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    International Aspects of Corporate Finance: Continuation

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    Joann Rivero-Salomon
    This document discusses several topics related to international aspects of corporate finance: 1. It defines purchasing power parity and how exchange rates are influenced by differences in inflation rates between countries. 2. It describes the major types of international credit markets: Eurocredits, Eurobond market, and foreign bond markets. 3. It provides an overview of international security markets, including primary and secondary markets, as well as major exchanges like the New York Stock Exchange and American Stock Exchange. 4. It discusses political risk associated with investing in foreign countries and how country risk is measured.

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    International Aspects of Corporate Finance: Continuation

    Uploaded by

    Joann Rivero-Salomon
    63 views9 pages
    This document discusses several topics related to international aspects of corporate finance: 1. It defines purchasing power parity and how exchange rates are influenced by differences in inflation rates between countries. 2. It describes the major types of international credit markets: Eurocredits, Eurobond market, and foreign bond markets. 3. It provides an overview of international security markets, including primary and secondary markets, as well as major exchanges like the New York Stock Exchange and American Stock Exchange. 4. It discusses political risk associated with investing in foreign countries and how country risk is measured.

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    CHPATER 31.pptx

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    This document discusses several topics related to international aspects of corporate finance: 1. It defines purchasing power parity and how exchange rates are influenced by differences in inflation rates between countries. 2. It describes the major types of international credit markets: Eurocredits, Eurobond market, and foreign bond markets. 3. It provides an overview of international security markets, including primary and secondary markets, as well as major exchanges like the New York Stock Exchange and American Stock Exchange. 4. It discusses political risk associated with investing in foreign countries and how country risk is measured.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    63 views9 pages

    International Aspects of Corporate Finance: Continuation

    Uploaded by

    Joann Rivero-Salomon
    This document discusses several topics related to international aspects of corporate finance: 1. It defines purchasing power parity and how exchange rates are influenced by differences in inflation rates between countries. 2. It describes the major types of international credit markets: Eurocredits, Eurobond market, and foreign bond markets. 3. It provides an overview of international security markets, including primary and secondary markets, as well as major exchanges like the New York Stock Exchange and American Stock Exchange. 4. It discusses political risk associated with investing in foreign countries and how country risk is measured.

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    © All Rights Reserved
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    of 9

    CHAPTER 31

    INTERNATIONAL
    ASPECTS OF CORPORATE
    FINANCE

    continuation….
    PURCHASING POWER PARITY

    Purchasing Power Parity (PPP)


    - is the relationship in which the same products cost roughly the same amount in different countries after taking into account the exchange rate.
    - it is also referred to as the law of one price.
    For example : if a pair of shoes cost $100 in the US and P4,300 in the Philippines, PPP implies that the exchange rate will be P43 per dollar.
    The equation for purchasing power parity is as follows :

    The spot market exchange rate is expressed as the number of units of home currency that can be exchanged for one unit of foreign currency (P43 per $1)
    INFLATION, INTERESTS RATES AND
    EXCHANGE RATES
    When the dollar strengthens or appreciates , this means that the value of a dollar arises, so it
    takes more foreign currency to buy a dollar.

    Inflation rates in the home country compared with that in foreign countries influences in the
    financing decisions and profitability of foreign investments of multinational firms.
    1. They affect future production cost at home and abroad; and
    2. They have significant impact on relative interest rates and exchange rates.
    INTERNATIONAL MONEY AND CAPITAL
    MARKETS
    There are three major types of international credit markets:
    1. EUROCREDITS
     this is the market for floating-rate bank loans whose rates are tied to LIBOR, which stands
    for London Interbank Offer Rate.
     LIBOR is the interest rate offered by the largest and strongest banks on large deposits
     Usually issued for a fixed term with no early repayment
     Eurocredit exist for major trading currencies
     Example: Eurodollar deposit which is a U.S. dollar deposited in a bank outside the US
    2. EUROBOND MARKET
     An international bond underwritten by an international syndicate of banks and sold to
    investors in countries other than the one in whose money unit the bond is denominated.

    3. FOREIGN BOND MARKET


     Are international bonds issued in the country in whose currency the bond is denominated, and
    they are underwritten by investment bank in that country.
    INTERNATIONAL SECURITY MATKET

    Security markets can be classified in several ways.


    1. Primary Markets
     this term is used to denote the market for original sale of securities by an issuer to the
    public.
    2. Secondary Markets
     after securities have been purchased in the primary markets, they can be traded in the
    secondary markets. The security markets comprise the organized securities exchanges and
    the over-the-counter (OTC) markets. The proceeds from sales of securities in the
    secondary markets go to the owners (sellers) of the securities.
    NEW YORK STOCK EXCHANGE
     the largest organized securities exchange in the world , NYSE is home to nearly 2,900
    companies and it is a corporation with more than 1,400 members including about 1,366
    members who owns a “seat”. Most of the seats are owned by brokerage firms.

    AMERICAN STOCK EXCHANGE (AMEX)


     it uses a specialist trading system like the NYSE and processes trades in both listed equity
    derivative securities such as options.

    OVER-THE-COUNTER-MARKET
     NASDAQ MAKRET an electronic stock market without physical trading floor
    POLITICAL RISK
    Refers to the possibility that a country’s political decisions or events will adversely affect the
    business climate
    Some political risks to the assets and cash flows of multinational companies are:

    1. Government seizure of a company’s assets in the country;


    2. Expropriation with minimal compensation
    3. Enactment of new taxation; and
    4. Limiting or blocking the conversion of local currency to the multinational company’s
    domestic currency
    MEASURING COUNTRY RISK

     Country risk analysts use sophisticated models to measure risk, thus providing corporate
    managers and investors with a way to judge both the relative and absolute risk of investing
    the different countries.
     The higher a country’s score, the lower it’s country risk. The maximum possible score is
    100.

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