Samenvatting IFM
30% taak 70% schriftelijk examen die bestaat uit mc en open vragen.
Rode driehoek=zeker kennen voor het examen!!!!!
In deze samenvatting staan oplossingen van de oefeningen die we zagen in de les. Voor de andere
oefeningen uit het boek zal je op Ufora moeten kijken.
CHAPTER ONE: GLOBALIZATION AND THE MULTINATIONAL FIRM
A: WHY STUDY INTERNATIONAL FINANCE?
The world economy is highly globalized and increasingly integrated in:
• the markets for goods and services. (consumption and production of goods and services)
• the financial markets. (→allows investors to diversify investment portfolios internationally)
Today, all the major economic functions are globalized:
• Consumption.
• Production.
• Investment.
B. WHAT’S SPECIAL ABOUT INTERNATIONAL FINANCE?
Four major dimensions set international finance apart from domestic finance:
1. Foreign exchange risk.
2. Political risks.
3. Market imperfections.
4. Expanded opportunity set.
These are largely because sovereign nations have the right to issue currencies, formulate their own
economic policies, impose taxes, and regulate movements of people, goods, and capital across their
borders.
Foreign Exchange Risk
The risk stems from uncertain future exchange rates.
For example, profits made in a foreign currency may disappear once converted into the domestic
currency due to unanticipated exchange rate movements.
1
,Exchange rates among major currencies (for example, U.S. dollar, Japanese yen, British pound, and euro)
fluctuate continuously in an unpredictable manner.
Exchange rate uncertainty influences all major economic functions, including consumption, production,
and investment.
Most volatile exchange rate this year: Japanese yen (up 20% this year)
→ Een stijging van de yen (de yen apprecieert) maakt Japanse exporten duurder, maar trekt mogelijk meer
buitenlandse investeerders aan.
→wnr buitenlandse investeren met Japanse yen, dan is er bij omzetting in dollar een groter rendement.
They are Hawkish now (means restrictive= quantitative tightening)
→quantative tightening: centrale banken zorgen dat er een lagere geldhoeveelheid in de economie circuleert.
→Ze proberen de rente te laten stijgen, de geldhoeveelheid doen verlagen + verkopen overheidsobligaties (door
cb)
→zo bestrijden ze inflatie en versterken ze hun munt (hogere rente maakt de yen interessanter)
<->Dovish policy (expansionary= quantitative easing)
→rente laten dalen, monetary supply laten stijgen, central bank buying government bonds so the government
(bonds) get cash)
Investing in japan=goed voor de europese landen en amerikaanse landen door hawkish beleid.
Example
Suppose $1 = ¥100 today, and you invest $1,000 to buy 50 shares of Toyota at ¥2,000 per share. One year later,
the share price has increased by ten percent, and your investment is worth ¥110,000. If the yen has depreciated
to
$1 = ¥120 by that time, how much is your investment worth in dollar terms?
• Initial investment in dollars: $1,000.
• Initial investment in yen: $1,000 × (¥100/$) = ¥100,000.
• Maturity value in yen: ¥110,000 (after 10% increase). (komt van 50*2200)
• Maturity value in dollars: ¥110,000 / (¥120/$) = $916.67.
→Loss because of depreciation of the yen.
It’s a floating market, because it changes all the time.
If the central bank is dovish so they lower interest rates, it pushes down the value of the currency because you
earn less money when holding the yen. You receive less interest because of the lower interest rates.
Japanese Yen—U.S. Dollar
Monthly Exchange Rate since start of the Covid crisis (Base = 100)→yen/USD stijgt naar 150yen/USD
2
,→yen/dollar stijgt, yen wordt minder waard tov dollar. Van 100yen/dollar naar 140 yen/dollar.
Japanese Yen—U.S. Dollar
% Percent Change from Year Ago since the Covid crisis
A depreciation is not a devaluation. Depreciation happens because of market forces and about supply and
demand. Depreciation in currency means higher supply and lower demand. (bv: afname van buitenlandse
investeringen in Japan)
A devaluation is a discretionary choice made by the monetary authorities. Imports will be more expensive and
exports will be cheap in both cases so in case of a depreciation and a devaluation.
A devaluation is typically in fixed exchange rate environment (waarde vd valuta is gekoppeld aan een andere
valuta). A depreciation happens in a floating exchange rate environment.
Devaluation or depreciation means a chance of higher inflation because imports are more expensive. Export dus
goedkoper.
Yen Carry trade
→Een carry trade is een beleggingsstrategie waarbij een investeerder geld leent in een valuta met een lage rente
en dit investeert in een valuta of actief met een hogere rente. Het doel is om winst te maken uit het verschil
tussen de lage rente op de lening en de hogere opbrengst op de investering.
