公司财务讲义英文版(ppt-58页)课件.ppt

1、1CORPORATE FINANCELING-NAN OUYANGPROFESSOR OF FINANCEINSTITUTE OF CONTEMPORARY FINANCESHANGHAI JIAO TONG UNIVERSITY 2Valuing International Cash Flowsn M E(Cj,t)E(Ej,t)N j=1 nPV=t=1 (1+r)tnE(Cj,t)=expected cash flows denominated in currency j to be received by parent in period t.E(Ej,t)=expected exch

2、ange rate at which currency j can be converted to RMB at the end of period t.r=weighted average cost of capital of parent.M=number of currencies.N=number of periods.3Regression Model and Expectation(1)nRegression:measure relationships between variables when establishing policies.nEXPt=b0+b1 USDt-1+b

3、2 GNPt-1+ut.nEXPt=%change in China exports to the U.S.b0=a constant.USD=%change in the value of U.S.dollar.b1=regression coefficient measuring 1%change in USDt-1 will lead to x%change in EXPt.GNP=%change in the U.S.GNP.B2=regression coefficient measuring 1%change in GNPt-1 will lead to x%change in E

4、XPt.ut=an error term.4Regression Model and Expectation(2)nIf b0=0.002,b1=0.08,b2=0.36,USD1-1=5%,GNP1-1=-1%,if insert these figures into the regression model,EXP1=3.84%.It means that one year later China exports to the U.S.will increase 3.84%.5Equilibrium Spot Exchange Raten E(RMB/$1)S E0 D Q0 Q of$n

5、When D for$=S of$,Q0=the equilibrium quantity of$,E0=the equilibrium spot exchange rate.6Price Elasticity of Demand and Future Spot Exchange RatenE=(Q/Q)/(P/P).nE=price elasticity of demand.Q=quantity of goods demanded.P=price.Q=change in Q demanded for a change in P(P).If E 1,total spending goes up

6、 when P declines.E for$could have an impact on the future spot exchange rate of$and RMB.7Balance of Payments and Future Spot Exchange Rate(1)nCredits($inflows)Debits($outflows)na:Exports of civilian b:Imports of civilian goods goodsnc:Military sales d:Military purchase abroad abroad nTrade balance=a

7、+c-(b+d)8Balance of Payments and Future Spot Exchange Rate(2)ne:Exports of service f:Imports of services (investment income (investment income and fees earned,paid out,China foreign tourism in tourism abroad,China,etc.)etc.)n g:Net unilateral transfers(gifts)nCurrent account balance=a+c+e-(b+d+f+g)9

8、Balance of Payments and Future Spot Exchange Rate(3)nh:Foreign private i:China private investment in China investment abroadnj:Foreign official k:Chinese government lending in China lending abroadnCapital account balance=h+j-(i+k)n l:Net increase in China official reservesnOfficial reserves balancen

9、Note:Item h includes net errors and omissions.10Balance of Payments and Future Spot Exchange Rate(4)nIf China has a trade surplus against the U.S.,the value of RMB will be higher than that of$,spot rate will change.11Inflation and Future Spot Exchange RatenE(RMB/$1)S E1 S E0 D D Q1 Q of$nIf IF in Ch

10、ina that in the U.S.,supply of$will move from S to S because the Chinese are likely to decrease their purchases of U.S.imports.Meanwhile,demand for$will move from D to D because the Americans are likely to substitute China imports for U.S.products.Thus,spot exchange rate will move from E0 to E1.12In

11、terest Rate and Future Spot Exchange RatenAll other things being equal,when interest rate in China is greater than that in the U.S.,investors will switch from dollar to RMB to take advantage of the higher RMB interest rates.So,demand for$and supply of$will change,spot exchange rate will change.13Nat

12、ional Income and Future Spot Exchange RatenAn increase in China income will lead to more China imports from the U.S.as Chinese people spend some of income on U.S.products.This,however,would cause demand for$and supply of$to change and spot exchange rate to change.14Other Factors Affecting Future Spo

13、t Exchange RatenPolitical and economic environment:if political and economic environment in China is better than that in the U.S.,the value of RMB will be higher than that of$,spot rate will change.nInvestments:if Americans invest in China,demand for$and supply of$will change,spot rate will change.1

