InternationalFinancialManagement6國際財務(wù)管理課件第一頁，共25頁。ObjectivesThischaptershowshowanMNCcanrestructureitsoperationstoreduceeconomicexposure.Suchastrategyisrelatedtothefirm’slong-runoperations.ItalsobrieflydescribeshowanMNC’stranslationexposurecanbereduced.Yet,Itisadvisedthatthelimitationsofhedgingtranslationexposurereceivesasmuchattentionasthehedgingstrategyitself.2第二頁，共25頁。EconomicExposureEconomicexposurereferstotheimpactexchangeratefluctuationscanhaveonafirm’sfuturecashflows.Recallthatcorporatecashflowscanbeaffectedbyexchangeratemovementsinwaysnotdirectlyassociatedwithforeigntransactions.3第三頁，共25頁。EconomicExposureExchangeratechangesareoftenlinkedtovariabilityinrealgrowth,inflation,interestrates,governmentalactions,…thechangesmaycausefirmstoadjusttheirfinancingandoperatingstrategies.TheimportanceofmanagingeconomicexposurecanbeseenfromthecaseofthebankruptcyofLakerAirways,andfromthethe1997-98Asiancrisis.4第四頁，共25頁。HowFinancialMarketsAffectedLakerAirlinesLakerAirwaysisaBritishairlinethatgeneratedmuchofitsrevenueinBritishpounds,alargeproportionofitsexpenses(suchasfuel,oil,anddebtpayments),however,weredenominatedindollars.Asthedollarstrengthenedintheforeignexchangemarketin1981,Lakerneededlargeramountsinpoundstocoveritsdollar-denominatedexpenses.InJanuary1981,Lakerborrowed$131millionsinthefinancialmarketsfromagroupofU.S.andEuropeanbanks.ThedebtwasdenominatedinU.SdollarsandthereforehadtoberepaidinU.S.dollars.Laker’sdecision5第五頁，共25頁。HowFinancialMarketsAffectedLakerAirlinestoobtaindollar-denominateddebtinthefinancialmarketsfurtherincreaseditseconomicexposure.Asthedollarcontinuedtostrengthen,thefirm’srevenuescouldnotadequatelycoveritsdollar-denominatedexpenses.Consequently,LakerAirwayswentbankrupt.Itmighthaveavoidedbankruptcyifithadreduceditseconomicexposure,eitherbyreducingitsdollar-denominatedexpensesorbyincreasingitsdollar-denominatedrevenue.Overall,Laker’sperformancewasaffectedbyconditionsintheforeignexchangemarketalongwithitsdecisiontoborrowdollarsinthedebtmarket.6第六頁，共25頁。EconomicExposureAfirmcanassessitseconomicexposurebydeterminingthesensitivityofitsexpensesandrevenuestovariouspossibleexchangeratescenarios.Thefirmcanthenreduceitsexposurebyrestructuringitsoperationstobalanceitsexchange-rate-sensitivecashflows.Notethatcomputerspreadsheetsareoftenusedtoexpeditetheanalysis.7第七頁，共25頁。EconomicExposureRestructuringmayinvolve:increasing/reducingsalesinneworexistingforeignmarkets,increasing/reducingdependencyonforeignsuppliers,establishingoreliminatingproductionfacilitiesinforeignmarkets,and/orincreasingorreducingthelevelofdebtdenominatedinforeigncurrencies.8第八頁，共25頁。EconomicExposureMNCsmustbeveryconfidentaboutthelong-termpotentialbenefitsbeforetheyproceedtorestructuretheiroperations,becauseofthehighcostsofreversal.9第九頁，共25頁。ManagingMadisonInc.’sEconomicExposure(example)TheamountofMadison’searningsbeforetaxesisinverselyrelatedtothestrengthoftheCanadiandollar,sincethehigherexpensesmorethanoffsetthehigherrevenue.

(Exhibit6.1)MadisonmayreduceitsexposurebyincreasingCanadiansales,reducingordersofCanadianmaterials,and/orborrowinglessfromCanadianbanks.(Exhibit6.2)10第十頁，共25頁。ManagingMadisonInc.’sEconomicExposure(example)Exhibit6.1OriginalImpactofPossibleExchangeRateMovementsonEarningsofMadison,Inc.(inMillions)

ExchangeRateScenario

C$=$.75C$=$.80C$=$.85

Sales:(1)U.S.$300.00$304.00$307.00(2)CanadianC$4=3.00C$4=3.20C$4=3.40(3)Total$303.00$307.20$310.40Costofgoodssold:(4)U.S.$50.00$50.00$50.00(5)CanadianC$200=150.00C$200=160.00C$200=170.00(6)Total$200.00$210.00$220.00(7)GrossProfit$103.00$97.20$90.40Operatingexpenses:(8)U.S.:Fixed$30.00$30.00$30.00(9)U.S.Variable(10%oftotalsales)30.3030.7231.04(10)Total60.3060.7261.04(11)EBIT$42.70$36.48$29.36Interestexpense:(12)U.S.$3.00$3.00$3.00(13)CanadianC$10=7.50C$10=8.00C$10=8.50(14)Total$10.50$11.00$11.50(15)EBT$32.20$25.48$17.8611第十一頁，共25頁。ManagingMadisonInc.’sEconomicExposure(example)Exhibit6.2ManagingMadisonInc.’sEconomicExposure(inMillions)