Bijvoorbeeld: als de rente in Japan laag is (bijv. 0,5%) en de rente in Australië hoger is (bijv. 5%), kan een belegger
Japanse yen lenen tegen de lage rente, deze omwisselen voor Australische dollars en in Australische obligaties
investeren om de hogere rente te verdienen. De winst komt dan uit het verschil tussen de rentetarieven, zolang
de wisselkoersen stabiel blijven.
Borrowing cheap money in Japan and convert that money in USD to then invest in the US. Then when you have the
interest on your money, you convert it back to yen, you pay off the loan and you have a 5% return.
This is only perfect when there is no volatility in exchange rate. The yen appreciated (door hawkish beleid) so
hedge funds have to pay back more yen. If the yen appreciates more than 5%, you’re making a loss. Je moet dush
open dat de yen zwakker wordt (deprecieert)
3
, Political risk
Political risk arises from the fact that a sovereign country can change the “rules of the game” and the affected
parties may not have effective recourse.
• Multinational corporations and international investors are exposed to political risks when they operate in
certain foreign countries or hold foreign assets.
• Political risks range from unexpected changes in tax rules to outright expropriation of assets held by
foreigners.
• Especially relevant in those countries without a tradition of the rule of law, where the rights of
shareholders and investors may not be protected.
Market imperfections
Market imperfections are frictions and impediments hampering free movements of people, goods, services, and
capital across national boundaries and preventing markets from functioning perfectly:
• Legal restrictions.
• Transaction and transportation costs.
• Information asymmetry. → e.g. buyers are more informed than the seller.
• Discriminatory taxation.
World markets are highly imperfect.
• Motivates MNCs to locate production overseas. → MNC’s try to build joint-venture work together with
local people so you don’t get discriminated (je wordt als buitenstaander gezien als je niet samenwerkt
met lokale mensen). It’s a way to align the interest of local players with foreign players.
• Restricts the extent to which investors can diversify their portfolios. (kapitaalbeperkingen)
Example Nestlé
Nestlé used to issue two different classes of common stock,
bearer shares and registered shares.
• Foreigners were only allowed to hold bearer shares.
• Swiss residents could buy registered shares.
The bearer shares were more expensive than registered shares.
On November 18, 1988, Nestlé lifted restrictions imposed on foreigners, allowing them to hold registered shares
as well as bearer shares.
• Price spread between the two share types narrowed drastically.
→ Omdat buitenlanders slechts toegang hadden tot aandelen aan toonder, was de vraag naar deze aandelen
hoger, wat leidde tot een hogere prijs van de aandelen aan toonder in vergelijking met de geregistreerde aandelen.
4
30% taak 70% schriftelijk examen die bestaat uit mc en open vragen.
Rode driehoek=zeker kennen voor het examen!!!!!
In deze samenvatting staan oplossingen van de oefeningen die we zagen in de les. Voor de andere
oefeningen uit het boek zal je op Ufora moeten kijken.
CHAPTER ONE: GLOBALIZATION AND THE MULTINATIONAL FIRM
A: WHY STUDY INTERNATIONAL FINANCE?
The world economy is highly globalized and increasingly integrated in:
• the markets for goods and services. (consumption and production of goods and services)
• the financial markets. (→allows investors to diversify investment portfolios internationally)
Today, all the major economic functions are globalized:
• Consumption.
• Production.
• Investment.
B. WHAT’S SPECIAL ABOUT INTERNATIONAL FINANCE?
Four major dimensions set international finance apart from domestic finance:
1. Foreign exchange risk.
2. Political risks.
3. Market imperfections.
4. Expanded opportunity set.
These are largely because sovereign nations have the right to issue currencies, formulate their own
economic policies, impose taxes, and regulate movements of people, goods, and capital across their
borders.
Foreign Exchange Risk
The risk stems from uncertain future exchange rates.
For example, profits made in a foreign currency may disappear once converted into the domestic
currency due to unanticipated exchange rate movements.
1
,Exchange rates among major currencies (for example, U.S. dollar, Japanese yen, British pound, and euro)
fluctuate continuously in an unpredictable manner.
Exchange rate uncertainty influences all major economic functions, including consumption, production,
and investment.
Most volatile exchange rate this year: Japanese yen (up 20% this year)
→ Een stijging van de yen (de yen apprecieert) maakt Japanse exporten duurder, maar trekt mogelijk meer
buitenlandse investeerders aan.
→wnr buitenlandse investeren met Japanse yen, dan is er bij omzetting in dollar een groter rendement.
They are Hawkish now (means restrictive= quantitative tightening)
→quantative tightening: centrale banken zorgen dat er een lagere geldhoeveelheid in de economie circuleert.
→Ze proberen de rente te laten stijgen, de geldhoeveelheid doen verlagen + verkopen overheidsobligaties (door
cb)
→zo bestrijden ze inflatie en versterken ze hun munt (hogere rente maakt de yen interessanter)
<->Dovish policy (expansionary= quantitative easing)
→rente laten dalen, monetary supply laten stijgen, central bank buying government bonds so the government
(bonds) get cash)
Investing in japan=goed voor de europese landen en amerikaanse landen door hawkish beleid.
