intl. finance
Business Administration 361 with Anderson at University of Tennessee - Knoxville
About this deck
By: brad kennedy
Textbook:
International Business: a Managerial Perspective
Created: 2009-05-04
Size: 20 flashcards
Views: 38
Textbook:
International Business: a Managerial PerspectiveCreated: 2009-05-04
Size: 20 flashcards
Views: 38
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payment in advance
safest for exporter - they receive money prior to shipment of goods
Less desirable for importer - they must give up use of their cash prior to receipt of goods.
Less desirable for importer - they must give up use of their cash prior to receipt of goods.
Open Account
Safest from importer's perspective, goods are shipped by exporter and received by importer prior to payment.
Also offer potential buyers short-term financing
Undesirable from exporter's perspective
Also offer potential buyers short-term financing
Undesirable from exporter's perspective
Factoring
International lending activity where firms buy foreign accounts receivable as a discount from face value
Documentary collection
commercial banks serve as agents to facilitate the payment process
Draft (Bill of Exchange)
payment is demanded from the buyer at a specific time
Bill of Lading
Plays 2 Roles in Documentary collection:
- serves as a contract for transportation between the exporter and teh carrier
- serves as title to the goods in question
Letters of Credit
document that is issued by a bank and contains its promise to pay the exporter on receiving proof that the exporter has fulfilled all requirements specified in the document
Sight Draft
Requires payment upon the transfer of the title of the goods from the exporter to the importer
Transaction Exposure
financial benefits and costs of an international transaction can be affected by exchange rate movements that occur after the firm is legally obligated to complete the transaction
Transaction Exposure: Go Naked
Ignore transaction exposure and assume foreign exchange risk. Benefit is no capital outlay until the product is delivered. Potential for loss or gain depending if home currency rises or falls.
Transaction Exposure: Buy Currency Option
buyer has opportunity but no the obligation to buy a certain currency at a given price in the future, depending on whether their home currency has risen or dropped in price. More expensive because firm can let it expire without due date and not lose money.
Transaction Exposure: Buying forward currency
buying the exchange currency forward in the FX market locks in the price to be paid. Firm is guaranteed a set price to pay but risks missing a potentially lower cost in the future
Transaction Exposure: Acquire an Offsetting Asset
Acquiring an offsetting asset of equivalent size denominated in purchase currency. Firm buys a security at the same time as they decide on a future price for goods. The maturity price of the security should match the cost of the goods, offsetting its exposure.
Translation Exposure
The impact on the firm's consolidated financial statements of fluctuations in exchange rates that change the value of foreign subsidiaries as measured in the parent's currency. If exchange rates were fixed, translation exposure would not be an issue.
Translation Exposure: balance sheet hedge
way of reducing translation exposure; created when an international firm matches its assets denominated in a given currency with its liabilities denominated in that same currency
Economic Exposure
Impact on the value of a firm's operations of unanticipated exchange rate changes. Affects virtually every area of operation
Minimize Working Capital Balances: Centralized Cash Management
A system controlled by a parent corporation that coordinates worldwide cash flows of its subsidiaries and pools their cash reserves
Minimize Currency Conversion Costs: bilateral netting
Two subsidiaries net out their mutual invoices.
External Sources of Funding: Investment Bankers
Help firms acquire external funding
External Sources of Funding: Swap Market
Two firms can exchange their financial obligations. Swaps change the cost and nature of a firm's interest obligations or they change the currency in which the debt is denominated
About this deck
By: brad kennedy
Textbook: International Business: a Managerial Perspective
Created: 2009-05-04
Size: 20 flashcards
Views: 38
Textbook:
International Business: a Managerial PerspectiveCreated: 2009-05-04
Size: 20 flashcards
Views: 38
About StudyBlue
STUDYBLUE makes things that make you better at school.
Things like online flashcards with photos and audio.
Things like personalized quizzes and friendly reminders about when (and what) to study next.
Think of it as a digital backpack™: access to all of your study materials online and on your phone.
STUDYBLUE exists to make studying efficient and effective for every student, for free. Join us.
“I have been getting MUCH better grades on all my tests for school. Flash cards, notes, and quizzes are great on here. Thanks!”
Kathy
Kathy