Ch018国际资本 预算.pptVIP

* 2 * 2 * 2 * 2 * 2 * 2 * 2 * 2 * 2 * 2 * * A call option gives the holder the right but not the obligation to buy ￡2,300 at a price of €2.00/￡ IF the exchange rate at maturity is €2.20/￡ then the option is in-the-money and exercise will result in a profit of €460 = (€2.20 - €2.00)(2,300)b IF the exchange rate at maturity is €1.80/￡ then the option is out-of-the-money and exercise will not occur. It’s an option not an obligation. Another recipe for international decision makers: 1. Estimate future cash flows in foreign currency. 2. Estimate the foreign currency discount rate. 3. Calculate the foreign currency NPV using the foreign cost of capital. 4. Translate the foreign currency NPV into dollars using the spot exchange rate Capital Budgeting from the Parent Firm’s Perspective: Alternative Foreign Currency Cost of Capital Method Let’s find i€ and use that on the euro cash flows to find the NPV in euros. Then translate the NPV into dollars at the spot rate. – €600 0 €200 1 €500 2 €300 3 ?€ = 3% i$ = 15% p$ = 6% € $1.25 S0($/€) = The current exchange rate is Foreign Currency Cost of Capital Method Before we find i€ let’s use our intuition. Since the euro-zone inflation rate is 3% lower than the dollar inflation rate, our euro denominated discount rate should be lower than our dollar denominated discount rate. Finding the Foreign Currency Cost of Capital: i€ Recall that the Fisher Effect holds that (1 + e) × (1 + ?$) = (1 + i$) real rate inflation rate nominal rate So for example the real rate in the U.S. must be 8.49% (1 + e) = (1 + i$) (1 + ?$) e = 1.15 1.06 – 1 = 0.0849 Finding the Foreign Currency Cost of Capital: i€ If Fisher Effect holds here and abroad then If the real rates are the same in dollars and euros (e€ = e$) (1 + e$) = (1 + i$) (1 + ?$) (1 + e€) = (1 + i€) (1 + ?€) and (1 + i$) (1 + ?$) = (1 + i€) (1 + ?€) we have a very useful parity condition: Finding the Foreign Currency Cost of Capital: i€ If we have any three of these variable