Example
Suppose $1 = ¥100 today, and you invest $1,000 to buy 50 shares of Toyota at ¥2,000 per share. One year later,
the share price has increased by ten percent, and your investment is worth ¥110,000. If the yen has depreciated
to
$1 = ¥120 by that time, how much is your investment worth in dollar terms?
• Initial investment in dollars: $1,000.
• Initial investment in yen: $1,000 × (¥100/$) = ¥100,000.
• Maturity value in yen: ¥110,000 (after 10% increase). (komt van 50*2200)
• Maturity value in dollars: ¥110,000 / (¥120/$) = $916.67.
→Loss because of depreciation of the yen.
It’s a floating market, because it changes all the time.
If the central bank is dovish so they lower interest rates, it pushes down the value of the currency because you
earn less money when holding the yen. You receive less interest because of the lower interest rates.
Japanese Yen—U.S. Dollar
Monthly Exchange Rate since start of the Covid crisis (Base = 100)→yen/USD stijgt naar 150yen/USD
2
,→yen/dollar stijgt, yen wordt minder waard tov dollar. Van 100yen/dollar naar 140 yen/dollar.
Japanese Yen—U.S. Dollar
% Percent Change from Year Ago since the Covid crisis
A depreciation is not a devaluation. Depreciation happens because of market forces and about supply and
demand. Depreciation in currency means higher supply and lower demand. (bv: afname van buitenlandse
investeringen in Japan)
A devaluation is a discretionary choice made by the monetary authorities. Imports will be more expensive and
exports will be cheap in both cases so in case of a depreciation and a devaluation.
A devaluation is typically in fixed exchange rate environment (waarde vd valuta is gekoppeld aan een andere
valuta). A depreciation happens in a floating exchange rate environment.
Devaluation or depreciation means a chance of higher inflation because imports are more expensive. Export dus
goedkoper.
Yen Carry trade
→Een carry trade is een beleggingsstrategie waarbij een investeerder geld leent in een valuta met een lage rente
en dit investeert in een valuta of actief met een hogere rente. Het doel is om winst te maken uit het verschil
tussen de lage rente op de lening en de hogere opbrengst op de investering.
Bijvoorbeeld: als de rente in Japan laag is (bijv. 0,5%) en de rente in Australië hoger is (bijv. 5%), kan een belegger
Japanse yen lenen tegen de lage rente, deze omwisselen voor Australische dollars en in Australische obligaties
investeren om de hogere rente te verdienen. De winst komt dan uit het verschil tussen de rentetarieven, zolang
de wisselkoersen stabiel blijven.
Borrowing cheap money in Japan and convert that money in USD to then invest in the US. Then when you have the
interest on your money, you convert it back to yen, you pay off the loan and you have a 5% return.
This is only perfect when there is no volatility in exchange rate. The yen appreciated (door hawkish beleid) so
hedge funds have to pay back more yen. If the yen appreciates more than 5%, you’re making a loss. Je moet dush
open dat de yen zwakker wordt (deprecieert)
3
, Political risk
Political risk arises from the fact that a sovereign country can change the “rules of the game” and the affected
parties may not have effective recourse.
• Multinational corporations and international investors are exposed to political risks when they operate in
certain foreign countries or hold foreign assets.
• Political risks range from unexpected changes in tax rules to outright expropriation of assets held by
foreigners.
• Especially relevant in those countries without a tradition of the rule of law, where the rights of
shareholders and investors may not be protected.
Market imperfections
Market imperfections are frictions and impediments hampering free movements of people, goods, services, and
capital across national boundaries and preventing markets from functioning perfectly:
• Legal restrictions.
• Transaction and transportation costs.
• Information asymmetry. → e.g. buyers are more informed than the seller.
• Discriminatory taxation.
World markets are highly imperfect.
• Motivates MNCs to locate production overseas. → MNC’s try to build joint-venture work together with
local people so you don’t get discriminated (je wordt als buitenstaander gezien als je niet samenwerkt
met lokale mensen). It’s a way to align the interest of local players with foreign players.
• Restricts the extent to which investors can diversify their portfolios. (kapitaalbeperkingen)
Example Nestlé
Nestlé used to issue two different classes of common stock,
bearer shares and registered shares.
• Foreigners were only allowed to hold bearer shares.
• Swiss residents could buy registered shares.
The bearer shares were more expensive than registered shares.
On November 18, 1988, Nestlé lifted restrictions imposed on foreigners, allowing them to hold registered shares
as well as bearer shares.
• Price spread between the two share types narrowed drastically.
→ Omdat buitenlanders slechts toegang hadden tot aandelen aan toonder, was de vraag naar deze aandelen
hoger, wat leidde tot een hogere prijs van de aandelen aan toonder in vergelijking met de geregistreerde aandelen.
4
