ch12Operating Exposure to Currency Risk(跨国公司,Kirt C. Butler)
第六讲 经营风险
10-10
Trident’s Operating Exposure
• Assume that on January 1, 2003 the euro unexpectedly drops 16.67% in value from $1.200/€ to $1.000/€
– If no devaluation had occurred, Trident Europe was expected to perform as shown in the base case – To illustrate let us assume three various post-devaluation scenarios on Trident Europe’s operating exposures
10-11
Strategic Management of Operating Exposure
tb12
Kirt C. Butler, Multinational Finance, 3rd editionChapter 12 Managing Operating Exposure to Currency RiskTrue/False1. Economic exposure to currency risk is defined as change in the value of future cash flowsdue to unexpected changes in currency values.ANS: True.2. Economic exposure is far more important than translation exposure to the value of themultinational corporation.ANS: True.3. Operating exposure to currency risk is easy to hedge with currency forwards.ANS: False. Uncertain cash flows to real assets are difficult to hedge with currencyforwards.4. Operating exposure is defined as change in the firm’s operations in response to currency risk.ANS: False. Operating exposure is change in real asset values due to currency risk.5. In an integrated financial market, purchasing power parity holds so that equivalent assetstrade for the same price regardless of where they are traded.ANS: True.6. If purchasing power parity does not hold, then markets are at least partially segmented.ANS: True.7. Translation exposure is defined as change in the value of contractual cash flows due tounexpected changes in currency values.ANS: False. This is transaction exposure.8. Segmented markets are markets that discriminate on the basis of race, creed, or color.ANS: False. Segmented markets have barriers that prevent the free flow of capital.9. The classic exporter manufactures goods in the local economy and sells the output incompetitive global markets.ANS: True.10. The classic importer buys goods in segmented foreign markets and sells them in localmarkets.ANS: False. The classic importer buys its inputs in competitive global markets.11. A real appreciation of the domestic currency helps importers and hurts exporters.ANS: True.12. Net monetary assets is another term for shareholders’ equity.ANS: False. Net monetary assets are monetary assets less monetary liabilities.13. MNCs can be exposed to more than one foreign currency.ANS: True.14. Regressions based on historical relationships can be unsatisfactory indicators of expectedfuture exposure to currency risk.ANS: True.15. Operating hedges are zero-NPV transactions.ANS: False. Because they involve the firm’s real assets, they are seldom zero-NPVtransactions.16. Real asset hedges of operating exposure to currency risk are less difficult to construct thanfinancial market hedges.ANS: False. Because they involve the firm’s real assets, they are more difficult to construct. Multiple Choice1. Change in the value of future cash flows due to unexpected changes in exchange rates iscalled ____ to currency risk.a. economic exposureb. operating exposurec. transaction exposured. translation exposuree. none of the aboveANS: A2. Change in financial accounting statements arising from unexpected changes in currencyvalues is called ____ to currency risk.a. economic exposureb. operating exposurec. transaction exposured. translation exposuree. none of the aboveANS: D3. Change in the value of contractual cash flows due to unexpected changes in currency valuesis called ____ to currency risk.a. economic exposureb. operating exposurec. transaction exposured. translation exposuree. none of the aboveANS: C4. Change in the value of noncontractual cash flows due to unexpected changes in currencyvalues is called ____ to currency risk.a. economic exposureb. operating exposurec. transaction exposured. translation exposuree. none of the aboveANS: B5. Operating cash flows that are exposed to currency risk are affected primarily by ____.a. changes in domestic inflationb. changes in foreign inflationc. changes in nominal exchange ratesd. changes in real exchange ratese. none of the aboveANS: D6. Monetary cash flows that are exposed to currency risk are affected primarily by ____.a. changes in domestic unemploymentb. changes in foreign unemploymentc. changes in nominal exchange ratesd. changes in real exchange ratese. none of the aboveANS: C7. When goods markets are segmented from other markets, goods prices are determined ____.a. in foreign marketsb. in the global marketc. in the local marketd. all of the abovee. none of the aboveANS: C8. The classic exporter has ____.a. both revenues and expenses that are determined globallyb. both revenues and expenses that are determined locallyc. revenues that are determined locally and expenses that are determined globallyd. revenues that are determined globally and expenses that are determined locallye. none of the