...of society ranging from economy, society, politics, family and culture are so multi-directional that at the surface level, it becomes very difficult to decipher a meaningful and coherent picture from this jungle of changes. Sometimes this scenario leads one to perceive World as a dehumanizing society. But such despair is unwarranted, for it is so more because of its lack of proper management and proper knowledge about it. In fact the present day post-industrial civilization of the world calls for a drastic paradigm-shift and a new insight to bring out a meaningful and articulate picture of today’s World. The present paper is an effort in this direction. Most people think of a cashless society as something that is way off in the distant future. Unfortunately, that is simply not the case. The truth is that a cashless society is much closer than most people would ever dare to imagine. To a large degree, the transition to a cashless society is being done voluntarily. Today, only 7 per cent of all transactions in the United States are done with cash, and most of those transactions involve very small amounts of money. Just think about it for a moment. Where do you still use cash these days? If you buy a burger or if you purchase something at a flea market you will still use cash, but for any mid-size or large transaction the vast majority of people out there will use another form of payment. Our financial system is dramatically changing, and cash is rapidly becoming a thing...
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...Ryan Ayre, CJ Peszneker FINC 480 10.3.13 Case Analysis: Carrefour S.A. Context and Key Issues This case, centered in 2002, involves Carrefour S.A., at the time, Europe’s largest retailer. Leading up to 2002, Carrefour largely grew its business, including acquisitions, outside of its home country of France. At the time, Carrefour had retail operations in 26 different countries and funded any of its capital needs within these countries with the country’s currency denomination. Confronting Carrefour is a decision brought to it by its investments banks, Morgan Stanley and UBS-Warburg of funding future capital needs by borrowing in British pounds which provided opportunity to benefit from pricing differences in currencies through the Eurobond market. The options presented to Carrefour for borrowing include: A 10-year bond, selling at par with a coupon rate of 5.25 Euros A 10-year bond, selling at par with a coupon rate of 5.375 British pounds A 10-year bond, selling at par with a coupon rate of 3.625 Swiss francs A 10-year bond selling at par with a coupon rate of 5.50 U.S. dollars Background Carrefour was started in 1963 under the hypermarket concept which included a drugstore, gas station, supermarket and discount store all in one building. There initial store in Sainte-Genevieve-des-bois encompassed 2,500 square meters of retail space and 400 parking spots. With this revolutionary retail concept, Carrefour expanded rapidly into Belgium (1969), Brazil (1975). Included in their...
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...while U.S. inflation rate is expected to rise. British interest rates are expected to decline, while U.S. interest rates are expected to increase. 1.Explain how the international trade flows should initially adjust in response to the changes in inflation (holding exchange rates constant). Explain how the international capital flows should adjust in response to the changes in interest rates (holding exchange rates constant). Holding exchange rates at a constant rate would allow for Mesa Company to export there products to the United Kingdom and gain a significant profit. The exchange rate comparison for the British pound and the United States dollars is evaluated at 0.99967 to U.S. 1.651251 according to (http://www.oanda.com/currency/comparison 2011). This shows a exchange rate of 0.651581, this...
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...Meline how to manage 3M’s future exposure of the foreign exchange rate risk. In doing so, the overall profile of the company is discussed; the current foreign exchange risk management instruments are described; and conclusions are drawn, followed by recommendations. ABSTRACT This paper is written with a purpose to give a strategic advice to 3M’s current CFO D.W. Meline how to manage 3M’s future exposure of the foreign exchange rate risk. In doing so, the overall profile of the company is discussed; the current foreign exchange risk management instruments are described; and conclusions are drawn, followed by recommendations. International Risk Management: An Analysis of 3M’s Foreign Risk Management International Risk Management: An Analysis of 3M’s Foreign Risk Management Contents Executive Summary 3 Introduction 4 1. Description Historical Exchange Rates 6 2. Foreign Currency Exchange Rate Risk 10 2.1. Current Strategy to Manage Exchange Rate Risk 10 2.1.1. Cash Flow Hedging 10 2.1.2. Net investment hedging 13 2.2. Currency Translation Effects on Business Segments 14 3. Appreciating and Depreciation of Domestic Currency and Foreign Exchange Rate Risk Management 15 3.1. 3M’s Domestic and International Transactions 15 3.2. Appreciation of the Domestic Currency 17 3.3. Depreciation of...
