MANAJEMEN KEUANGAN BISNIS (MNZ16)

INTERNATIONAL
CORPORATE FINANCE
 OUTLINES
1) The Globalization of Product and Financial Markets
2) Foreign Exchange Markets and Currency Exchange Rates :
- Foreign Exchange Rates
- Asked and Bid Rates
- Cross Rates
- Types of Foreign Exchange Transactions
3) Capital Budgeting for Direct Foreign Investment : Foreign
Investment Risk
 KOMPETISI KHUSUS
• Mahasiswa mampu menghitung nilai tukar 2
negara serta menentukan dampaknya bagi
kondisi keuangan perusahaan.
 BOOK
• Keown, Arthur J., Martin, John D., Petty, J.
William
BAB : 16
Hal : 510 - 529
 The Globalization of Product and
Financial Markets
• DFI (Direct Foreign Investments) = company from one
country making a physical investment, such as building a
factory, in another country
• MNC (Multinational Corporation) = corporation with holdings
and / or operations in more than one country
• Eurodollars = US Dollar held by foreign (often European)
banks and financial institutions outside the US, and often as a
result of payments to foreign companies for goods or services
 Multinational Companies Activities
1. Day to Day Operation
2. Foreign trade with business clients 
Melalui : export import
export -->generate foreign cash inflows
import --> cash outflows
3. Direct foreign investment (DFI) atau akuisisi asset asing
Berinvestasi / beli asset  cash outflows
Pendapatan investasi / jual asset  cash inflows
4. Short term investment / financing  international money
market
5. Middle-long term financing  international bond market
6. Long-term investment financing  international stock
market
 Foreign Exchange Markets and
Currency Exchange Rates
• FX (Foreign Exchange) market is the market in which the currencies
of various countries is traded. FX is by far the world’s largest
financial market.
• The FX market is an over-the counter market with participants
(buyers and sellers) located in major commercial and investment
banks around the world.
• Some of major participants in foreign exchange trading include the
following :
1. Importers and exporters of goods and services
2. Investors and portolio managers who purchase foreign stocks and
bonds
3. Currency traders who make a market in one of more foreign
currencies.
 Foreign Exchange Rates
• Exchange rate : the price of one currency stated in
terms of another
• Direct quote : the exchange rate that indicates the
number of units of the home currency required to
buy one unit of a foreign currency
• Indirect quote : the exchange rate that expresses the
number of units of foreign currency that can be
bought for one unit of home currency
Example (if US$ is the home currency)

Trading and currency

Country / Currency US$ Equivalent
per 1 unit US $
UK Pound $ 1.5562 0.6426
Swiss Franc $ 1.0518 0.9508
Euro $ 1.2633 0.7916
China Yuan $ 0.1569 6.372
Japan Yen $ 0.01260199 79.35

Direct Quote = number Indirect Quote = Number of

of dollars it takes to foreign currency units it
purchase one unit of takes to purchase one
foreign currency American Dullar

1
𝐼𝑛𝑑𝑖𝑟𝑒𝑐𝑡 𝑄𝑢𝑜𝑡𝑒=
𝐷𝑖𝑟𝑒𝑐𝑡 𝑄𝑢𝑜𝑡𝑒
 Currency Exchange Rates
Factors that affects exchange rates :
1. Inflation
2. Interest rate
3. Government Policy
4. Income level
5. Expectation
 Exchange Rates and Arbitrage
• Arbitrageur : an individual involved in the
process of buying and selling in more than one
market to make a riskless profit
• Arbitrage : trading to eliminate exchange rate
differentials across the markets for a single
currency
 Asked and Bid Rates
• Asked rate : the rate that the bank or the foreign
exchange trader “asks” the customer to pay when
the bank is selling and the customer is buying. The
asked rate is also known as the selling rate or the
offer rate
• Bid rate : the rate at which the bank buys the foreign
currency from the customer. The bid rate is also
known as the buying rate.
• Bid-asked spread : the difference between the asked
quote and the bid quote.
 Cross Rates
• Cross rate : the exchange rate between two
foreign currencies, neither of which is the
currency of the domestic country
 Types of Foreign Exchange
Transactions
• Spot rate exchange : an exchange rate for a transaction that
calls for immediate delivery
• Forward exchange rate : an exchange rate for a transaction
that calls for delivery in the future
• Delivery rate : the date on which the actual payment of one
currency in exchange for another takes place in a foreign
exchange transaction
• Forward Exchange contract : an agreement between two
parties to exchange one currency for another on a future date
• Forward spot differential : the premium or discount between
forward and spot currency exchange rates
 Capital Budgeting for Direct Foreign
Investment : Foreign Investment Risk
Foreign Investment Risk :
(1) Business risk related to the specific attributes
of the product or service being provided and
the uncertainty associated with that market
(2) Financial risk, which is the risk imposed on
the investment as a result of how the project
is financed
(3) Political Risk
(4) Exchange Rate Risk