aboveANS: D9. The classic importer has ____.a. both revenues and expenses that are determined globallyb both revenues and expenses that are determined locallyc revenues that are determined locally and expenses that are determined globallyd revenues that are determined globally and expenses that are determined locallye none of the aboveANS: C10. The globally competitive multinational corporation typically has ____.a. both revenues and expenses that are determined globallyb. both revenues and expenses that are determined locallyc. revenues that determined locally and expenses that are determined globallyd. revenues that determined globally and expenses that are determined locallye. none of the aboveANS: A11. The ____ is positively exposed to the real value of the domestic currency.a. classic exporterb. classic importerc. typical domestic firmd. globally competitive firme. none of the aboveANS: B12. The ____ is negatively exposed to the real value of the domestic currency.a. classic exporterb. classic importerc. typical domestic firmd. globally competitive firme. none of the aboveANS: A13. Price elasticity of demand is defined as minus the percentage change in ____.a. interest rates for a given change in money supplyb. money supply for a given change in interest ratesc. price for a given percentage change in quantity demandedd. quantity demanded for a given percentage change in pricee. none of the aboveANS: D14. Exposure to currency risk ____.a. can be thought of as a regression coefficientb. cannot be measured by conventional methodsc. is equal to the price elasticity of demandd. is equal to the variability of currency valuese. is equal for all companiesANS: A15. Operating exposure to currency risk is most effectively managed by ____.a. hedging with currency forwards or futuresb. hedging with currency optionsc. hedging with real assetsd. hedging with virtual assetse. none of the aboveANS: C16. A disadvantage of real asset hedges is that ____.a. bid-ask spreads can be largeb. daily marking to market can cause cash flow mismatchesc. option premiums can be larged. they come in only a limited number of currencies and maturitiese. they involve substantial sunk costsANS: E17. ____ are relatively insensitive to currency fluctuations.a. Domestic firmsb. Exportersc. Importersd. Inbred corporationse. Multinational corporationsANS: A18. Exposure to currency risk is measured as the percentage change in ____.a. currency values given a percentage change in exchange ratesb. exchange rates given a percentage change in currency valuesc. exchange rates given a percentage change in valued. value given a percentage change in exchange ratese. None of the aboveANS: D19. The domestic currency value of a monetary cash flow denominated in a foreign currencychanges ____ with a change in the value of the foreign currency.a. disproportionatelyb. the currency of denominationc. not at alld. one for onee. none of the aboveANS: D20. The domestic currency value of an expected future operating cash flow denominated in aforeign currency changes ____ with a change in the value of the foreign currency.a. disproportionatelyb. the currency of denominationc. not at alld. one for onee. none of the aboveANS: E21. Shareholders exposure to currency risk is equal to ____.a. assets less liabilitiesb. credits less debitsc. net monetary assets plus real assetsd. the sum of transaction exposure and operating exposuree. none of the aboveANS: D22. An exporter’s financial market hedging alternatives include each of a) through c) except____.a. Buy the foreign currency with long-dated forward contracts.b. Use currency swaps to acquire financial liabilities in the foreign currency.Kirt C. Butler, Multinational Finance, 3rd editionc. Use a rolling hedge to repeatedly sell the foreign currency.d. More than one of the abovee. None of the aboveANS: A23. An importer’s financial market hedging alternatives include each of a) through d) except____.a. Buy the foreign currency with long-dated forward contracts.b. Invest in long-dated foreign bonds.c. Use currency swaps to acquire financial assets in the foreign currency.d. Use a rolling hedge to repeatedly sell the foreign currency.e. none of the aboveANS: D24. Managers should assess the performance of financial market hedges of operating exposuresby ____.a. assessing the interaction of operating performance with exchange rate changesb. varying pro forma operating performance within reasonable limitsc. varying the exchange rate and assessing the resulting competitive position of the firmd. more than one of the abovee. none of the aboveANS: D25. Operational hedges can create value by ____.a. reducing agency costs.b. reducing expected taxesc. reducing costs of financial distressd. more than one of the abovee. none of the aboveANS: D26. The main advantage of a financial market hedge of operating exposure to currency risk isthat ____.a. financial