Tài chính doanh nghiệp - Finance 407: Multinational financial management - Topic 2: Exchange rates, quotes, transactions, and appreciations

Topic #2: Exchange Rates, Quotes, Transactions, and AppreciationsL. GattisThe Pennsylvania State UniversityFinance 407: Multinational Financial Management1Learning Objectives2Students can obtain and interpret exchange ratesStudents can convert currencies usingdirect and indirect exchange rate quotationsStudents can compute and interpret currency appreciations and depreciationsiClicker Review3Which of these is NOT a reason discussed why globalization increased in the last 25 years?Reduction in transportation costs (especially shipping) Establishment of Free Trade AgreementsConversion from government controlled to free market economies (capitalism)African Development Computers make it easier coordinate worldwide supply chainsDirect and Indirect Prices: Latte4The price of a Latte is 3.30 U.S. dollarsDirect Price Quote: $3.30/LatteThis a called a direct quote in USD for an AmericanYou could also say that the Latte price of a USD is 0.3030 LatteIndirect Quote: 0.3030 Latte/USDThis a called a indirect quoteLattes are always quoted in direct terms$3.25Direct and Indirect Prices: Euro5The price of a Euro is 1.25 U.S. dollarsDirect Quote: $1.25/EuroThis a direct quote in USD for an AmericanYou could also say that the euro price of a USD is .80 euroIndirect Quote: €0.80/USDThis a called a indirect quoteThe euro is usually quoted in direct terms$1.25/€Direct and Indirect Prices: Danish Kroner6The price of one Krone is .16 U.S. dollarsDirect Quote: $0.16/KroneThis a direct quote in USD for an AmericanYou could also say that the krone price of a USD is 6.25 kroneIndirect Quote: Kr 6.25/USDThis a called a indirect priceThe krone is usually quoted in indirect terms, others includeJap. Yen, Swiss Franc, Can. dollar, Chinese yuan, Mexican pesoKr6.25/$7ISO Currency Codes8 and Currency Pairs9 FormatBASE-QUOTE (EUR-USD)BASEQUOTE (EURUSD)BASE/QUOTE (EUR\USD)Rates on the web11 Conversions12Suppose the USD-CAD exchange rate is 1.05. How many CAD (C$) can you exchange for $100 USD?How many USD can you exchange for C$100?   iclicker Practice13Suppose the yen quote is ¥78/$. How many USD dollars could you exchange for 10,000 yen? A. $128.21 B. $780,000Suppose the pound is selling for $1.55. How many pounds could you exchange for $10,000?A. ₤6,451.61 B₤15,50014Calculating Currency Appreciations and DepreciationCurrency Appreciation = (s1 - s0)/ s0 where s0 = old currency value s1 = new currency value When using this equation you are describing the appreciation or depreciation of the “denominator currency”(If you want to talk about the numerator currency use this equation to calculate appreciation = (s0 - s1)/ s1) or invert exchange rates and use the previous example.15Appreciation: Direct Quotes EXAMPLE: € Appreciation If the dollar value of the € goes from $1.50 (s0) to $1.65 (s1), What is the appreciation or depreciation of the €? What is the appreciation or depreciation of the $?   Hint: Euro appreciated, USD depreciated16Appreciation: Indirect Quotes EXAMPLE: C$ AppreciationThe USD-CAD rate goes from C$1.05 (s0) to C$1.03 (s1), What is the appreciation or depreciation of the US$? What is the appreciation or depreciation of the C$?   Hint: USD depreciated, C$ appreciated17iclicker PracticeThe yen quote in America goes from ¥95 to ¥85.The quote ¥95 is the price of what currency?YenUSDWhich currency depreciated? YenUSDWhat is the appreciation or depreciation of the $?11.76%10.53%-11.76%-10.53%What is the appreciation or depreciation of the ¥?11.76%10.53%-11.76%-10.53%Poll18The Danish Krone – Euro exchange rate goes from Kr 4.25 to Kr 4.50. What was the appreciation of the krone (against the euro)?5.88%-5.56%3.55%-4.78%Topic #2 Assigned Problems19How many yuan could Bank X get for 100,000 USD?$100,000 * Yuan/$ (6.76) = Yuan 676,000 How many USD could Bank X get for 1,000,000 peso?Peso 1,000,000 * $/P (1/12.7) = $78,740.16How many USD could Bank X get for 500,000 yen?Yen 500,000 * $/Y (1/85.18) = $5,869.93How many euros could Bank X get for 50,000 USD?$50,000 * euro/$ (1/1.3) = Euro 38,461.54How many USD could bank X get for 10,000 Canadian dollars? C$ 10,000 * $/C$ (.96) = $9,600What is the current USD quote for the Japanese yen, euro, British pound, Chinese yuan, Mexican peso, Australian dollar and Canadian dollar? (+/- 10% for exam)Exchange Rates USDCNY = 6.76 EURUSD = $1.30 USDMXN = 12.7 GBPUSD = $1.57 USDJPY = 85.18 CADUSD = $0.96 Assigned Problems20Suppose the euro exchange rate decreases from $1.25 to $1.22. What was the appreciation of the euro and USD? Euro appreciation = (1.22-1.25)/1.25, USD appreciation = (1.25-1.22)/1.22 Suppose the Norwegian krone went from Kr5.50 per euro to Kr6.5. What was the appreciation of the krone? What was the appreciation of the euro? Kr appreciation = (5.5-6.5)/6.5 = -15.4%; Euro Appreciation = (6.5-5.5)/5.5= 18.2%Suppose the pound went from £1.5 to £1.7 per euro. What was the appreciation of the pound? What was the appreciation of the euro? Pound Appreciation = (1.5-1.7)/1.7=-11.8%; Euro Appreciation = (1.7-1.5)/1.5=13.3%Suppose your investment in BP stock fell from £80 to £20. During the same time the pound rose from $1.5 to $1.8. What was the USD % return in your investment? What was your pound % return? GBP Return = (20-80)/80= - 75% USD Cost = £80*1.5 = $120 USD Sale = £20*1.8 = $36 USD Return = (36-120)/120=-70%; Textbook21Shapiro and Sarin’s Foundation of Multinational Finance 6th Ed. Chapter 6 covers the forex markets and exchange rates includingSpot quotesBid-ask and SpreadDirect-indirect quotesCurrency CodesThe forward marketCross ratesAdditional problems using exchange ratesiClicker: Class Evaluation22How would you rate today’s class? Highest Lowest