14、5Depreciation Versus AppreciationnSuppose that on July 19,2001,U.S.dollar devalued by 17%against RMB.If E0=initial RMB value of one dollar and E1=post-devaluation RMB value of one dollar,then we know that(E1-E0)/E0=-17%.Solving for E1 in terms of E0 yields E1=83%E0.Thus,the appreciation of RMB again

15、st U.S.dollar=(E0-E1)/E1=(E0-83%E0)/(83%E0)=20.48%.16Reasons for Government InterventionnReduce economic exposure a risk incurred by exchange rate fluctuations.nAdjust imports and exports.If RMB appreciates,China will lose comparative advantage in price against the U.S.,thus reduce exports.nEliminat

16、e the impact of exchange rate fluctuations on inflation at home.17Approach to Government InterventionnE(RMB/$1)S E1 S E0 D D Q2 Q1 Q3 Q of$nTo maintain E0 in the face of E1,either the American government or the Chinese government or both must sell(Q3-Q2)dollars to purchase (Q3-Q2)E0 RMB,thereby elim

17、inating the demand for(Q3-Q2)dollars,and simultaneously eliminating the excess supply of (Q3 Q2)E0 RMB.18Terms to Keep Existing Exchange RatenTerms=international reserve/balance-of-payments deficit.19Spot Quotations(1)nDirect quotation:RMB/$1.nIndirect quotation:$/1 RMB.nBid quote:buy quote.nAsk quo

18、te:sell quote.20Spot Quotations(2)nAssume you have 10000 RMB.Also assume the Bank of Chinas bid rate for$1 is 8.4513 RMB and its ask rate is 8.4536 RMB.If you convert 10000 RMB into$,you get 10000/8.4536=$1182.93.If you reconvert the$1182.93 back to RMB,you get only 1182.93 8.4513=9997.30(RMB).The b

19、id/ask spread=10000-9997.30=2.7(RMB).Or,the bid/ask spread=(8.4536-8.4513)/8.4536=0.03%.21Forward QuotationsnOutright rate:actual rate.90-day forward bid=8.2142RMB/$1.nSwap rate:a forward differential=discount from,or a premium on,spot rate.If spot rate=8.1023-30 RMB/$1,90-day forward rate=26-22,90-

20、day forward bid has 8.1026-8.1023=0.0003 RMB premium,90-day forward ask has 8.1030-8.1022=0.0008 RMB discount.22Forward Rate Premium or DiscountnExchange for$1 RMB FP or FD Spot 8.4513 30-day forward 8.4511 -0.03%90-day forward 8.4526 0.06%180-day forward 8.4618 0.01%nFP=forward premium,FD=forward d

21、iscount.FP or FD=(forward-spot)/spot (360/days of forward).23Forward Rate Fluctuation and Cash FlowsnCash flow$depreciation$appreciation S P S P Export sales I I or D D D or I Local sales D D or I I I or D Local expenses D D I I Import expenses I I or D D D or InS=subsidiary in the U.S.P=parent in C

22、hina.I=increase.D=decrease.24Cross Exchange RatenExchange rate of currency A to currency B=exchange rate of RMB to A/exchange rate of RMB to B.nIf the exchange rate of RMB to U.S.$=8.2798 RMB/$1,the exchange rate of RMB to HK$=1.0627 RMB/HK$1,the exchange rate of U.S.$to KH$=8.2798/1.0627=7.7913(HK$

23、s/U.S.$1).25Interest Rate Parity and Future Spot RatenIRP:r=(1+if)(1+p)-1.Where r=rate of return from interest arbitrage(buy foreign currency with home currency,invest it on foreign deposit,convert interest back to home currency).if=interest rate of foreign currency.P=forward premium or discount.nSi

24、nce r=ih(interest rate of home currency),p=(1+ih)/(1+if)-1 ih-if.nIf 6-months iRMB=5%,6-months i$=6%,p -1%.Chinese investors will receive 1%less when selling$6-months from now than what they pay for$at spot rate;and,(ih-if)will influence the future spot rate.26Purchasing Power Parity and Future Spot

25、 RatenPPP:Pf (1+If)(1+ef)=Ph (1+Ih).Where Pf=price index of foreign country.If=inflation rate of foreign country.ef=%change in value of foreign currency.h=home country.nSince Ph=Pf,ef=(1+Ih)/(1+If)-1 Ih-If.nIf IRMB=5%,I$=3%,e$2%.$will appreciate by 2%.If IRMB=4%,I$=7%,e$-3%.$will depreciate by 3%.nB