market hedges can completely cancel operating exposures to currency riskb. financial market transactions are zero-NPV transactionsc. the costs of buying or selling financial instruments are low compared to the costs ofinvesting or disinvesting in real assetsd. the uncertain cash flows of operating exposures to currency risk are exactly offset by theuncertain outcomes of a financial market hedgee. none of the aboveANS: C27. Dimensions of diversification that can reduce variability in the multinat ional corporation’soperating cash flows include ____.a. currency and geographic diversificationb. currency and product market diversificationc. geographic and product market diversificationd. currency and virtual diversificationKirt C. Butler, Multinational Finance, 3rd editione. none of the aboveANS: C28. Multinational corporations have an advantage over domestic firms in their ____.a. market selection and promotion strategiesb. plant location decisionsc. product sourcing decisionsd. more than one of the abovee. none of the aboveANS: D29. A Dutch exporter with dollar revenues and euro expenses has a foothold in the U.S. market.The company’s competitors are domestic U.S. firms that have revenues and expensesdenominated in dollars. Sensible pricing strategies that the Dutch exporter can pursue in response to an appreciation of the dollar include which of a) through c)?a. Maintain the current euro price for their goods, try to sell the same quantity in the U.S.market, and capture a bigger contribution margin per unit.b. Maintain the current dollar price for their goods and try to increase profits by increasingsales volume at the current contribution margin.c. Follow the lead of the price leader in the U.S. market.d. more than one of the abovee. none of the aboveANS: C30. The percent of the variation in asset value that is explained by variation in a currency valueis called the ____.a. betab. price elasticity of demandc r-squared. slope coefficiente. none of the aboveANS: CProblems1. Copper Kettle, Inc of the United States manufactures (what else?) copper kettles. Copper Kettleimports its raw materials from Chile, and sells most of its goods in the domestic United States.Accounts that are denominated in Chilean pesos are indicated in the balance sheet below.Inventory is not exposed to the peso. The spot rate is $0.0020/peso.Value Value Value Valuein pesos in dollars in pesos in dollars Cash (pesos) P20,000,000 $40,000 Payables (pesos) P100,000,000 $200,000 Cash ($) $40,000 Payables ($) $40,000Kirt C. Butler, Multinational Finance, 3rd editionReceivables($) $40,000Inventory ($) $40,000Current assets $160,000 Current liabilities $240,000 Real assets $240,000 Debt (pesos) P20,000,000 $40,000Debt ($) $80,000Net worth $40,000 Total assets $400,000 Total liabilities $400,000a. What is the value of monetary assets and of monetary liabilities that are exposed to theChilean peso? What is the value of exposed monetary assets net of exposed monetary liabilities?b. If the peso depreciates by 10 percent, by how much will monetary assets change in value?By how much will monetary liabilities change in value? What are the r-squares of the relations between change in value and change in the exchange rate?c. Suppose the exposure of real assets to the Chilean peso is βPeso = ρR,s(σR/σs), where ρR,s= -0.30, σR = 0.15, and σs = 0.15. If the peso depreciates by 10 percent, by how much are Copper Kettle’s real assets likely to change in value? What is the r-square of this relation? Do you have much confidence in this estimate of the change in value? Why or why not.d. Given your results in parts b and c, by how much is Copper Kettle’s equity likely tochange in value with a 10 percent depreciation of the Chilean peso?e. Does Copper Kettle’s peso-denominated debt make sense given their operating exposure? Problem Solutions1. a. Copper Kettle has exposed monetary assets of Peso20 million and exposed monetaryliabilities of (Peso100 million) + (Peso20 million) = Peso120 million. Copper Kettle’s net exposure is -100 million pesos.b. A 10 percent depreciation of the Chilean peso will decrease the dollar value of peso-denominated monetary assets and liabilities by $4,000 and $24,000, respectively, for anet increase in the dollar value of Copper Kettle of $20,000. Exposed monetary assetsand liabilities are derivative accounts that change one-for-one with changes in exchangerates, so the r-square of this relation is +1.00, or 100 percent.c. The sensitivity of real (operating) assets to the value of the peso is βPeso = ρR,s(σR/σs) = (-0.30)(0.15/0.15) = -0.30. A 10 percent depreciation of the peso is likely to increase thedollar value of Copper Kettle’s real assets by (-0.10)(-0.30) = +0.03, or 3 percent. Thistranslates into an $8,400 increase, from $280,000 to $288,400. The r-square is (-0.30)2 =0.09, so nine percent of the variation in the dollar value of real assets is explained byvariation in the value of the peso.d. Equity exposure is equal to the exposure of net monetary assets plus the exposure of realassets. A 10 percent depreciation of the Chilean peso should change Copper Kettle’sequity value by (+$20,000) + ($8,400) = $28,400.e. Foreign currency debt does not make sense for an importer such as Copper Kettle. If thepeso appreciates, Copper Kettle will owe more on their peso-denominated liabilities atthe same time that their real assets fall in value. Copper Kettle probably should swaptheir peso-denominated debt for dollar-denominated debt, so that their financialobligations are in the same currency as their revenues.。
