International Finance
The three companies that will be evaluated for purchase are LG, Sony and Xiaomi. Some of the report will discuss the individual companies, but a large portion of this report will go into discussing the country situations of these companies. They hail from South Korea, Japan and the People's epublic of China respectively. The differences between these Northeast Asian countries can be significant, and it is these differences that should capture the attention of the executive evaluating the decisions. There are two elements of risk that are the most important in this report -- political risk and financial risk. The former reflects the risk that the value of the investment could change based on changes in the political environment in the target country (Investopedia, 2014). Any evaluation of a major purchase overseas will include political risk as a factor, so when the political risk changes, that should increase the…...
" (2008)
It is also reported that the companies and banks are hurting in all economies that are "dollarized" economies" or those in which devaluation of the Dollar is occurring in recent years. While high Dollar inflows first drive growth and production, the capital inflows tend to hurt banking profitability when governments try to "mop up" excessive liquidity and sterilize Dollar inflows in exchange for low-yielding government bonds. China's banks, for example, are already getting a raw deal on their Dollar assets because the government forces them to accept low-yielding, negative real interest government bonds in exchange. When recession strikes, these banks will become even more unwilling to provide credit to their ailing (export industry) customers. Unfortunately, even if the Dollar gets stronger, as is often the case during a global crisis, falling domestic currencies might easily deepen a looming crisis of confidence - as they did during the Asian crisis."…...
Fukao, Mitsuhiro (2008) the U.S. Sparked Financial Crisis and the Japanese Financial System. Kikkei net Interactive. www.nni.nikkei.co.jp/FR/JCER/jcer_op_200811.html14Nov2008
By suggesting that increased amounts of free trade promote a conflict-free international market, McDonald makes a revolutionary argument that may bolster not only the international financial market, but also political and strategic alliances between states.
Both unique and significant, McDonald's argument that increased amounts of free trade between states lead to decreased amounts of conflict has strong implications not only for the field of international finance, but also for a variety of other areas of social science scholarship. Backing up his argument with statistical data, McDonald makes a convincing case that free trade does, indeed, lead to lower instances of conflict between states. Similarly, the logical organization and flow of McDonald's argument -- as he posses that the removal of trade barriers not only decreases the confidence in the state but also improves the interconnectedness between states -- lends credence to his position. A rather important study, McDonald's research attempt…...
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References
McDonald, Patrick J. (2004). Peace Through Trade or Free Trade? Journal of Conflict
The size of the market and its characteristics must be considered, to ensure that there is ample opportunity in the market. The expertise of the firm should be a factor, since expertise in a given market, or type of market, can play a significant role in organizational success.
The governmental/legal environment must be carefully considered. Each country has its own approach to FDI, some being more open than others. In many cases, the form of the FDI will be dictated by government policy. For example in many countries governments strongly favor joint ventures with local firms.
The type of investment is perhaps the most important decision that needs to be made. There are a number of options. Some include licensing/technology transfer, where the investing firm hires a local firm to produce the product or service. Reciprocal distribution agreements allow for the firm to have its products sold abroad, typically in exchange…...
The risk associated with acquisition is higher, as this includes the price paid for the acquisition and then the cost of managing the operations. However, the acquisition is likely to result in the greatest revenue growth in the short-term.
Question 2 - Size and International Opportunities
There are certain circumstances in which the size of a firm is not affected by intentional opportunities. If a firm uses strategies such as licensing of franchising there is a great potential to undertake international growth without the actual size of the firm increasing. For example, many firms such as KFC, McDonalds and Starbucks will use the franchise model to expand internationally, as this requires only minimal support from the firm and the size increases only slightly. Operations in a virtual environment (the internet) may also facilitate increased access to international markets without the need to increase the size of the firm, this is particularly…...
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References
Chaffy D (2009), E-Business and E-Commerce Management (Second edition), London, FT Prentice hall.
International Finance
Islamic Financing - Sukuk Al Murabaha, Sukuk Al Musharaka and Sukuk Al-Wakala
Islamic Finance is financing which is compliant with the requirements of the Shari'ah. While the concepts are centuries old, the foundations of Islamic banking and the modern financial tools which have been developed as compliant with Islamic law are relativity recent; early development seen to start in earnest in Egypt in the 1960's (Khan and Mirakhorv, 2005). The evolution of Islamic finance has resulted in numerous instruments for both commercial and consumer purposes, structured to be fully compliant with the Shari'ah. Three of these are Sukuk al murabaha, Sukuk al musharaka and Sukuk al-Wakala. The aim of this paper is to examine these three different tool, looking first at the common characteristics and then at the differences and uses of the tools.
Sukuk translates as a legal instrument or deed and refers to financial certificates (El-Gamal, 2006). The term…...
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References
El-Gamal, Mahmoud A, (2006), Islamic Finance: Law, Economics, and Practice, Cambridge University Press
Hassan M. Kabir; Lewis Mervyn K, (2007), Handbook of Islamic Banking, Edward Elgar Publishing
S. dollars will still be cheapest. If we sign a forward today we will lock in a rate of 6% if we need to refinance; if we wait that rate could be higher in a year's time. Thus, the forward rate today locks in today's expected rate for that time period.
