EECS 3101 Lecture 5: EECS 3101 Lecture 5 Notes
28 Jun 2018
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Course
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EECS 3101 Lecture 5 Notes
Introduction
Background on international stock exchanges
The monthly payment for the footballs is denominated in British pounds, as requested
by the British distributor.
Jim Logan, owner of the Sports Exports Company, must convert the pounds received
into dollars.
Explain how the Sports Exports Company could utilize the spot market to facilitate the
exchange of currencies.
Be specific.
Explain how the Sports Exports Company is exposed to exchange rate risk and how it
could use the forward market to hedge this risk.
Investing in International Financial Markets
The trading of financial assets (such as stocks or bonds) by investors in international
financial markets has a major impact on MNCs.
First, this type of trading can influence the level of interest rates in a specific country
(and therefore the cost of debt to an MNC) because it affects the amount of funds
available there.
Second, it can affect the price of an MNC’s stock (and therefore the cost of equity to an
MNC) because it influences the demand for the MNC’s stock.
Third, it enables MNCs to sell securities in foreign markets.
So even though international investing in financial assets is not the most crucial activity
of MNCs, international investing by individual and institutional investors can indirectly
affect the actions and performance of an MNC.
Consequently, an understanding of the motives and methods of international investing
is necessary to anticipate how the international flow of funds may change in the future
and how that change may affect MNCs.
Document Summary
The monthly payment for the footballs is denominated in british pounds, as requested by the british distributor. The trading of financial assets (such as stocks or bonds) by investors in international financial markets has a major impact on mncs. Consequently, an understanding of the motives and methods of international investing is necessary to anticipate how the international flow of funds may change in the future and how that change may affect mncs. Monthly payment for the footballs is denominated in british pounds, as requested by the british distributor. Jim logan, owner of the sports exports company, must convert the pounds received into dollars. Explain how the sports exports company could utilize the spot market to facilitate the exchange of currencies. Explain how the sports exports company is exposed to exchange rate risk and how it could use the forward market to hedge this risk.