跨国公司财务管理基础
Accounting Exposure
Translation Exposure
The extent to which assets, liabilities, revenues, expenses, gains, and losses denominated in foreign currencies result in foreign exchange gains and losses
? Operating exposure – the extent to which currency fluctuations can alter a company's future operating cash flows (revenues and costs)
? Transaction exposure – the extent to which currency fluctuations affect contractually binding future foreign-currency-denominated cash inflows and outflows. Has aspects of both translation and opepter 9: Foreign Exchange Risk Management
1
9.A Measures of Foreign Exchange Exposure (1)
? Foreign exchange exposure – the degree to which a company is affected by exchange rate changes
? Types of exposure
– Translation (accounting) exposure – the extent to which currency fluctuations affect financial statement items denominated in foreign currency.
宏观经济学 ch12
*CHAPTER 12(Core Chapter)EXCHANGE RATE DETERMINATIONOUTLINE12.1Introduction12.2Overview of Exchange Rate Determination12.3Trade or Elasticity Approach12.4Purchasing-Power Parity TheoryCase Study 12-1 Absolute Purchasing Power in the Real WorldCase Study 12-2 Big MacCurrenciesCase Study 12-3 Relative Purchasing Power in the Real World12.5 The Monetary Approach to Exchange RatesCase Study 12-4 Nominal and Real Exchange Rates, and the Monetary ModelCase Study 12-5 Interest Differentials, Exchange Rates and the Monetary Approach 12.6 Asset or Portfolio Approach to Exchange Rates12.7 Exchange Rate DynamicsCase Study 12-6 Exchange Rate Overshooting of the U.S. Dollar12.8 Exchange Rate ForecastingCase Study 12-7 The Euro Exchange Rate Defies ForecastingKEY TERMSTrade or elasticity approach Purchasing-power parity (PPP) theory Absolute purchasing-power parity theory Law of one priceRelative purchasing-power parity theory Monetary model of exchange rates Nominal exchange rate Real exchange rateAsset or portfolio approach to exchange rates Exchange rate overshootingLECTURE GUIDE1. This is another important and challenging core chapter. I would cover 2 sections in each offour classes.2.Section 2 is a crucial section because it provides an overview of exchange rate determination.3.Section 3 briefly examines the elasticity or trade approach to exchange rate determination.This is a simple introduction to what will be examined in detail in Chapter 13.4.Section 4 on the purchasing power parity (PPP) theory is not too difficult and students willfind Case Study 2 particularly interesting.5.Section 5 and section 6 examine, respectively, how exchange rates are determined accordingto the monetary and the asset or portfolio model. These are, of course, simplified version ofthe models that are fully developed in Chapter 15 of my more advanced InternationalEconomics text (9th ed., Wiley, 2007; 10th ed., Wiley, 2011).6.Section 7 on exchange rate overshooting can be challenging for students, especially thereason for the overshooting.7.In covering Section 8 on empirical testing of the monetary and asset market or portfoliobalance models and exchange rate forecasting it is important to clearly point out to studentsthat even though empirical tests do lens much support the theories presented in the chapter,this does not mean that the theories are wrong or useless.ANSWERS TO REVIEW QUESTIONS AND PROBLEMS1.If economic growth increased in the EMU but not in the United States, the EMU woulddemand more U.S. exports and supply more euros to the United States, and this would lead to a reduction in the dollar/euro exchange rate (appreciation of the dollar).2.If the price level increased in the United States less than in the EMU, the United Stateswould find imports from the EMU more expensive while the EMU would find U.S.exports cheaper. This will reduce the U.S. demand for euros (the U.S. demand curve foreuros shifts down and to the left) but increase the U.S. supply of euros (the U.S. supplycurve for euros shifts down and to the right). Both of these effects would lead to areduction in the dollar/euro exchange rate (dollar appreciation).3. If the interest rate increased in the United States but remained unchanged in the EuropeanMonetary Union (EMU), both the United States and the EMU would