26、ased on the PPP,Sj,t+1=Sj 1+(Ih-If).Sj,t+1=new value of spot rate of a given currency.Sj=spot rate in equilibrium.Obviously,(Ih-If)could influence the future spot rate.27International Fisher Effect and Future Spot RatenIFE:r=(1+if)(1+ef)-1.Where r=the effective return on the foreign deposit.nSince r

27、=ih,ef=(1+ih)/(1+if)-1 ih-if.nIf one year iRMB=11%,one year i$=12%,e$-1%.This means that$will depreciate by 1%in order to make i$equal to 11%.This also means that(ih-if)will influence the future spot rate.28Regression and Future Spot ratenVRMB=b0+b1 INF+b2 INC+.Where VRMB=quarterly%change in RMB val

28、ue.INF=quarterly%change in inflation differential between China and the U.S.INC=quarterly%change in income growth differential between China and the U.S.b1=1%change in INF,VRMB will change by x%.b2=1%change in INC,VRMB will change by x%.=an error term.nIf recent INF=4%and INC=2%,if b0=0.002,b1=0.8 a

29、nd b2=1,VRMB=5.4%.This means that RMB should appreciate by 5.4%,other things held constant;and,the future spot rate should be adjusted.29Sensitivity Analysis and Future Spot RatenERt=b0+b1 INTt+b2 INFt-1+.nWhere ERt=%change in exchange rate over t.INTt=real interest rate differential over t.INFt-1=i

30、nflation differential in previous t.nINT1%change in ER1 P -3%0.1%+(-0.7)(-3%)+0.6 1%=2.8%20%-4%0.1%+(-0.7)(-4%)+0.6 1%=3.5%50%-5%0.1%+(-0.7)(-5%)+0.6 1%=4.2%30%nHere b0=0.1%,b1=-0.7,b2=0.6,INF1-1 of RMB and$=1%.One year hence,The weighted average appreciation of$=3.6%.This,however,will influence the

31、 future spot rate.30Market Expectation and Future Spot RatenAssume that the 30-day forward rate=$0.12/1 RMB and the general expectation of speculators for the future spot rate in 30 days=$0.17/1 RMB.Thus,buying RMB 30 days forward at$0.12/1 RMB and selling them when received in 30 days at$0.17/1 RMB

32、 will earn$0.05/1 RMB.If a large number of speculators implement this strategy,the substantial demand to buy RMB forward will cause the forward rate of RMB and$to increase until the speculative demand stops.31Speculating on Anticipated Exchange Rates(1)nAssume that the 30-day forward rate=$0.12/1 RM

33、B and the general expectation for the future spot rate in 30 days=$0.17/1 RMB.Thus,buying RMB 30 days forward at$0.12/1 RMB and selling them when received in 30 days at$0.17/1 RMB will earn$0.05/1 RMB.nIf a large number of speculators implement this strategy,the substantial demand to buy RMB forward

34、 will cause the forward rate of RMB and$to increase until the speculative demand stops.32Speculating on Anticipated Exchange Rates(2)nAssume$will appreciate from 8.2714 RMB/$1 to 8.3714 RMB/$1 in 30 days.Also assume short-term annual interest rates in inter-bank market are:nCurrency Lending rate Bor

35、rowing rate RMB 6.72%7.20%$6.48%6.96%nYou borrow 20 million RMB for instance.Convert them to 20/8.2714=$2.418 million.Lend the$for 30 days.You receive 2.418 1+6.48%(30/360)=$2.431 million.Convert the$to 2.431 8.3714=20.351 million RMB.You earn a profit of 20.351-20 1+7.20%(30/360)=0.231 million RMB.

