Week 1 Exchange rates change and when they do they alter the business results and
Lecture 1 Theory (PPT/Textbook): competitiveness.
Comparative Advantage: A theory that international trade should make all Eurocurrency: currency deposited in a bank located in a country other than
countries better off when they specialize in production of goods and services the country issuing the currency. Domestic currencies of one country on
that they produce most efficiently relative to other countries: free trade; deposit in a second country. Banks will pay interest on these deposits—
perfect competition; no uncertainty; costless information; and no government eurocurrency interest—depending on the agreed upon maturity—a period
interference ranging from overnight to more than a year or longer. Eurocurrency deposits
Strategic motives drive the decision to invest abroad and become a MNE and are digitally transferred between banks. Purpose: (1) eurocurrency deposits
can be summarized by: market seekers, raw material seekers, production are an efficient and convenient money market device for holding excess
efficiency speakers, knowledge seekers, political safety seekers (these corporate liquidity; and (2) the eurocurrency market is a major source of
categories are not mutually exclusive) short-term bank loans to finance corporate working capital needs, including
The Globalization Process the financing of imports and exports. Any convertible currency can exist in
Stage I: Early domestic phase growing into the international trade phase euro form. Eurosterling (British pounds deposited outside the United
Stage II: Continue to grow from simple international trade to the Kingdom); Euroeuros (euros on deposit outside the eurozone); Euroyen
multinational phase (Japanese yen deposited outside Japan); and Eurodollars (U.S. dollars
Twin agency problem: Conflict of interest b/w management and stockholders deposited outside the U.S.). The reference of interest in the Euro Market is the
Goal of Management: Maximization of shareholder’s wealth. Other goals: London Interbank Offered Rate (LIBOR). Interest spreads in the market often has more decentralized decision-making, and may use more consensus-
Stakeholder welfare, market share, company size, minimum tax burden, are low because it’s a wholesale market, borrowers are usually large based direction.
keeping corporate control with founding family corporations – large transactions with good credit, low overhead cost. Deposit Separation of ownership and management: The field of agency theory is
Operational Goals for MNEs rates are higher because the financial institutions offering activities are not the study of how shareholders can motivate management to accept the
- Maximization of consolidated after-tax income subject to many rules and regulations. prescriptions of the Shareholder Wealth Maximization (SWM) model. For
- Minimization of the firm’s effective global tax burden Limits to Financial Globalization - If these influential insiders are building example, liberal use of stock options should encourage management to think
- Correct positioning of the firm’s income, cash flows, and available funds as personal wealth over that of the firm, it will indeed result in preventing the like shareholders. Whether these inducements succeed is open to debate.
to country and currency flow of capital across borders, currencies, and institutions to create a more However, if management deviates too much from SWM objectives of
Fixed vs. Flexible Exchange Rates open and integrated global financial community. working to maximize the returns to the shareholders – the board of directors
Countries would prefer a fixed rate regime because: Stability in international Gold Standard: Each country sets the rate at which its currency unit can be should replace them.
prices and Inherent anti-inflationary nature of fixed prices converted to a given weight of gold Shareholder Wealth Maximization: The Anglo-American markets are
Problems with a fixed rate regime: Need for central banks to maintain large Interwar: Selling Short – the sale of an asset which the seller does not yet characterized by a philosophy that a firm's objective should be to maximize
quantities of hard currencies and gold to defend the fixed rate; Fixed rates can own. The seller believes he will be able to purchase the asset for contract shareholder wealth. Anglo-American is defined to mean the United States,
be maintained at rates that are inconsistent with economic fundamentals fulfillment at a lower price before the sale contract expiration. Usually done United Kingdom, Canada, Australia, and New Zealand. This theory assumes
with WEAK currencies that the firm should strive to maximize the return to shareholders.
Fixed Exchange Rates: Reserve Currency: currency used by a government Financial Returns: The return to a shareholder in a publicly traded firm
or central banking authority as a resource asset or currency to be used in combines current income in the form of dividends and capital gains from the
market interventions to alter the market value of the domestic currency. appreciation of share price.