The forward contract would be for two years, to deliver sufficient USD to pay for the loan in two years' time. The amount would be $604 million USD, given 6% interest in the second year.
Task 3. There are a number of types of bonds that could be issued by Development Unlimited. These include straight fixed debt, zero coupon bonds and floating rate notes. Straight fixed debt is also known as plain vanilla bonds. These come with a fixed rate of interest on the debt. They are typically bearer bonds as well. The company will simply pay a coupon interest rate…...
An upside in the European market Dec. 14: BAE defense systems rose 6.9% after UK prosecutors dropped a "long-term inquiry into defense contracts between BAE and Saudi Arabia." A downside: TUI fell 2.7% after the German tourism and shipping company announced it would cut 2,600 jobs in the UK.
ARTICLE THREE: Japan Tobacco, Inc. On Friday Dec. 15 announced the largest acquisition of a foreign company in Japan's history. Japan Tobacco will pay $14.8 billion to acquire Gallaher Group PLC of the UK. That means, according to The all Street Journal, that "Japan is back as a global buyer" (Morse, et al., 2006) after a financial slump of about ten years.
orks Cited
Ferguson, Tim. (2006, December 15). Eastern European Outsourcing to Triple. Businesseek. Retrieved 15 Dec. 2006 at http://www.businessweek.com.
Morse, Andrew, & Singer, Jason. (2006, December 16). Japan Returns To Global State As an Acquirer. The all Street Journal. Retrieved 15 Dec.…...
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Works Cited
Ferguson, Tim. (2006, December 15). Eastern European Outsourcing to Triple. BusinessWeek. Retrieved 15 Dec. 2006 at http://www.businessweek.com .
Morse, Andrew, & Singer, Jason. (2006, December 16). Japan Returns To Global State As an Acquirer. The Wall Street Journal. Retrieved 15 Dec. 2006 at http://online.wsj.com .
Turner, Sarah. (2006, December 15). BAE Systems, France Telecom Boost Regional Indexes.
The Wall Street Journal. Retrieved 15 Dec. 2006 at
Apart from strategic planning, focus on good quality performance information is important through creation of alternatives as well as the means to implement them. Good quality information is needed for both strategic and operational decisions. Companies waste time trying to obtain and reconcile numbers from different systems, which means they lack integrated view about where the value is being created or destroyed in the business. This leads to speculation instead of coming up with strategic choices. Instead of having confidence in what is undoubtedly the determining factor of their success or failure, companies strategic planning as dogged by the uncertainty, this is the main reason many companies in FTSE, fail to achieve shareholder value. A great number of these companies have accepted that maximizing shareholder value as the principal objective in the market place. Strategic planning is there to replace wavering by many companies as they hope something good will…...
Businesses and other establishments have now turned to fraud detection as a way to address their fraud issues. "In contrast fraud detection involves identifying fraud as quickly as possible once it has been perpetrated. In practice it must be used continuously as one does not always realize when fraud protection has failed." For instance, if credit card information has been stolen the best response is early detection so that the card can be cancelled.
"Fraud detection is a continuously evolving discipline. When it becomes known that one detection method is in place, criminals will adapt their strategy and try others." Detection tools do not lose their effectiveness, however, because new criminals are constantly entering the field unaware of prevention methods used to date by an organization attempting to protect itself against fraud. Growth in the field of fraud detection has skyrocketed as company after company has sprung up to meet the…...
DeMarzo and Duffie, (1995), also argue that the presence of hedging may be utilized by shareholders as a way of interpreting the quality of management, with hedging generally deemed to be a beneficial strategy. The perceived lower risk profile may also aid in other areas, such as increasing the ease with which capital raising may take place.
It is also speculated that large organizations may be able to benefit from the tax impact of hedging. A number of theorists argue that tax structures of western countries encourage companies to provide a smooth performance, avoiding peaks and troughs (oss, 1996). Therefore, there will also be some tax advantages to utilizing hedging resulting from hedging potentially delaying losses and smoothing financial performance (oss, 1996).
Morrell and Swan, (2006) argue that whatever the motivations, when the performance of a firm is assessed in the long-term the impact will be null, as the hedging merely…...
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References
Adams M; Reed D, (2005, Sept 15), Delta, Northwest file Chapter 11, USA Today, Section B, p1
Brooks, R. (2008), a life cycle view of enterprise risk management: The case of Southwest Airlines jet fuel hedging, Working Paper No. 10-02-01, University of Alabama.
Carter, David a.; Rogers Daniel a; Simkins, Betty J. (2006, Fall), Hedging and Value in the U.S. Airline Industry, Journal of Applied Corporate Finance 18(4), 21
Chorafas, Dimitris N, (2008), Introduction to Derivative Financial Instruments: Bonds, Swaps, Options, and Hedging, McGraw-Hill Professional
This process of investors selling U.S. assets may have already begun, as the dollar's value has declined significantly in the past year (Bivens, 2003).
b) Does it appear that the Asian currencies move in the same direction relative to the dollar? Explain.