36、33Speculating on Anticipated Exchange Rates(3)nAssume$will depreciate from 8.2714 RMB/$1 to 8.1714 RMB/$1 in 30 days.Also assume short-term annual interest rates in inter-bank market are:nCurrency Lending rate Borrowing rate RMB 6.72%7.20%$6.48%6.96%nYou borrow$2.418 million for instance.Convert the

37、m to 2.418 8.2714=20 million RMB.Lend the RMB for 30 days.You receive 20 1+6.72%(30/360)=20.112 million RMB.Convert the RMB to 20.112/8.1714=$2.461 million.You earn a profit of 2.461-2.418 1+6.96%(30/360)=$0.029 million which is equal to 0.029 8.1714=0.237 million RMB.34Speculating with Currency Fut

38、uresnCurrency futures:a contract entitled a specified amount of a specified currency for a stated price on a specified date.nIf$will appreciate,you purchase a future contract.On the settlement date,you purchase$at the specified rate and then sell them at the appreciated rate to make profit.nIf$will

39、depreciate,you sell a future contract.On the settlement date,you buy$at the depreciated rate and then sell them at the specified rate to make profit.35Speculating with Currency Call OptionnCurrency call option:a right to buy a specified amount of a particular currency at a specified price within a g

40、iven t.nTo speculate,you can purchase$call options.Once$appreciates,you exercise call option by purchasing$at the strike price and then sell them at the appreciated rate to make profit.Once the$depreciates,you give up call option.36Speculating with Currency Put OptionnCurrency put option:a right to

41、sell a specified amount of a particular currency at a specified price within a given t.nTo speculate,you can purchase$put options.Once$appreciates,you give up put option.Once$depreciates,you purchase$at the depreciated rate and then exercise put option by selling$at the strike price to make profit.3

42、7Locational Arbitragen Bank A Bank B Bid Ask Bid Ask RMB/$1 8.2614 8.2714 8.2718 8.2723 nAssume you start with 100 million RMB.If you buy$from Bank A at the ask price and then sell them to Bank B at the bid price,you gain (100/8.2714)8.2718 -100=0.005 million RMB.However,the law of market would make

43、 Bank As ask price equal to Bank Bs bid price in the end.38Triangular Arbitragen Quoted Bid Quoted Ask RMB/$1 8.2714 8.2814 RMB/1 12.6212 12.6312 /$1 0.66 0.66 /$1*0.76*0.86*n/$1=(RMB/$1)(RMB/1)=calculated cross exchange rate./$1*=quoted cross exchange rate.nAssume you start with 100 million RMB.If

44、you purchase 100/8.2714=$12.09 million,convert them to 12.09 0.76=9.19 million,and then exchange the for 9.19 12.6212=115.99 million RMB,you gain 115.99-100=15.99 million RMB.39Covered interest ArbitragenAssume you start with 8 million RMB.Also assume spot rate=8.2741 RMB/$1,90-day forward rate=8.27

45、14 RMB/$1,90-day interest rate on RMB=2%,and 90-day interest rate on$=4%.nTo have an arbitrage,you covert RMB to 8/8.2741=$0.967 million,deposit them in an American Bank,and then set up a forward contract to sell them simultaneously.By the time the deposit matures,you gain 0.967 (1+4%)8.2714 -8=0.31

46、8 million RMB.40Transaction Exposure and Invoice PolicynTransaction exposure:a degree to which the value of future cash transactions can be affected by exchange rate fluctuations.nAssume an American exporter sends goods invoiced in$to a Chinese firm.Also assume the Chinese firm exports products invo

47、iced in$to other corporations in the U.S.nThe$receivables from the Chinese firms exports can be used to pay off its future payables in$.This,therefore,reduces transaction exposure.41Transaction Exposure and Future Contract HedgenTo hedge RMB value on future payables in$,buy a contract and lock in th

48、e amount of RMB.nTo hedge RMB value of future receivables in$,sell a contract and lock in the amount of RMB.42Transaction Exposure and Forward Contract HedgenIf you pay$in 30 days,you can buy from a bank a forward contract to lock in the 30-day forward rate.nIf you expect receivables in$in 30 days,y

49、ou can sell a forward contract to lock in the 30-day forward rate.43Transaction Exposure and Non-deliverable Forward Contract HedgenNon-deliverable Forward Contract:a forward contract without actual exchange of currencies.nAssume you will need$100 million in 90 days.Also assume you buy$100 million o

50、n July 1.nIf spot rate=8.2714 RMB/$1,RMB position=100 8.2714=827.14 million.If rate by July 1=8.3714 RMB/$1,RMB position=100 8.3714=837.14 million,you will receive 837.14-827.14=10 million RMB from the bank.If rate by July 1=8.1714 RMB/$1,RMB position=100 8.1714=817.14 million,you will owe the bank