The Floating Exchange Rates: Nominal Exchange Rate – The actual Corporate governance is the control of the firm. Corporate governance is the
foreign exchange quotation contrast to real exchange rate, which is adjusted process of ensuring that managers make decisions in line with the stated
for changes in PP. May be constructed as an index IMF de objectives
facto System Category 1) HARD PEGS Countries give up of the
their own sovereignty over monetary police i.e. Zimbabwe firm.
uses USD 2) SOFT PEGS Fixed Exchange Rates: Foreign
exchange rates tied to the currency of a major country to gold
or basket of currencies. The five subcategories of soft peg
regimes are differentiated on the basis of what the currency is
global capital market is a collection of institutions (central banks, commercial fixed to; whether that fix is allowed to change (and if so under
banks, investment banks, not-for-profit financial institutions like the IMF and what conditions); what types, magnitudes, and frequencies of
World Bank) and securities (bonds, mortgages, derivatives, loans, etc.), which intervention are allowed/used; and the degree of variance
are all linked via a global network—the Interbank Market in which securities about the fixed rate. 3) FLOATING values determined by
of all kinds are traded, is the critical pipeline system for the movement of open market forces without governmental influence or
capital. intervention, and simple floating or floating with intervention,
Securities – financial assets, form the foundation for the creation, trading, where government occasionally does intervene in the market in
pricing of other financial securities i.e. bank loans, corporate bonds and pursuit of some rate goals or objectives. 4) RESIDUAL
equities (stock). includes all exchange rate arrangements that do not meet the
Linkages – The links between the financial institutions, the actual fluid or criteria of the previous three categories.
medium for exchange, are the interbank network using currency. An Ideal Currency would have 1. Exchange rate stability, 2.
Institutions- are the central banks, which create and control each country’s Full financial integration, 3. Monetary independence. Governance Regimes: The four major corporate governance regimes are
money supply; the commercial banks, which take deposits and extend loans to State ownership, public ownership, is probably the largest globally. 1) market-based, characterized by dispersed ownership and a separation of
businesses, both local and global; and the multitude of other financial Private ownership, where a business is owned by an individual, partners, a ownership from management; 2) family-based, where ownership and
intuitions created to trade securities and derivatives. family, or a collection of private investors, is business which is owned management are often combined; 3) bank-based, where government
Exchange rate: The rate listed is a “midrate” – the average of the rates that generally for more singular purposes like profit. frequently controls bank lending practices, restricting the growth rate of
currency traders buy currency (bid) and sell currency (offer) Privately controlled companies – a single individual or family – is often industry, and sometimes combined control between family and government;
Bid – The price that a dealer is willing to pay to purchase foreign exchange or characterized by top-down control, where the owner is active in more of the and 4) government affiliated, where government exclusively directs business
a security daily strategic and operational decisions made in the firm. activity with little minority interest or influence.
Offer – the price or as in bid-ask and bid-offer The publicly traded firm, where management acts as an agent of the owner, Governance Development Drivers: There are four major drivers in the
, evolution of corporate governance principles and practices globally: 1) the Rates: RUB30.74/USD JPY85.16/USD Total EUR sales, EUR = Total EUR sales Hk* Average exchange rate
financial market development; 2) the degree of separation between A) cross rate (RUB/JPY)= RUB/USD divided by JPY/USD (HK$/EUR)
management and ownership; 3) the concept of disclosure and transparency; Break it down… RUB30.74/USD divided by JPPY85.16/USD Growth rate of EUR sales= (Total EUR sales 2011-Total EUR sales 2010/
and 4) the historical development of the legal system. B) How many JPY will you get from you RUB… (use indirect exchange rate) Total EUR sales 2010)
Shareholder Dissatisfaction: you could 1. Remain quietly disgruntled. 2.Sell Proceeds (JPY)= Amount in RUB/ Cross rate (RUB/JPY) New% revaluation of total system cost
their shares. 3. Change management. 4. Initiate a takeover. Exchange rate being changed (revalued) Total current cost = total system * % cost of total cost.
Emerging Markets Corporate Governance Failures: Causes include lack The OG cross rate = (Exchange rate HK/ Exchange rate Yuan) New cost=total current cost*(1+Revaluation rate)
of transparency, poor auditing standards, cronyism, insider boards of directors The new cross rate = HK/ Yan Cost increase= new cost- Total current rate.
