GovernmentAgencies
Chapter 18 - 6
Methods of Payment
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Advance Payment
Documentary Collection
Credit Cards
Open Accounts
Letters of Credit
Countertrade
Chapter 18 - 7
Advance Payment
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Use of Cash Lower Risks
Higher Risks Faster Payment
Importer Exporter
Chapter 18 - 8
Open Account: Importer’s Point of View
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Expedites the Receipt of Goods
Offers Short-Term Financing
Eliminates Fees for Bank Services
Requires Less Paperwork
Chapter 18 - 9
Open Account: Exporter’s Point of View
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Increases Risk of Non-Payment
Waives Expertise of Bankers
Lacks Supporting Documentation
Requires Use of Working Capital
Chapter 18 - 10
Other Payment Methods
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Documentary Collection
Sight Drafts and Time Drafts
Trade Acceptances
Banker’s Acceptances
Bills of Lading
Chapter 18 - 11
Documentary Collection: Advantages
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Reasonable Bank Fees
Enforceable Debt Instruments
Simplified Collection Process
Reduced Costs of Financing
Chapter 18 - 12
Documentary Collection: Disadvantages
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Importer May Refuse Shipment
Costs for Unaccepted Goods
Importer May Default on Payment
Legal Recourse May Be Expensive
Chapter 18 - 13
Letter of Credit
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Bank Guarantees Payment
Chapter 18 - 14Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Invoice
Bill of Lading
Proof of Insurance
Certificate of Origin
Customs Documents
Packing List
Export License
Inspection Certificates
Documents Needed for Letters of Credit
Chapter 18 - 15
Letters of Credit Take Different Forms
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
•Advised
•Confirmed
•Irrevocable
•Revocable
Chapter 18 - 16Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Credit Cards
•Retailers•Consumers
Chapter 18 - 17
Countertrade
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Trade by Bartering
Counterpurchase
Buy-Back Arrangements
Off-Set Purchase Agreements
Chapter 18 - 18
Facilitate Countertrade
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
ClearinghouseAccounts
SwitchingArrangements
Chapter 18 - 19Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Countertrade by Marc Rich
Chapter 18 - 20
Financing Trade
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
•Exporting Firms
•Banks and Lenders
•Government Sponsors
Chapter 18 - 21
Summary of Discussion
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Chapter 18 - 22
Managing Foreign Exchange Risk
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Chapter 18 - 23
Transaction Exposure
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
•Buying•Selling•Lending•Borrowing
Chapter 18 - 24
Responding to Transaction Exposure
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Strategy Benefit(s) Cost(s)
•Go Naked No Capital Outlay Potential Loss of Capital
•Forward Currency No Exposure Fees, Opportunity Cost
•Currency Future No Exposure Fees, Opportunity Cost
•Currency Option No Exposure Up-Front Premium, Inflexible
•Offsetting Asset No Exposure Time, Opportunity Cost
Chapter 18 - 25
Translation Exposure
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Financial Statements of Parent and Subsidiary
Accounting Exposure: Assets and Liabilities Presented in Different Currencies
Balance Sheet Hedge: Assets and Liabilities Presented in the Same Currency
Risk ofExposure
Higher
Lower
Chapter 18 - 26
Economic Exposure
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Unexpected Exchange-Rate Changes
Operational Hedge
Exchange-Rate Expertise
Chapter 18 - 27
Summary of Discussion
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Chapter 18 - 28
Management of Working Capital
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Chapter 18 - 29
Minimize Working Capital
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
•Opportunity Cost•Needs for Cash
Chapter 18 - 30Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Cash Management
•Cash Holdings•Cash Flows
Chapter 18 - 31Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Currency Conversion
Minimizing Costs
Bilateral Netting
Multilateral Netting
Chapter 18 - 32
Multilateral Netting In Action (all quantities in Millions of USD equivalents)
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Payments Owed byS. Korean Subsidiary
Mexican Subsidiary
British Subsidiary
Total Receipts
Net Transfer
S. Korean Subsidiary — 5 4 9 + 1
Receipts Due to
Mexican Subsidiary 2 — 3 5 – 1
British Subsidiary 6 1 — 7 0
Total Payments 8 6 7 21
Chapter 18 - 33
Minimize Foreign-Exchange Risk
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Leads and Lags Strategy
Currency Value Expected to Rise
Currency Value Expected to Fall
Net Holdings
Increase
Decrease
Chapter 18 - 34
Summary of Discussion
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Chapter 18 - 35
International Capital Budgeting
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Chapter 18 - 36
Net Present Value
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
•Cash Flows
•Discount Rate
Chapter 18 - 37Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Net Present Value for International Projects
Risk Adjustment
Currency Selection
Choice of Perspective
Chapter 18 - 38
Internal Rate of Return
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
1. Estimate Cash Flows
2. Calculate Interest Rate
3. Compare to Hurdle Rate
Chapter 18 - 39
Payback Period
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Long-RunProfits
Simpleto Use
Chapter 18 - 40
Summary of Discussion
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Chapter 18 - 41
Sources of International Investment Capital
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Chapter 18 - 42
• Investment Banks
• Stock Markets
• Borrowed Funds
• Swap Market
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
External Sources of Investment Capital
Chapter 18 - 43
Internal Sources of Investment Capital
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Chapter 18 - 44
Strategic Transfer Pricing
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
•Market•Nonmarket
Chapter 18 - 45
Market-Based Method
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Reduce Intra-Corporate Conflict
Promote Overall
Profitability
Chapter 18 - 46Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
AdvantagesDisadvantages
Foment Conflict
Reduce Efficiency
Reduce Tariffs and Taxes
Repatriate Profits
Nonmarket Method
Chapter 18 - 47
Tax Havens
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Minimal Corporate Income Tax
Stable Political and Business Climate
Efficient Court System
Banking and Communications
Chapter 18 - 48
Government Response
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Arm’s Length Testing
Advance Pricing
Agreement
Chapter 18 - 49
Summary of Discussion
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Chapter 18 - 50
Chapter 18
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
International Financial Management
Chapter 18 - 51Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.