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University of New South Wales

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FINS3616 Notes
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FINS3616 Notes

FINS3616 - International Business Finance

4 Pages University of New South Wales Partial Study Notes Year: Pre-2017

Chapter 8 V = Σt E[CFt] / (1+it)t Calculations and graphs (bond and equity holders) Perfect market assumptions  No market frictions (tax and other costs)  Equal access to market prices  Equal access to costless information  Rational investors (like return, dislike risk) For hedging to add value, it must either increase expected future cash flows or decrease investors’ required return.  Cost of financial distress o Direct – monetary o Indirect – credibility, debt vs. equity  Agency costs  Convex tax schedule – higher tax for higher income Chapter 9 Functions of modern treasury – corporate bank  Determine the firm’s overall financial goals and strategies  Manage the risks of domestic and international transactions  Arrange financing for domestic and international trade  Consolidate and manage financial flows  Identify, measure and manage risk exposures Steps in setting financial goals and strategies  Identify the firm’s core competencies and potential growth opportunities  Evaluate the business environment within which the firm operates  Formulate a strategic plan for achieving sustainable competitive advantages  Develop processes for implementing the strategic business plan The problems of international trade  Exporters must assure timely payment  Importers must assure timely delivery of quality goods  Geographic and cultural distances are greater than in domestic trade  Trade disputes span several legal jurisdictions International payment methods  Cash in advance  Open account  Documentary credits (letter of credit) (2 banks)  Documentary collections (drafts and bankers acceptance) (1 bank)  Countertrade All in cost of trade finance = [(Face value) / (Discounted value)] – 1 A freight shipper coordinates the logistics of transportation and documentation, which can be formidable on international shipments. Purchasing/selling receivables: factoring and forfaiting (long term – more than 6 months) Chapter 10 Transaction exposure – changes in the value of contractual cash flows arising from the firm’s monetary assets and liabilities Risk profile – a graphical representation of change in the value of an underlying currency exposure to change in the value of the underlying currency (ΔVd/f to ΔSd/f) Cross hedge – different currency Delta hedge – different maturity Internal hedging  Multinational netting – cancelling out  Leading and lagging – paying early/later External Advantage Disadvantages Forwards exact hedge large bid-ask spread on small or long dated deals and thinly traded currencies Futures low cost, low risk currency and maturity mismatch Options provides insurance expensive premiums Swaps quick, low cost hard to find, innovate swaps are costly Money market synthetic forward positions relatively expensive, may be hard to find Chapter

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