(especially among family-owned and operated firms), and weak judicial Percent Change in Spot Exchange Rates: Change In spot rate
systems. Foreign Currency terms: Home Currency terms: OG price = export price/ OG spot rate
Emerging Markets Corporate Governance Improvements: It is driven by Beginning Rate−End Rate New price = export price/ new sport rate
the need to access global capital markets. The depth and breadth of capital ∆= Change % = (OG price/ New price) -1
markets is critical to growth. Country markets which have had relatively slow End Rate % change when taking about devaluation, depiction, or value.
growth or have industrialized rapidly utilizing neighboring capital markets, Change = (Beginning rate/ending rate) -1
may not form large public equity market systems. Without significant public End Rate−Beginning Rate Revaluation – The revalued exchange rate will be
trading of ownership shares, high concentrations of ownership are preserved, ∆= Exchange rate = Initially revalued exchange rate/ 1+Additional revaluation
and few disciplined processes of governance developed. Beginning Rate Finding the best interest if traveling – Example. The combined exchange
Lab 1 rate and commission assuming initial cash amount of 1.00 is:
Direct Quote: the price of a foreign currency in domestic currency units. Rate of Return to Shareholder: Total proceeds = 1.00 * exchange rate * (1 – Commission rate)
(You would have to multiply) A) S/H return (no div) = (D2/P1) +[(P2-P1)/(P1)]*** (no div Return= p2- Total cost – Price equivalent price example
Exchange rate = currency rate *spot exchange rate p1/p1) A) spot rate= SR or SA/ SF of JD
Direct exchange rate examples - Ryan is going to Brazil he has saved 1600 B) S/H return use formula above (company paid div of $1.24 per share- put B) Chart – Purchase price – JD = Purchase price * JD to EUR rate
USD for expenses while in Brazil. But he has postponed exchanging his amount of div in D2). Additional feed due % = take number from B * % given
money into BRL and must exchange his money at the airport in the United C) rate of return to S/H if the company paid dividend and the total return to Total cost add them together
States. shareholder is separated into the dividend yield and the capital gain. Resale price SA = Add them total cost & resale fee
Indirect Quote: The price of the domestic currency in foreign currency units. Part 1: Div yield= (D2/P1) Part 2: capital gain= [(P2-P1) / (P1)] Part 3: S/H C) Price payed in SA, Converting JD to SA= spot rate (SR/JD) * resale price
(You would have to divided it) return= div yield + capital gain of SA
Exchange rate = Currency rate/ spot exchange rate Shares are falling (dollars have fallen) – example D) US & equivalent of final price paid = Price paid in SA (Part C) / spot rate
Indirect exchange rate examples - Crystal Gomez who lives in Mexico City A) sells shares today – Shareholder return: P2-P1/P1. of exchange
bought 110 Pokecoins for 17.50 Mexican pesos. Pokemon is owned by the B) % change in the value (EUR VS USD) – exchange rate change = s2- s1/s1 Week 2
Japanese there for the company will need to convert the MXN into its home (use the numbers they are trading at). Lecture 2 Theory(PPT/ Textbook):
currency. (converting MXN which is a domestic currency into Yen which is a C) Total return you would earn on shares if you sold them at these rates. Fixed Exchange Rate Countries: Government bears the responsibility to
foreign currency) A) proceeds in US dollars = MXN/ spot exchange form Sold shares today find yield amount in EUR… sales proceeds= Price share* ensure that the BOP is near zero
MXN/USD. B) proceeds in JPY = Proceeds in U.S dollars * Spot exchange # of shares. Sales proceeds USD = sales proceeds in EUR*exchange rate in Floating Exchange Rate Countries: Government has no responsibility to
rate JPY/USD euro that has fallen. OG investment in EUR = Cost of share trading price* peg its foreign exchange rate
Exchange rate example amount of shares. OG cost in USD= Shares in US (take amount found in OG Managed Floats: Countries operating with a managed float often find it
MXN Ps – 12.46 US buys Ps 500,000 spot investment in EUR) *OG spot rate before it fell. necessary to take action to maintain their desired exchange rate values
