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International Financial Management

International Financial Management. Professor Ronald Miolla. Agenda. What are exchange rates? Exchange rates, trade, and jobs. Forward exchange rates. Impact on the income statement. Exchange Rates. Show the relationship between the values of two currencies

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International Financial Management

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Presentation Transcript

  1. International Financial Management Professor Ronald Miolla

  2. Agenda • What are exchange rates? • Exchange rates, trade, and jobs. • Forward exchange rates. • Impact on the income statement.

  3. Exchange Rates • Show the relationship between the values of two currencies • Example: 1 Indian rupee = $.0216 US • www.bloomberg.com

  4. Balance of Trade • If the dollar loses value => exports increase and imports will decrease • If the dollar gains value => exports decrease and imports will increase • Which is better for jobs?

  5. Forward Rate • An exchange rate which applies for a future time period. • Used for Hedging – reduces risk of a move in exchange rates that could hurt you in the future.

  6. Foreign Exchange Risk to a Multinational Firm • Occurs due to a change in foreign exchange rates • Can hurt or benefit the firm • Impact can show on the income statement or balance sheet

  7. Transaction Exposure • Shows impacts on the income statement • A US multinational that has operations in Mexico (sells product) • Peso weakens

  8. Transaction Exposure -Example

  9. Summary • Currencies are valued through exchange rates. • Affect trade and jobs. • Manage risk with forward rates. • Risk to profits.

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