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...Hard and Soft Currencies Renita McBath MGT/448 University of Phoenix December 1, 2011 Professor David Grier Global Financing and Exchange Rate Mechanisms of Hard and Soft Currencies Trading, bartering, buying, and selling are known as the act doing business. The action of doing business has been a way of life for human beings for Centuries. At some point in our history the difficulty of doing business equally became a challenge. For instance, one person would like to trade a jar of jelly to another person that owns cows. The trade is off balance because of the value of each item. The difficulty arose when trying to access a credit. At this point, currency was born. In the beginning, currency was established by villagers in the form of stones, paper, linen, and other countable items. Nowadays humans have evolved currency into unique metal and paper items that have unique values. Currently these uniquely valuable currencies are referred to as hard and soft. Further research will reveal an analysis of the use of the currencies in global financing operations as well as describing the importance of managing risks that may arise. Hard Currency Hard currency is a status associated with the material, paper, and coins that are circulated within a country and globally in an effort to buy and sell goods. Currently, hard currency is the most traded currency. Countries that acquire this currency status attain...
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...countries. However, along with these opportunities come various risks to these companies. One of the main risks these companies will face is foreign currency exchange rate risk. Companies that plan to set up operations in a foreign country must exchange its domestic currency into the currency of the host nation to buy the necessary building materials, supplies, and other necessary resources that the operations will require (Hill, 2009). For example, if a U.S. company desires to set up operations in the country of China, it will have to exchange U.S. dollars currency into Chinese currency-the Yuan. If a company in Japan wants to set up operations in Spain or Italy, it would have to exchange its currency- the Yen into these countries’ currency, which is the Euro. The foreign currency exchange rates between these countries consistently fluctuate causing one to appreciate or depreciate against the other. The unpredictable movement of the foreign currency exchange rates can have adverse effects on a company’s investments, and profits that have operations in a foreign country. Foreign companies with operations in the U.S. normally convert the dollars it earns back into its domestic currency (Hill, 2009). The main foreign currency exchange risk these foreign companies may face is the depreciation of its domestic currency against the currency of the U.S.-the dollar. This transaction can cause potential detrimental actions to its revenues and profits. Mitigating these risks and challenges...
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...Definition 3 A. Difference between translation and conversion 3 B. Role of FASB No. 52 4 1. Determine the functional currency: 4 2. Determine whether the functional currency of the subsidiary is also its home currency. 4 a) If the functional currency is the home currency, 4 b) If the functional currency of the subsidiary is not its home currency, 5 III. Reasons for Translation 5 A. Recording direct business transactions 5 B. Reporting operations conducted through a foreign enterprise 6 C. Measuring the enterprise exposure to the effects of currency fluctuation 7 D. Communicating with foreign audiences-of-interest 7 IV. Financial statement effects of alternative translation rates 7 A. Exchange rates used in translation 7 1. Current rate: 7 2. Historical rate: 7 3. Average rate: 8 B. Risks associated with fluctuations of exchange rates 8 1. Currency transaction risk 9 2. Currency translation risk 9 V. Foreign Currency Translation Methods 9 A. Single rate method 10 1. Current rate method 10 B. Multiple rate method 11 1. Current/noncurrent method 11 2. Monetary/nonmonetary method 11 3. Temporal method 12 VI. Foreign Currency Transactions 13 A. Exchange rate mechanisms 13 1. Independent float: 13 2. Pegged to another currency: 13 3. European monetary system: 13 B. Foreign currency markets 13 1. Exchange Rate 13 2. Types of Exchange rates 14 a) Spot rate: 14 b) Forward rate: 15 c) Swap...