Cost = peso amount / spot Pr = Ps 500,000/ ps 12.47 Share holder return = sales proceeds (taken from sales proceeds in USD) – Foreign Exchange Market
Sport Transaction settled in two business days. OG cost (taken from OG cost in USD) / (OG cost) Foreign exchange means the money of a foreign country; that is, foreign
Foreign exchange rate between two currencies Dealing with Price/ Earing’s(P/E) currency bank balances, banknotes, checks and drafts
A) USD dollar to EUR – Reciprocal = 1/ EUR A) finding number of shares - step1 number of shares= # of shares/ 2 * Foreign exchange transaction: An agreement b/w a buyer and a seller that a
B) EUR to USD – Reciprocal = 1/USD (1+EPS). Step2 number of shares= company current # of shares+ # of shares fixed amount of one currency will be delivered for some other currency at a
Trying to figure out what agreement is better (compensation agreement) offered (found in step 1) specified date
–example filling out the chart. B) consolidated earnings = Earrings of 2 company’s added together. Base Currency: what’s being priced
1) Vitro’s US sales (mill USD) =Rate * Vtro’s US sales C)New market value company… Value = P/E ratio* consolidated earnings Price Currency: currency that expresses value
2) Virto’s US sales (USD) numbers used to find % change = New- old/ old. D)New earnings per share(EPS) = Consolidated earnings/ # of shares Direct Quotation: price currency is domestic
3) Virto’s sales (MXN) use those numbers to get % change = New-old/old. E) New market value of shares… Price per share=New market value/# of Indirect Quotation: price currency is foreign
Given a chart to fill out. shares. Bid: the price in one currency at which a dealer will buy another currency
A) Finding consolidated profits = net amount/ exchange rate. F) The change in the stock price = new price -old price/old price. Ask: is the price (i.e. exchange rate) at which a dealer will sell the other
B) constant currency= (find out how to do) G) P/E ratio change = new market + price per shares - Step1: New market currency.
C) Growing btw 2 earnings… Total change = (1+total change / 1+actual value=New market P/E*consolidated earnings. Step2: new price per share= Current Capital Financial Reserve Balance of
change)-1 (use % from the total consolidated rearing column) new market value/# of shares. Step3: % loss= change new price per share- Account Account Account Balance Payments
Cross rate examples – Issacs lives in Brazil he meets Juan from Guatemala. company 2/ company 2 Balance Balance Balance
Isaac wants to visit Juan in Guatemala. Isaac is given 4,500 BRL and has to Shares Q - A) The proportion of the total long- term capital by A shares -
(X - M) + (CI - CO) + (FI - FO) + FXB = BOP
exchange it into GTQ. Proportion A-shares= (A shares/Total long-term capital)
Rates: GTQ11.1099=EUR 1.00 EUR 0.5238=BRL 1.00 B) Proption of voting rights – Total number of votes by A-shares
A) Cross rate of (GTQ/BRL) =(GTQ/EUR) *(EUR/BRL) break it down like Step 1 – votes A-Share = Number of shares A-shares *Number of votes A- The BOP has three major sub-accounts—the current account, the capital
this… GTQ/BRL= GTQ11.1099/EUR*EUR 0.5238/BRL shares. Step 2 – Votes B-Shares = number of shares B-shares * Number of account, and the financial account. And when these three sub-accounts are
B) How many GTQ will Isaac get for his BRL... GTQ – EUR= (amount in votes B-Shares. Step 3 – Total number of votes = Votes of A-shares + Votes supplemented with errors and omissions, the BOP must balance. If it doesn’t
BRL*cross rate (GTQ/BRL #)). B-shares. Final step 4 – Proportion votes A-shares = Votes A-shares/Total # something has not been counted or it was improperly counted
Cross rate with same denominator -You spend a week in Moscow now you of votes C) Proportion dividends A-shares= (A shares/total equity shares) Balance of Payments (BOP): The measurement of all international economic
are going to Japan. You have 454,000 RUB left and need to exchange it into Has sales grown – Analyzation chart example transactions between the residents of a country and foreign residents
JPY. Total EUR sales, HK$ = Total net sales, HK*Avg exchange rate
Lecture 1 Theory (PPT/Textbook): competitiveness.