demand fewer euros.This would reduce the U.S. demand and increase the U.S. supply of euros and lead to adecline in the dollar/euro exchange rate (the dollar to appreciate).4.If the expectation suddenly arises that the dollar will appreciate, U.S. and EMU investorswould buy dollars with euros, now that the dollar is cheap in the anticipation of sellingdollars for euros (and thus earn a profit) after the dollar appreciates. This would reducethe U.S. demand and increase the U.S. supply of euros, both or which cause a decrease in the dollar/euro exchange rate (an appreciation of the dollar).5.If growth, inflation, and interest rates increase in the United States but not in theEuropean Monetary Union, the effect on the dollar/euro exchange rate depends on the net effect of these changes on the U.S. demand and supply curve.6. a. The absolute purchasing-power parity theory postulates that the equilibrium exchangerate between two currencies is equal to the ratio of the price levels in the two nations, sothat a given commodity would have the same price in the two countries when expressed in terms of the same currency (the law of one price). The absolute PPP theory would hold only if there were no transportation costs, tariffs or other obstructions to the free flow of trade; if all commodities were traded internationally; and if no structural changes (such as wars) took place in the United States and the EMU. Since these assumptions do not hold in the real world, the absolute version of the PPP cannot be taken seriously. Wheneverthe purchasing-power parity theory is used, it is usually in its relative formulation.b. The relative purchasing-power parity theory postulates that the percentage change inthe exchange rate is equal to the difference in the percentage change in the two countries' general price levels (as long as there are no changes in transportation costs, obstructions to trade, ratio of traded to nontraded goods, and in the structure of the two economies).c. Empirical tests indicate that relative purchasing power-parity (PPP) holds reasonablywell only in the long run.7. a. The rate of inflation in the United Kingdom from 1973 to 2003 was:On the other hand, the rate of inflation in the United States from 1973 to 2003 was:Thus, the inflation rate in the United Kingdom minus the inflation rate in the United Statesfrom 1973 to 2003 was:154.0% - 122.5 = 31.5%From 1973 to 2003, the British pound depreciated with respect to the U.S. dollar from£0.4304 to the dollar in 1973 and £0.5975 per dollar in 2003 orbyNote that in the above calculations, percentage changes were obtained by the average of the beginning and end values. You may want to ask the class to do the same when assigning this problem, so that students would get as to get the same answer as given above.b. The relative PPP theory did hold because the rate of inflation was higher in the UnitedKingdom than in the United States by almost the exact percentage by which the pounddepreciated with respect to the dollar from 1973 to 2003.8. a. According to the monetary model, an increase in the nation’s money supply leads to aproportionate increase in prices and depreciation of the nation’s currency in the long run,as postulated by the PPP theory. This means that the nominal and real exchange rates ofthe nation’s currency should move together by the same percentage over time.b. Empirical tests do not lend much support to the monetary model of exchange rates. Onereason for this is that the monetary approach does not include all of the factors that affect the exchange rate.9. a. The asset or portfolio approach postulates that an increase in a nation's money supplyleads to an immediate decline in the interest rate in the nation and to a shift from domestic bonds to the domestic currency and to foreign bonds. The shift from domestic to foreign bonds causes an immediate depreciation of the home currency as individuals and firmsexchange domestic for foreign currency in order to purchase more foreign bonds.b. The asset or portfolio approach of exchange rates differs from the monetary model bypostulating that the exchange rate is determined in the process of equilibrating orbalancing the stock or total demand and supply of financial assets (of which money is only one, as in the monetary approach) in each country. It also brings trade explicitly into theanalysis.c. Although theoretically superior to the monetary approach, empirical tests do not lendmuch support to the asset or portfolio approach of exchange rates either.10. The asset or portfolio approach postulates that an increase in a nation's money supply leadsto an immediate decline in the interest rate and shift from domestic to foreign bonds. Thiscauses an immediate depreciation of the nation’s currency. Over time, this leads to a tradesurplus and an appreciation of the domestic currency, which neutralizes part of its