international financial management

international financial management Essay example
Masters
Essay
Finance & Accounting
Pages 9 (2259 words)
Download 0
International financial management School Affiliation Date 1. Definition of terms In order to get a better understanding of the concept under discussion in this paper, it is necessary to define two concepts that will be in use throughout this report. These terms are “forward exchange rate” and “spot exchange rate” as used in the field of international financial management…

Introduction

Foreign exchange market makes it possible for both private and commercial transactions including loans, investments, and foreign trade. The existence of a foreign exchange market is a result of economies employing national currencies rather than a common currency (Kumar, and Mukherjee, 2007; Butcher, 2011). If the world economy was to use a single currency, foreign markets could not be a necessity. The foreign exchange market is exceedingly active, and it is largely an over the counter market. Although the exchanges trade futures and option, a number of transactions are over the counter (Brigham, and Houston, 2009). The future expected spot price is the market's belief about an asset’s spot price in the future (Poniachek, 2012). This leads to a question of whether or not one can use the current forward price to predict the particular future spot price. A number of hypotheses have been in place to try clarifying the relationship between the expected future spot price, and the current forward price (Wang, 2009). In the field of financial economics, there has been intensive examination by researchers on the “Forward Rate Unbiased Hypothesis” (FRUH), as Kumar (2011) indicates. ...
Download paper
Not exactly what you need?

Related papers

International Financial Management
Hedging plays a very important role in international financial risk management. Cautious foreign direct investment (FDI) decisions and vigilant international capital budgeting is also of prime significance. International Financial Management – An overview The world is now a global village – a phenomenon which can be interpreted as a fact that the advancement in communication and technology has…
Financial Management in Multinational Organizations
In addition, it becomes convenient for an organization to draw additional funds from the shareholders if it supports shareholder wealth maximization. Financial management also helps organizations in financial planning and controlling, and evaluation of risks. It has been rightly argued that maximizing shareholder value perhaps only most effective method to benefit every stakeholder. Table of…
International Financial Management
The spot rates extracted from reliable sources for the foreign currencies are depicted in the following table: Currency Spot Exchange Rates Euro / USD 0.7624 € Yuan / USD 6.3123 Yuan These spot exchange rates were used in computing forward exchange rates which are the rates at which a bank or any party is willing to exchange or trade one currency for another at some prescribed date in the…
International financial management
Forward contracts can be traded on recognized markets, whilst futures contracts can not Ans-9) (a). Enter into a 90-day forward contract to sell US Dollars for Euros Ans-10) (e). Insufficient data given to enable the calculation to be made Section B Q1 a) The political risk refers to the scenario where the economic yield would be influenced and undergoes due to the uncertain changes in political…
International Financial Management
Moreover, Wall-Mart also has projected plan to invest further 37% of its US $ 13.05 million and 38 percent of US $ 12.5 million of capital investment in the international market for the year 2013 and 2014 respectively. Significant portion of the above mentioned investment is aimed at adjustments and capturing e-commerce retail sales in US, Brazil and China (Wal-Mart, 2013). In light of the…
International Financial Management
Companies engage in foreign direct investment due to various reasons, but mainly to generate profit and secondly to hedge risk. Sometimes the companies would have huge cash surplus and fear that due to unfavourable movement in the exchange rate the dollar value of the cash surplus would decrease (Bajaj, 2001). The companies would park their extra cash in various foreign countries in the form of…
International Financial Management
Pertaining to planned investments in South Africa by Neptune, this report outlines the possible threats of local firms’ resistance and how Neptune might respond to them. Finally, the report outlines the effects of currency variation of citing production abroad, if Neptune let sales in South Africa to be in Rand. Effects of the Possibility that the United States will take Action to reduce its…