Comparative Advantage: A theory that international trade should make all Eurocurrency: currency deposited in a bank located in a country other than
countries better off when they specialize in production of goods and services the country issuing the currency. Domestic currencies of one country on
that they produce most efficiently relative to other countries: free trade; deposit in a second country. Banks will pay interest on these deposits—
perfect competition; no uncertainty; costless information; and no government eurocurrency interest—depending on the agreed upon maturity—a period
interference ranging from overnight to more than a year or longer. Eurocurrency deposits
Strategic motives drive the decision to invest abroad and become a MNE and are digitally transferred between banks. Purpose: (1) eurocurrency deposits
can be summarized by: market seekers, raw material seekers, production are an efficient and convenient money market device for holding excess
efficiency speakers, knowledge seekers, political safety seekers (these corporate liquidity; and (2) the eurocurrency market is a major source of
categories are not mutually exclusive) short-term bank loans to finance corporate working capital needs, including
The Globalization Process the financing of imports and exports. Any convertible currency can exist in
Stage I: Early domestic phase growing into the international trade phase euro form. Eurosterling (British pounds deposited outside the United
Stage II: Continue to grow from simple international trade to the Kingdom); Euroeuros (euros on deposit outside the eurozone); Euroyen
multinational phase (Japanese yen deposited outside Japan); and Eurodollars (U.S. dollars
Twin agency problem: Conflict of interest b/w management and stockholders deposited outside the U.S.). The reference of interest in the Euro Market is the
Goal of Management: Maximization of shareholder’s wealth. Other goals: London Interbank Offered Rate (LIBOR). Interest spreads in the market often has more decentralized decision-making, and may use more consensus-
Stakeholder welfare, market share, company size, minimum tax burden, are low because it’s a wholesale market, borrowers are usually large based direction.
keeping corporate control with founding family corporations – large transactions with good credit, low overhead cost. Deposit Separation of ownership and management: The field of agency theory is
Operational Goals for MNEs rates are higher because the financial institutions offering activities are not the study of how shareholders can motivate management to accept the
- Maximization of consolidated after-tax income subject to many rules and regulations. prescriptions of the Shareholder Wealth Maximization (SWM) model. For
- Minimization of the firm’s effective global tax burden Limits to Financial Globalization - If these influential insiders are building example, liberal use of stock options should encourage management to think
- Correct positioning of the firm’s income, cash flows, and available funds as personal wealth over that of the firm, it will indeed result in preventing the like shareholders. Whether these inducements succeed is open to debate.
to country and currency flow of capital across borders, currencies, and institutions to create a more However, if management deviates too much from SWM objectives of
Fixed vs. Flexible Exchange Rates open and integrated global financial community. working to maximize the returns to the shareholders – the board of directors
Countries would prefer a fixed rate regime because: Stability in international Gold Standard: Each country sets the rate at which its currency unit can be should replace them.
prices and Inherent anti-inflationary nature of fixed prices converted to a given weight of gold Shareholder Wealth Maximization: The Anglo-American markets are
Problems with a fixed rate regime: Need for central banks to maintain large Interwar: Selling Short – the sale of an asset which the seller does not yet characterized by a philosophy that a firm's objective should be to maximize
quantities of hard currencies and gold to defend the fixed rate; Fixed rates can own. The seller believes he will be able to purchase the asset for contract shareholder wealth. Anglo-American is defined to mean the United States,
be maintained at rates that are inconsistent with economic fundamentals fulfillment at a lower price before the sale contract expiration. Usually done United Kingdom, Canada, Australia, and New Zealand. This theory assumes
with WEAK currencies that the firm should strive to maximize the return to shareholders.
Fixed Exchange Rates: Reserve Currency: currency used by a government Financial Returns: The return to a shareholder in a publicly traded firm
or central banking authority as a resource asset or currency to be used in combines current income in the form of dividends and capital gains from the
market interventions to alter the market value of the domestic currency. appreciation of share price.