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...transactions, forwards and swaps and currency options, in April 2013 was $5.3 trillion per day. Other years’ results: | |1998 |2001 |2004 |2007 |2010 2013 | |turnover ($trillions) |1.5 |1.2 |1.9 |3.3 |4 5.3 | | | | | | | | | | | | | | | Reduction between 1998 and 2001 due to (1) introduction of the euro which reduced currency trading in the individual currencies that subsequently made up the euro area and (2) trend of consolidation of the banking sector during that period, so there were fewer banks in the fx market trading amongst themselves. One significant change in the report is a significant increase in trading between foreign exchange dealers, primarily banks and their financial customers, most particularly, increased trading activity with hedge funds, mutual funds, pension funds and insurance companies. One continued trend is that the currency composition of foreign exchange trading has become more diversified. The most widely traded currency in traditional foreign exchange trading...
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...------------------------------------------------- Chapter 9 International Trade & Exchange rate ------------------------------------------------- What You will Learn in this Chapter * Study the theory of Comparative Advantage * Differentiate between Terms of Trade and Balance of payments * Explain Exchange Rate Determination * Describe the Concepts closely related to exchange rate of exchange A. The theory of comparative Advantage: In his book ‘Principles of Political Economy’, David Ricardo (1817) explained his theory of Comparative Advantage (comparative costs). This theory, subsequently modified by John Stuart Mill, is the foundation of the theory of international trade. The trade between two countries takes place because the same commodity is produced at different costs in different countries. The differences in the cost of production arise because of differences in factor endowments in different countries and the degree of specialization. Thus trade relies on cost differences. The Doctrine of Comparative costs states that a country will benefit by specializing in the production of those commodities in which its comparative cost advantage is greater, exporting these commodities in exchange for commodities in which the comparative cost advantage is less. Panel (a) illustrates the fact that over the past 40 years, the United States has exported a steadily growing share of its GDP to other countries and imported a growing share...
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...in the world used the same currency, the theories and techniques of International Finance would be unnecessary. But because there are so many different currencies in use throughout the world, it is essential that the international manager understands these theories and techniques" INTRODUCTION The traditional answer to the above statement should suggest that government could utilize their power in creating money, which would affect exchange rate, output prices or revenue. Still a lot of countries have developed interest in maintaining different currencies even when they have limited ability to create money, particularly money at a national differentiated growth rate. For example during the era where money was rated equivalent to the price of precious metals or were pegged to gold, exchange rates were fixed. This involves, the gold standard of the 19th and 20th centuries, and also at the time of the of the post war era during Bretton woods regime. Then most governments had limited abilities to create money mostly at national differentiated growth rates. It was really rare. However, it seems that the number of world currencies have increased so much together with the amount of countries over the past five decades, which will decline strongly within the next two decades. The question posed here is from an economic point of view, asks if we should aim for a halt in this process or should there be single global currencies or multiple major currencies with stringent rules for arranging...
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...Student Name: Sanjay Kumar Gupta SMS Id: 110604 Center: Grand Mall – Gurgaon Assignment: International Financial Management Batch: PGCBM-21 Title: MNC Response to Currency Crisis Professor Name: Dr. HK Pradhan MNC Response to Currency Crisis Introduction A currency crisis means a decline in the value of country currency, the decline in value of currency have impact on the economy of country negatively. Decline in value of currency means same currency will not buy anther currency as it was buying earlier. Currency crisis happens because of investor expectation/act and the result of those acts. Currency crisis generally happens due to sudden devaluation of the currency. Following are the reason which makes a currency crisis: 1. Current account deficit. 2. Currency value increased rapidly. 3. Uncertainty over government actions and policies. 4. Sudden outflow of capital by speculators. 5. If investors' confidence in the stability of an economy is eroded, then they will try to get their money out of the country. This is referred to as capital flight. Once investors have sold their domestic-currency denominated investments, they convert those investments into foreign currency. This causes the exchange rate to get even have further impacted, resulting in a run on the currency. 6. Currency outflow will be there till the time reserves are getting finished. Speculators foresee this potential opportunity for a capital gain and compete against each other...
