Chapter 17: Mul na onal Financial Management
Why do companies go global? - -To seek produc on efficiency
-To avoid poli cal, trade, and regulatory hurdles
-To broaden their markets
-To seek raw materials and new technology
-To protect processes and products
-To diversify
-retain customers
Ver cally integrated investment - Occurs when a firm undertakes an investment to secure its input
supply at stable prices
Interna onal monetary policy - The framework within which exchange rates are determined. It is the
blueprint for interna onal trade and capital flows
Spot vs. Forward exchange rate - Spot: quoted price for a unit of foreign currency to be determined
"on the spot" or within a short period of me
Forward: Quoted price for currency to be delivered at a specified date in the future
Deprecia on vs. apprecia on - Decrease or increase in the foreign exchange value of a floa ng
currency
Freely-floa ng - When the exchange rate is determined by supply and demand for the currency
Currency Board Arrangement - When a country has its own currency but commits to exchange it for a
specified foreign money unit at a fixed exchange rate and legislates domes c currency restric ons,
unless it has the foreign currency reserves to cover requested exchanges.
Fixed-Peg Arrangement - When a country locks its currency to a specific currency or basket of
currencies at a fixed exchange rate
Why do companies go global? - -To seek produc on efficiency
-To avoid poli cal, trade, and regulatory hurdles
-To broaden their markets
-To seek raw materials and new technology
-To protect processes and products
-To diversify
-retain customers
Ver cally integrated investment - Occurs when a firm undertakes an investment to secure its input
supply at stable prices
Interna onal monetary policy - The framework within which exchange rates are determined. It is the
blueprint for interna onal trade and capital flows
Spot vs. Forward exchange rate - Spot: quoted price for a unit of foreign currency to be determined
"on the spot" or within a short period of me
Forward: Quoted price for currency to be delivered at a specified date in the future
Deprecia on vs. apprecia on - Decrease or increase in the foreign exchange value of a floa ng
currency
Freely-floa ng - When the exchange rate is determined by supply and demand for the currency
Currency Board Arrangement - When a country has its own currency but commits to exchange it for a
specified foreign money unit at a fixed exchange rate and legislates domes c currency restric ons,
unless it has the foreign currency reserves to cover requested exchanges.
Fixed-Peg Arrangement - When a country locks its currency to a specific currency or basket of
currencies at a fixed exchange rate