A new study released from the Peterson Institute for International Economics concluded that the dollar is still considerably overvalued against a number of Asian currencies, most significantly the Chinese renminbi and the Japanese yen. It is thought that the renminbi needs to go up by about 30% against the dollar and the yen should strengthen by about 20%. A number of other Asian currencies also need to appreciate substantially so the desired increases amount to much less on a trade-weighted average basis which is under 20% for the renminbi and only about 5% for the yen (Lien, 2009).
This study also found that the euro and the pound are now…...
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References
Amadeo, Kimberly. (2010). Value of the U.S. Dollar. Retrieved May 30, 2010, from About Web
Purchasing power parity dictates competitive advantages within international finance. According to the theory of purchasing power parity, "the exchange rate between currencies of two countries should be equal to the ratio of the countries' price levels" (Eun & esnick, 2012). Essentially, this sets the concept that price levels of currency have an impact on purchasing power and competitive advantage of countries within the international market environment. In this sense, "PPP requires that the price of the standard commodity basket be the same across countries when measured in a common currency" (Eun & esnick, 2012). For countries to achieve parity, there needs to be an equality met within these two common factors.
Changes in the exchange rate ultimately have an impact on the competitiveness of countries within the larger international market. In this case, if a currency of a country depreciates more than what is justified through the purchasing power parity principle,…...
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References
Eun, Cheol S. & Resnick, Bruce G. (2012). International Finance Management. 6th ed. McGraw Hill.
firm's finance team aspect international finance lead a discussion team. This briefing important global financial crisis began 2007. The briefing needed provide foundation finance team versed international aspects finance.
Describe when and why central banks buy either their own currency or the currency of another nation in an effort to control exchange rates.
A central bank can influence the value of its national currency by raising or lowering interest rates, thereby encouraging borrowing and spending by other banks, businesses, and consumers. It can also affect other nations' currency values by buying or selling its reserves of another nation's currency, thereby raising or lowering the value of that currency. A central bank may wish to depreciate its own currency by selling it on the open market to encourage foreign investment and tourism or to encourage purchase of its exported goods abroad (Floating vs. fixed exchanges, 2011, CMSFX). However, a currency that is…...
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References
Baker, Dean. (2011). The European Central Bank. Business Insider.
Monetary Policy & International Finance and Exchange ate
Monetary Policy
If the central bank has an interest rate target, why would an increase in the demand for bank reserves lead to a rise in the money supply? (Use demand & supply graph)
A rise in the demand for reserves will increase the federal funds target. So as to preclude this, the central bank will purchase bonds, in so doing, increasing the amount of non-borrowed reserves, which in turn shifts the supply curve for reserves to the right, and in so doing, maintaining the funds rate of the central bank from rising. The open market purchase will as a result cause the monetary base and the money supply to rise (Schwartz, 2008).
MS1 MS2
Interest ate (4%) L2 (Y1)
L1 (Y1)
M/P
As indicated in the diagram, the assumption is that the central bank targets an interest rate of 4% per annum. Taking this into consideration, the money demand…...
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References
Bogetic, Z., 2002. Costs and Benefits of Unilateral Monetary Unions. Montenegrin Economic Papers, (1).
Dellas, H. and Tavlas, G.S., 2009. An optimum-currency-area odyssey. Journal of International Money and Finance, 28(7), pp.1117-1137.
Ireland, Peter N. (n. d). "Money, Banking, and Financial Markets." Lecture Notes, Department of Economics, Boston College, -- . Retrieved 22 March 2016 from: http://irelandp.com/ec261/chapter17a.pdf
Minford, P., 2002. The costs and benefits of Economic and Monetary Union to the UK economy -- the 'fifth (overview) test'. Cardiff Business School.
The establishment of a BRICS currency could potentially have a significant impact on global financial dynamics in the future. The introduction of a common currency among the BRICS nations could lead to increased trade and investment among these countries, as well as greater cooperation on economic and financial issues. This could potentially shift the balance of power in the global economy towards the BRICS nations, which are some of the fastest-growing economies in the world. As a result, the BRICS currency could challenge the dominance of the US dollar as the worlds primary reserve currency and lead to a more....
The BRICS Currency and Its Implications on International Finance: Exploring Causes, Effects, and Global Financial Dynamics
Introduction
In the wake of the global financial crisis of 2008, the BRICS (Brazil, Russia, India, China, and South Africa) nations have emerged as a formidable economic force. With their combined economic weight and growing political influence, the BRICS have sought to challenge the dominance of the US dollar in international finance. In 2014, the BRICS established a New Development Bank (NDB) and a Contingent Reserve Arrangement (CRA) to promote economic cooperation and reduce reliance on the US dollar. The creation of a common BRICS....
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