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...thought it would be insightful to discover hedging procedures that protect businesses in Italy from increase or decrease in the exchange rates of currency. As for emerging markets, many companies in Italy including State Railways, Autostrade and BT’s Albacom, are getting into the telecoms market as infrastructure and service suppliers. (Cazzani, p. 65) Hedging is defined as measures taken by a company or corporation to protect itself from loss that may occur because of fluctuations in the exchange rate of currency. International corporations that operate globally conduct the majority of hedging in global markets. Our text also pointed out a very important fact to be mindful of while hedging, in that, although hedging may guard against loss, it may significantly destroy potential for great unexpected profits. (Satterlee, p. 145) So I would caution companies in deciding to engage in hedging because it may cause them to lose out tremendously in the future. Speaking of some of the dangers of hedging, the article chosen for summarization discussed when proxy hedging goes badly. We all know that as time changes, so do global markets. And these changes can have adverse effects on corporate treasurers. For a while the Deutsche mark has served well as a proxy hedge for other currencies. However, overtime a good portion of European currencies decided to leave the Deutsche mark which resulted in long-standing exchange rate agreements becoming obsolete. (Stein, p. 1) Other hedgers...
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...Finance Answers to Conceptual Questions 1.1 Describe the ways in which multinational financial management is different from domestic financial management. Multinational financial management is conducted in an environment that is influenced by more than one cultural, social, political, or economic environment. 1.2 What is country risk? Describe several types of country risk one might face when conducting business in another country. Country risks refer to the political and financial risks of conducting business in a particular foreign country. Country risks include foreign exchange risk, political risk, and cultural risk. 1.3 What is foreign exchange risk? Foreign exchange (or currency) risk is the risk of unexpected changes in foreign currency exchange rates. 1.4 What is political risk? Political risk is the risk that a sovereign host government will unexpectedly change the rules of the game under which businesses operate. 1.5 In what ways do cultural differences impact the conduct of international business? Because they define the rules of the game, national business and popular cultures impact each of the functional disciplines of business from research and development right through to marketing, production, and distribution. 1.6 What is the goal of financial management? How might this goal be different in different countries? How might the goal of financial management be different for the multinational corporation than...
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...Measuring/Managing Translation and Transaction Exposure Chapter 10 Lecture Notes Measuring Translation and Transaction Exposure PART I. ALTERNATIVE MEASURES OF FOREIGN EXCHANGE EXPOSURE: Accounting and Economic Risk I. ALTERNATIVE MEASURES A. TYPES 1. Accounting Exposure: arises when reporting and consolidating financial statements require conversion from subsidiary to parent currency. 2. Economic Exposure: arises because exchange rate changes alter the value of future revenues and costs. Accounting Exposure B. Accounting Exposure = Transaction risk + Translation risk [pic] ALTERNATIVE MEASURES OF FOREIGN EXCHANGE EXPOSURE C. Economic Exposure = Transaction Exposure +Operating Exposure Operating Exposure arises because exchange rate changes alter the value of future revenues and costs. PART II. ALTERNATIVE CURRENCY TRANSLATION METHODS (ACCY) I. FOUR METHODS OF TRANSLATION A. Current/Noncurrent Method 1. Current accounts use current exchange rate for conversion. 2. Income statement accounts use average exchange rate for the period. B. Monetary/Nonmonetary Method 1. Monetary accounts use current rate 2. Pertains to - Cash - Accounts receivable - Accounts payable - Long term debt 3. Nonmonetary accounts - Use historical rates - Pertains to: Inventory, Fixed assets, Long term investments 4. Income statement accounts - Use average...
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...basket of currencies and also a fixed exchange rate backed by a currency board system. Unlike the freely floating exchange rate system which has never been applied under its purest form, monetary authorities is required by the managed floating rate in order to interfere in foreign exchange markets to prevent the currencies from moving too far from an apparent fundamental value. 2. i. Managed Floating Rate More and more...
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