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Sesi - 10 MNC
Sesi - 10 MNC
Sesi - 10 MNC
CHAPTER 27
Multinational Financial Management
◼Currency differences
◼Economic and legal differences
◼Language differences
◼Cultural differences
◼Government roles
◼Political risk
Copyright © 2002 by Harcourt, Inc. All rights reserved.
27 - 5
Consider the following exchange rates:
U.S. $ to buy
1 Unit
Spanish peseta 0.0050
Swedish krona 0.0985
Are these currency prices direct or
indirect quotations?
Since they are prices of foreign
currencies expressed in U.S. dollars,
they are direct quotations.
Copyright © 2002 by Harcourt, Inc. All rights reserved.
27 - 6
# of Units of Foreign
Currency per U.S. $
Spanish peseta 200.00
Swedish krona 10.15
Note:
(More...)
Copyright © 2002 by Harcourt, Inc. All rights reserved.
27 - 23
Forward rate 1 + kh
=
Spot rate 1 + kf
0.00505 1.00500
= 1.00333
Spot rate
Spot rate = 0.00504.
(More...)
Copyright © 2002 by Harcourt, Inc. All rights reserved.
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The Spanish security has the highest
return, even though it has a lower
interest rate.
◼U.S. 30-day rate is 0.500%, so
Spanish securities at 1.313% offer a
higher rate of return to U.S.
investors.
◼But could such a situation exist for
very long?
Arbitrage
Cash Management
Credit Management
Inventory Management