International

Business Finance
 International Business Finance
Companies with foreign operations are called
global organizations, international
corporations or multinationals.
These firms consider financial factors
such as foreign exchange rates, differing
interest rates from one country to another,
complex accounting methods for foreign
operations, foreign government
intervention, and foreign tax rates.
Similar to domestic firms, principles of
business finance also apply to foreign
operations
One significant complication of
international business finance is foreign
exchange.
These financial variables including
international exchange rates, interest rates,
and inflation rates, are closely related.
Foreign Exchange Markets
International Business Finance
 Foreign Exchange markets

The foreign exchange market is undoubtedly the

worlds largest financial market.

The foreign exchange market is an over-the-counter

market, so there is no single location where traders
get together.

Instead, the market participants are located in major

commercial and investment banks around the world.
 Foreign Exchange Markets

The different types of participants in the foreign

exchange market include the following:
Importers who pay for goods using foreign currency
Exporters who receive foreign currency and may
want to convert to domestic currency.
Portfolio managers who buy or sell foreign stocks
and bonds
Foreign Exchange brokers who match buy and sell
order
Traders who make a market in foreign currencies.
Speculators who try to profit from changes in
exchange rates
Exchange Rates
International Business Finance
Exchange Rates
Is the price of one countrys currency expressed in terms of another countrys currency.
Country U.S. $ equivalent Currency per U.S. $

Australia ( Dollar) .7910 1.2642

Germany (Mark) .6479 1.5434

Japan (Yen) .008651 115.59

Illustrations shows exchange rate quotation as they appear in The Wall Street
Journal.

The first column ( labeled U.S. $ equiv.) gives the number of dollar it takes
to buy one foreign currency.
 Example #1

The Australian dollar is quoted at .7910. Second column shows the

indirect, or European, exchange rate(even though the currency may
not be European). This is the amount of foreign currency per U.S.
dollar.

The Australian dollar is quoted here at 1.2642, so you can get 1.2642
Australian dollars for one U.S. dollar

The second exchange rate is just the reciprocal of the first one,
1/.7910 = 1.2642
 Example #2

Supposed you have The exchange rate in Because the exchange

$1,000. If a Porche cost terms of yen per dollar ( rate in terms of dollars
DM200,000(deutsche second column) is 115.9 per DM(first column) is
mark), how many Your $1,000 will thus .6479, you will need:
dollars will you need to get you:
buy it? DM200,000 x $.6479 =
$1,000 x 115.59 per yen $129,580
=115,590 yen
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