The Floating Exchange Rates: Nominal Exchange Rate – The actual Corporate governance is the control of the firm. Corporate governance is the
foreign exchange quotation contrast to real exchange rate, which is adjusted process of ensuring that managers make decisions in line with the stated
for changes in PP. May be constructed as an index IMF de objectives
facto System Category 1) HARD PEGS Countries give up of the
their own sovereignty over monetary police i.e. Zimbabwe firm.
uses USD 2) SOFT PEGS Fixed Exchange Rates: Foreign
exchange rates tied to the currency of a major country to gold
or basket of currencies. The five subcategories of soft peg
regimes are differentiated on the basis of what the currency is
global capital market is a collection of institutions (central banks, commercial fixed to; whether that fix is allowed to change (and if so under
banks, investment banks, not-for-profit financial institutions like the IMF and what conditions); what types, magnitudes, and frequencies of
World Bank) and securities (bonds, mortgages, derivatives, loans, etc.), which intervention are allowed/used; and the degree of variance
are all linked via a global network—the Interbank Market in which securities about the fixed rate. 3) FLOATING values determined by
of all kinds are traded, is the critical pipeline system for the movement of open market forces without governmental influence or
capital. intervention, and simple floating or floating with intervention,
Securities – financial assets, form the foundation for the creation, trading, where government occasionally does intervene in the market in
pricing of other financial securities i.e. bank loans, corporate bonds and pursuit of some rate goals or objectives. 4) RESIDUAL
equities (stock). includes all exchange rate arrangements that do not meet the
Linkages – The links between the financial institutions, the actual fluid or criteria of the previous three categories.
medium for exchange, are the interbank network using currency. An Ideal Currency would have 1. Exchange rate stability, 2.
Institutions- are the central banks, which create and control each country’s Full financial integration, 3. Monetary independence. Governance Regimes: The four major corporate governance regimes are
money supply; the commercial banks, which take deposits and extend loans to State ownership, public ownership, is probably the largest globally. 1) market-based, characterized by dispersed ownership and a separation of
businesses, both local and global; and the multitude of other financial Private ownership, where a business is owned by an individual, partners, a ownership from management; 2) family-based, where ownership and
intuitions created to trade securities and derivatives. family, or a collection of private investors, is business which is owned management are often combined; 3) bank-based, where government
Exchange rate: The rate listed is a “midrate” – the average of the rates that generally for more singular purposes like profit. frequently controls bank lending practices, restricting the growth rate of
currency traders buy currency (bid) and sell currency (offer) Privately controlled companies – a single individual or family – is often industry, and sometimes combined control between family and government;
Bid – The price that a dealer is willing to pay to purchase foreign exchange or characterized by top-down control, where the owner is active in more of the and 4) government affiliated, where government exclusively directs business
a security daily strategic and operational decisions made in the firm. activity with little minority interest or influence.
Offer – the price or as in bid-ask and bid-offer The publicly traded firm, where management acts as an agent of the owner, Governance Development Drivers: There are four major drivers in the
, evolution of corporate governance principles and practices globally: 1) the Rates: RUB30.74/USD JPY85.16/USD Total EUR sales, EUR = Total EUR sales Hk* Average exchange rate
financial market development; 2) the degree of separation between A) cross rate (RUB/JPY)= RUB/USD divided by JPY/USD (HK$/EUR)
management and ownership; 3) the concept of disclosure and transparency; Break it down… RUB30.74/USD divided by JPPY85.16/USD Growth rate of EUR sales= (Total EUR sales 2011-Total EUR sales 2010/
and 4) the historical development of the legal system. B) How many JPY will you get from you RUB… (use indirect exchange rate) Total EUR sales 2010)
Shareholder Dissatisfaction: you could 1. Remain quietly disgruntled. 2.Sell Proceeds (JPY)= Amount in RUB/ Cross rate (RUB/JPY) New% revaluation of total system cost
their shares. 3. Change management. 4. Initiate a takeover. Exchange rate being changed (revalued) Total current cost = total system * % cost of total cost.
Emerging Markets Corporate Governance Failures: Causes include lack The OG cross rate = (Exchange rate HK/ Exchange rate Yuan) New cost=total current cost*(1+Revaluation rate)
of transparency, poor auditing standards, cronyism, insider boards of directors The new cross rate = HK/ Yan Cost increase= new cost- Total current rate.