originaldepreciation, thus explaining the exchange rate overshooting often observed in the realworld.SAMPLE TEST QUESTIONS1. If growth increased in the United States but not in the European Monetary Union (EMU) thedollar would:a. depreciateb. appreciatec. the dollar/euro exchange rate would remain unchangedd. any of the above2. If growth increased in the in the European Monetary Union (EMU) but not in the United States,the dollar would:a. depreciateb. appreciatec. the dollar/euro exchange rate would remain unchangedd. any of the above3. A more rapid increase in prices in the United States than in the European Monetary Union(EMU) would lead toa. a decrease in the U.S. demand for euros and an increase in the U.S. supply of eurosb. an increase in the U.S. demand and supply of eurosc. a decrease in the U.S. demand and supply of eurosd. an increase in the U.S. demand for euros and a decrease in the U.S. supply of euros4. A faster price increase in the United States than in the European Monetary Union (EMU) willlead toa. a dollar depreciationb. a dollar appreciationc. the dollar/euro exchange rate to remain unchangedd. any of the above5. An increase in the interest rate in the United States but not in the European Monetary Unionwould lead toa. an increase in the U.S. demand for euros and a decrease in the U.S. supply of eurosb. an increase in the U.S. demand and supply of eurosc. a decrease in the U.S. demand and supply of eurosd. a decrease in the U.S. demand for euros and an increase in the U.S. supply of euros6. An increase in the interest in the United States but not in the European Monetary Union(EMU) will lead toa. a dollar depreciationb. a dollar appreciationc. the dollar/euro exchange rate to remain unchangedd. any of the above7. The expectation that the U.S. will appreciate in the future would lead toa. a decrease in the U.S. demand for euros and an increase in the U.S. supply of eurosb. an increase in the U.S. demand for euros and a decrease in the U.S. supply of eurosc. an increase in the U.S. demand and supply of eurosd. a decrease in the U.S. demand and supply of euros8. The expectation that the U.S. will appreciate in the future would lead toa. a dollar depreciationb. a dollar appreciationc. the dollar/euro exchange rate to remain unchangedd. any of the above9. An increase in the U.S. growth rate, inflation, and interest rate relative to the EuropeanMonetary Union (EMU) would lead toa. a dollar depreciationb. a dollar appreciationc. the dollar/euro exchange rate to remain unchangedd. any of the above10. Which is correct with respect to the absolute PPP theory?a. it postulates that the exchange rate between two currencies is equal to the ratio of the pricelevels in the two nationsb. it does not take into consideration transportation costs or other obstructions to the flow ofinternational tradec. can be very misleadingd. all of the above11. The relative purchasing power-parity theory postulates that:a. the equilibrium exchange rate is equal to the ratio of the price level in the two nationsb. the percentage change in the exchange rate over a period of time is equal to thedifference in the percentage change in the price level in the two nations over the same time periodc. the change in the exchange rate over a period of time should be proportional to the absolutechange in the price level in the two nations over the same time periodd. the exchange rate at a period of time should be proportional to the relative prices in the twonations12. The relative PPP theory gives better results:a. in the long run than in the short runb. when structural changes take placec. the greater is the level of commodity aggregationd. in tests including developed and developing countries13. According to the monetary model, an increase in the nation’s supply of money leads to:a. a depreciation of the foreign currencyb. an appreciation of the domestic currencyc. depreciation of the domestic currencyd. depreciation of both the foreign and domestic currencies14. The asset market or portfolio approach:a. can be regarded as an extension of the monetary modelb. deals with money and other domestic and foreign financial assetsc. can more readily be extended than the monetary model to deals with the real sectord. all of the above15. According to the asset market or portfolio approach, an expected appreciation of the foreigncurrency leads to:a. a depreciation of the foreign currencyb. an appreciation of the domestic currencyc. depreciation of the domestic currencyd. depreciation of both the foreign and domestic currencies。
EconomicOperatingExposure(外汇风险)
• Assumptions:
– Competing with Swiss firms. – SF price unaffected by $/SF fluctuations
• Requires an overall assessment of the industry:
– Nationality of competitors & suppliers – firm’s degree of market power
Example: Volvo
• Structure:
• Imports supplies from Germany • produces in Sweden • Sells in U.S.