(ProposedStructure)

C$=$.75C$=$.80C$=$.85Sales: (1)U.S. $300.00 $304.00 $307.00 (2)CanadianC$20=15.00 C$20=16.00 C$20=17.00 (3)Total $315.00

$320.00

$324.00Costofgodssold: (4)U.S. $140.00$140.00 $140.00 (5)CanadianC$100=75.00 C$100=80.00 C$100=85.00 (6)Total $215.00

$220.00

$225.00 (7)Grossprofit $100.00

$100.00

$99.00Operatingexpenses: (8)U.S.-Fixed $32.00 $32.00 $32.00 (9)U.S.–Variable31.50

32.00

32.40 (10)Total$63.50

$64.00

$64.40 (11)EBIT $36.50

$36.00

$34.60Interestexpense: (12)U.S. $7.00 $7.00 $7.00

(13)CanadianC$5=3.75 C$5=4.00 C$5=4.25 (14)Total $10.75

$11.00

$11.25 (15)EBT$25.75

$25.00

$23.3512第十二頁，共25頁。ACaseStudyinHedgingEconomicExposure*CheckthecaseofSavorCo.inyourbook.(P302-307)*Findmorecasesbyyourself.13第十三頁，共25頁。TranslationExposureTranslationexposureresultswhenanMNCtranslateseachsubsidiary’sfinancialdatatoitshomecurrencyforconsolidatedfinancialreporting.Translationexposuredoesnotdirectlyaffectcashflows,butsomefirmsareconcernedaboutitbecauseofitspotentialimpactonreportedconsolidatedearnings.14第十四頁，共25頁。TranslationExposureAnMNCmayattempttoavoidtranslationexposurebymatchingitsforeignliabilitieswithitsforeignassets.Tohedgetranslationexposure,forwardorfuturescontractscanbeused.Specifically,anMNCmaysellthecurrencythatitsforeignsubsidiaryreceiveasearningsforward,thuscreatinganoffsettingcashoutflowinthatcurrency.15第十五頁，共25頁。TranslationExposureForexample,aU.S.-basedMNCthatisconcernedaboutthetranslatedvalueofitsBritishearningsmayenteraone-yearforwardcontracttosellpounds.Ifthepounddepreciatesduringthefiscalyear,thegaingeneratedfromtheforwardcontractpositionwillhelptooffsetthetranslationloss.16第十六頁，共25頁。TranslationExposureHedgingtranslationexposureislimitedby:inaccurateearningsforecasts,inadequateforwardcontractsforsomecurrencies,accountingdistortions(thechoiceofthetranslationexchangerate,taxes,etc.),andincreasedtransactionexposure(duetohedgingactivities).17第十七頁，共25頁。TranslationExposurePerhaps,thebestwayforMNCstodealwithtranslationexposureistoclarifyhowtheirconsolidatedearningshavebeenaffectedbyexchangeratemovements.18第十八頁，共25頁。QuestionsandApplications1.Baltimore,Inc.,isaU.S.-basedMNCthatobtains10percentofitssuppliesfromEuropeanmanufacturers,60percentofitsrevenuesareduetoexportstoEurope,whereitsproductisexportedandinvoicedineuros.ExplainhowBaltimorecanattempttoreduceitseconomicexposuretoexchangeratefluctuationsintheEuro.19第十九頁，共25頁。QuestionsandApplications2.UVACo.isaU.S.-basedMNCthatobtains40percentofitsforeignsuppliesfromThailand.ItalsoborrowsThailand’scurrency(thebaht)fromThaibanksandconvertsthebahttodollartosupportU.S.operations.Itcurrentlyreceivesabout10percentofitsrevenuefromThaicustomers.ItssalestoThaicustomersaredenominatedinbaht.ExplainhowUVACo.canreduceitseconomicexposuretoexchangeratefluctuations.20第二十頁，共25頁。QuestionsandApplications3.WhenanMNCrestructuresitsoperationstoreduceitseconomicexposure,itmaysometimesforgoeconomiesofscale.Explain.4.ExplainhowaU.S.-basedMNC’sconsolidatedearningsareaffectedduringaperiodsuchastheAsiancrisis.5.WouldamoreestablishedMNCoralessestablishedMNCbebetterabletoeffectivelyhedgeitsgivenleveloftranslationexposure?Why?21第二十一頁，共25頁。QuestionsandApplications6.NelsonCo.isaU.S.firmwithannualexportsalestoSingaporeworthabout$800millioninSingaporedollars(S$).ItsmaincompetitorisMez.Co.,alsobasedintheUnitedStates,withasubsidiaryinSingaporethatgeneratesaboutS$800millioninannualsales.Anyearningsgeneratedbythesubsidiaryarereinvestedtosupport