(especially among family-owned and operated firms), and weak judicial Percent Change in Spot Exchange Rates: Change In spot rate
systems. Foreign Currency terms: Home Currency terms: OG price = export price/ OG spot rate
Emerging Markets Corporate Governance Improvements: It is driven by Beginning Rate−End Rate New price = export price/ new sport rate
the need to access global capital markets. The depth and breadth of capital ∆= Change % = (OG price/ New price) -1
markets is critical to growth. Country markets which have had relatively slow End Rate % change when taking about devaluation, depiction, or value.
growth or have industrialized rapidly utilizing neighboring capital markets, Change = (Beginning rate/ending rate) -1
may not form large public equity market systems. Without significant public End Rate−Beginning Rate Revaluation – The revalued exchange rate will be
trading of ownership shares, high concentrations of ownership are preserved, ∆= Exchange rate = Initially revalued exchange rate/ 1+Additional revaluation
and few disciplined processes of governance developed. Beginning Rate Finding the best interest if traveling – Example. The combined exchange
Lab 1 rate and commission assuming initial cash amount of 1.00 is:
Direct Quote: the price of a foreign currency in domestic currency units. Rate of Return to Shareholder: Total proceeds = 1.00 * exchange rate * (1 – Commission rate)
(You would have to multiply) A) S/H return (no div) = (D2/P1) +[(P2-P1)/(P1)]*** (no div Return= p2- Total cost – Price equivalent price example
Exchange rate = currency rate *spot exchange rate p1/p1) A) spot rate= SR or SA/ SF of JD
Direct exchange rate examples - Ryan is going to Brazil he has saved 1600 B) S/H return use formula above (company paid div of $1.24 per share- put B) Chart – Purchase price – JD = Purchase price * JD to EUR rate
USD for expenses while in Brazil. But he has postponed exchanging his amount of div in D2). Additional feed due % = take number from B * % given
money into BRL and must exchange his money at the airport in the United C) rate of return to S/H if the company paid dividend and the total return to Total cost add them together
States. shareholder is separated into the dividend yield and the capital gain. Resale price SA = Add them total cost & resale fee
Indirect Quote: The price of the domestic currency in foreign currency units. Part 1: Div yield= (D2/P1) Part 2: capital gain= [(P2-P1) / (P1)] Part 3: S/H C) Price payed in SA, Converting JD to SA= spot rate (SR/JD) * resale price
(You would have to divided it) return= div yield + capital gain of SA
Exchange rate = Currency rate/ spot exchange rate Shares are falling (dollars have fallen) – example D) US & equivalent of final price paid = Price paid in SA (Part C) / spot rate
Indirect exchange rate examples - Crystal Gomez who lives in Mexico City A) sells shares today – Shareholder return: P2-P1/P1. of exchange
bought 110 Pokecoins for 17.50 Mexican pesos. Pokemon is owned by the B) % change in the value (EUR VS USD) – exchange rate change = s2- s1/s1 Week 2
Japanese there for the company will need to convert the MXN into its home (use the numbers they are trading at). Lecture 2 Theory(PPT/ Textbook):
currency. (converting MXN which is a domestic currency into Yen which is a C) Total return you would earn on shares if you sold them at these rates. Fixed Exchange Rate Countries: Government bears the responsibility to
foreign currency) A) proceeds in US dollars = MXN/ spot exchange form Sold shares today find yield amount in EUR… sales proceeds= Price share* ensure that the BOP is near zero
MXN/USD. B) proceeds in JPY = Proceeds in U.S dollars * Spot exchange # of shares. Sales proceeds USD = sales proceeds in EUR*exchange rate in Floating Exchange Rate Countries: Government has no responsibility to
rate JPY/USD euro that has fallen. OG investment in EUR = Cost of share trading price* peg its foreign exchange rate
Exchange rate example amount of shares. OG cost in USD= Shares in US (take amount found in OG Managed Floats: Countries operating with a managed float often find it
MXN Ps – 12.46 US buys Ps 500,000 spot investment in EUR) *OG spot rate before it fell. necessary to take action to maintain their desired exchange rate values