Operating exposure: $1 mln change in firm value for every 2% change in the current $/SF rate
Measuring operating exposure
• Requires a longer-term perspective: viewing the firm as an ongoing concern with price and cost competitiveness affected by exchange rate changes
– C$ prices rise overall by 10%. – Reduction in total Canadian sales by 2%. – Local currency result: C$ revenues up 8%.
ch10MEASURING ACCOUNTING EXPOSURE(跨国公司财务管理-Joseph F. Greco)
ALTERNATIVE CURRENCY TRANSLATION METHODS
B. Monetary/Nonmonetary Method 1. Monetary accounts use current rate 2. Pertains to - cash - accounts receivable - accounts payable - long term debt
20
TRANSACTION EXPOSURE
II. MEASUREMENT A. Currency by currency B. Equals the difference between 1. The contractually-fixed invoice amount in a specific currency 2. The final payment amount denominated in current exchange rate for the specific currency.
19
PART IV. TRANSACTION EXPOSURE
I. WHEN DOES IT OCCUR? A. From the time of agreement to time of payment.
B. Arises from possibility of exchange rate gains and losses from the transaction.
7
ALTERNATIVE MEASURES OF FOREIGN EXCHANGE EXPOSURE Economic Exposure
= Transaction + Operating Exposures
货币金融学 CH12_
12-13
© 2013 Pearson Education, Inc. All rights reserved.
– Bank regulations
• Promote diversification • Prohibit holdings of common stock
– Capital requirements
• Minimum leverage ratio (for banks) • Basel Accord: risk-based capital requirements • Regulatory arbitrage
Chapter 12 Economic Analysis of Financial Regulation
Asymmetric Information and Financial Regulation • Bank panics and the need for deposit insurance:
• The subprime mortgage crisis illustrated the need for greater consumer protection.
12-11
© 2013 Pearson Education, Inc. All rights reserved.
Restrictions on Competition
Government Safety Net: “Too Big to Fail”
• Government provides guarantees of repayment to large uninsured creditors of the largest financial institutions even when they are not entitled to this guarantee • Uses the purchase and assumption method • Increases moral hazard incentives for big banks
中级宏观经济学Ch12重访开放经济蒙代尔-弗莱明模型
本章总结
3. 货币政策 在浮动汇率下可影响收入。 在固定汇率下，货币政策对产出无效。
4. 利率差
▪ 当投资者为持有一国资产而要求风险补偿时存 在。
▪ 风险系数的增加会抬高本国的利率，进而使本 国货币贬值。
本章总结
5. 固定与浮动汇率
▪ 在浮动汇率下，Under floating rates, monetary policy is available for can purposes other than maintaining exchange rate stability.
用担保，以此作为墨西哥政府获得贷款的信 用保证金。
▪ 这一举措恢复了墨西哥的信心，降低了其风
险系数。
▪ 经历了1995年的严重衰退后，墨西哥开始了
一个强劲的恢复。
浮动汇率与固定汇率
关于浮动汇率的优点：
▪ 可以运用货币政策达到其它的一些政策目标 (
稳定增长，低通货膨胀) 关于固定汇率的优点：
▪ 避免不确定性与易变性，使国际交易容易进
具有完全流动性的小国开放经济： r = r*
▪ 产品市场均衡---IS* 曲线：
其中
e = 名义汇率
= 单位本币可兑换的外国货币
IS* 曲线：产品市场均衡
对于给定的r*值， IS*
e
曲线向下倾斜。
Байду номын сангаас
对斜率的直观考察：
IS* Y
LM* 曲线：货币市场均衡
LM* 曲线
▪ 是给定r*值下的曲线
e
▪ 是一条垂直线：
1 2
经过一段时间， P 将
向下移动，致使 P
(M/P )
P1
NX
P2
Ch12Managing Economic Exposure And Translation Exposure(国际金融管理-山东大学,秦风鸣)
• If the pound depreciates during the fiscal
year, the gain generated from the forward contract position will help to offset the translation loss.
C12 - 12
C12 - 3
Economic Exposure
• Exchange rate changes are often linked to
variability in real growth, inflation, interest rates, governmental actions,… If material, the changes may cause firms to adjust their financing and operating strategies.