Cost = peso amount / spot Pr = Ps 500,000/ ps 12.47 Share holder return = sales proceeds (taken from sales proceeds in USD) – Foreign Exchange Market
Sport Transaction settled in two business days. OG cost (taken from OG cost in USD) / (OG cost) Foreign exchange means the money of a foreign country; that is, foreign
Foreign exchange rate between two currencies Dealing with Price/ Earing’s(P/E) currency bank balances, banknotes, checks and drafts
A) USD dollar to EUR – Reciprocal = 1/ EUR A) finding number of shares - step1 number of shares= # of shares/ 2 * Foreign exchange transaction: An agreement b/w a buyer and a seller that a
B) EUR to USD – Reciprocal = 1/USD (1+EPS). Step2 number of shares= company current # of shares+ # of shares fixed amount of one currency will be delivered for some other currency at a
Trying to figure out what agreement is better (compensation agreement) offered (found in step 1) specified date
–example filling out the chart. B) consolidated earnings = Earrings of 2 company’s added together. Base Currency: what’s being priced
1) Vitro’s US sales (mill USD) =Rate * Vtro’s US sales C)New market value company… Value = P/E ratio* consolidated earnings Price Currency: currency that expresses value
2) Virto’s US sales (USD) numbers used to find % change = New- old/ old. D)New earnings per share(EPS) = Consolidated earnings/ # of shares Direct Quotation: price currency is domestic
3) Virto’s sales (MXN) use those numbers to get % change = New-old/old. E) New market value of shares… Price per share=New market value/# of Indirect Quotation: price currency is foreign
Given a chart to fill out. shares. Bid: the price in one currency at which a dealer will buy another currency
A) Finding consolidated profits = net amount/ exchange rate. F) The change in the stock price = new price -old price/old price. Ask: is the price (i.e. exchange rate) at which a dealer will sell the other
B) constant currency= (find out how to do) G) P/E ratio change = new market + price per shares - Step1: New market currency.
C) Growing btw 2 earnings… Total change = (1+total change / 1+actual value=New market P/E*consolidated earnings. Step2: new price per share= Current Capital Financial Reserve Balance of
change)-1 (use % from the total consolidated rearing column) new market value/# of shares. Step3: % loss= change new price per share- Account Account Account Balance Payments
Cross rate examples – Issacs lives in Brazil he meets Juan from Guatemala. company 2/ company 2 Balance Balance Balance
Isaac wants to visit Juan in Guatemala. Isaac is given 4,500 BRL and has to Shares Q - A) The proportion of the total long- term capital by A shares -
(X - M) + (CI - CO) + (FI - FO) + FXB = BOP
exchange it into GTQ. Proportion A-shares= (A shares/Total long-term capital)
Rates: GTQ11.1099=EUR 1.00 EUR 0.5238=BRL 1.00 B) Proption of voting rights – Total number of votes by A-shares
A) Cross rate of (GTQ/BRL) =(GTQ/EUR) *(EUR/BRL) break it down like Step 1 – votes A-Share = Number of shares A-shares *Number of votes A- The BOP has three major sub-accounts—the current account, the capital
this… GTQ/BRL= GTQ11.1099/EUR*EUR 0.5238/BRL shares. Step 2 – Votes B-Shares = number of shares B-shares * Number of account, and the financial account. And when these three sub-accounts are
B) How many GTQ will Isaac get for his BRL... GTQ – EUR= (amount in votes B-Shares. Step 3 – Total number of votes = Votes of A-shares + Votes supplemented with errors and omissions, the BOP must balance. If it doesn’t
BRL*cross rate (GTQ/BRL #)). B-shares. Final step 4 – Proportion votes A-shares = Votes A-shares/Total # something has not been counted or it was improperly counted
Cross rate with same denominator -You spend a week in Moscow now you of votes C) Proportion dividends A-shares= (A shares/total equity shares) Balance of Payments (BOP): The measurement of all international economic
are going to Japan. You have 454,000 RUB left and need to exchange it into Has sales grown – Analyzation chart example transactions between the residents of a country and foreign residents
JPY. Total EUR sales, HK$ = Total net sales, HK*Avg exchange rate