• The firm can then reduce its exposure by
restructuring its operations to balance its exchange-rate-sensitive cash flows.
• Note that computer spreadsheets are
found at . Review some annual reports and see if you can find any comments that describe the MNCs’ hedging of economic and/or translation exposures.
C12 - 7
Managing Madison Inc.’s Economic Exposure
Operating Exposure
12-2
Attributes of Operating Exposure
• Measuring the operating exposure of a firm requires forecasting and analyzing all the firm’s future individual transaction exposures together with the future exposures of all the firm’s competitors and potential competitors worldwide.
• If a firm’s operations are diversified internationally, management is prepositioned both to recognize disequilibrium when it occurs and to react competitively. • Recognizing a temporary change in worldwide competitive conditions permits management to make changes in operating strategies. • Domestic firms may be subject to the full impact of foreign exchange operating exposure and do not have the option to react in the same manner as an MNE.
12-4
Exhibit 12.1 Financial and Operating Cash Flows Between Parent and Subsidiary
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Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e
12-13
Operating hedges of operating exposures
Advantages
- Operating hedges create a fundamental change in the way the MNC does business and thus a long-lasting change to the company’s currency risk exposure
Advantages - Most financial market instruments are actively traded and liquid - If financial prices reflect true value, then financial market transactions are zeroNPV transactions
E[rt$] = 0.06 + (0.02)(0.10) + (0.01)(0.08) + (-0.01)(0.08) = 0. 062 or 6.2 percent
Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3ehedge to repeatedly buy the foreign currency
Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e
12-10
Financial market hedges of operating exposures
- With established international relations, the MNC is in a better position to take advantage of opportunities in international markets
- Plant location: Gain access to low-cost labor or capital resources - Product sourcing: Shift production to countries with low real costs - Market selection: Shift marketing efforts toward countries with higher demand or “overvalued” currencies
Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e
12-12
Managing operating exposure through operations
Take advantage of the MNC’s ability to respond to differences in real foreign exchange rates
Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e
12-11
Financial market hedges of operating exposures
Disadvantage - A financial market hedge provides an imperfect hedge of operating exposure to currency risk The contractual cash flows of a financial market hedge cannot fully hedge the uncertain operating cash flows of the firm’s real assets
The law of one price revisited
In
an integrated market
- purchasing power parity holds so that equivalent assets trade for the same price regardless of where they are traded
In
a completely segmented market
- prices are locally determined
Real-world markets fall somewhere between these extremes
Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e 12-3
Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e
12-5
Market-based estimates of currency risk exposure
DVd/f
sd/f
sd/f
Rtd = ad + bf std/f + etd
revd/f expd/f
(22.9) (22.10)
sd/f
sd/f
sd/f
sd/f
12-8
Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e
Managing operating exposure in the financial markets
Importers (-)
Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e
12-4
The exposure of shareholders’ equity
Foreign currency monetary assets (40¢ ) Foreign currency monetary liabilities (20¢ ) Net exposed monetary assets (20¢ )
Operating exposures to fx risk
Revenues Local Global
Local
Operating expenses Global
Domestic firms (0)
Exporters (+)
Global MNCs & importers/exporters in globally competitive markets (?)
Accounting-based estimates
Sensitivities
of revenues and expenses to foreign exchange rates revtd = arevd + brevf std/f + etd exptd = aexpd + bexpf std/f + etd
Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e 12-6
An example Ford Motor Company’s exposures
rt$ = m$ + b¥ st$/¥ + b€ st$/€ + b£ st$/£ + et$ = 0.060 + 0.02 st$/¥ + 0.01 st$/€ + (-0.01) st$/£ + et$ What is the expected return on Ford stock when… st$/¥ = +10% st$/€ = +8% st$/£ = +8%
12.5 Pricing Strategy and the Firm’s
Competitive Environment 12.6 Summary
Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e 12-1
An
exporter’s hedging alternatives
- Sell the foreign currency with long-dated forward contracts
- Finance a foreign project with foreign debt capital
- Use currency swaps to acquire financial liabilities in the foreign currency - Use a rolling hedge to repeatedly sell the foreign currency
Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e 12-9
Managing operating exposure in the financial markets
An
importer’s hedging alternatives
Exposures to currency risk