MULTINATIONAL FINANCE

Transcription

1 MULTINATIONAL FINANCE Drminas and Forcasing o Excang Ras (Capr 2 & 4 Oulin o Lcur 1 Drminaion o xcang ras Floaing xcang ra sysm T Ass Mark Modl Pariy Condiions Purcasing Powr Pariy (PPP Inrnaional Fisr Ec (IFE Inrs Ra Pariy (IRP Fixd xcang ra sysm S by govrnmn roug ngoiaions wi or counris Excang ras can cang roug rngoiaions or du o currncy spculaions 2 Forcasing o xcang ras Mods and Pracics 1

2 Diniions Excang ra pric o on naion s currncy in rms o anor currncy Dvaluaion dcrasing valu o a currncy (by a govrnmn in a ixd xcang ra rgim Rvaluaion incrasing o valu o a currncy (by a govrnmn in a ixd xcang ra rgim Dprciaion lowring o valu o a currncy (by mark in a loaing xcang ra rgim Apprciaion incrasing o valu o a currncy (by mark in a loaing xcang ra rgim Spo mark mark or immdia dlivry o currncy Spo ra pric o currncy in spo mark Forward mark mark or dlivry o currncy a a spciid uur da Forward ra pric o currncy in orward mark Drminas o Excang Ras T quilibrium xcang ra (supply = dmand is drmind by dmand and supply o a currncy rom anor counry (currncy T Amrican dmand or Europan goods and srvics and Europan inancial asss drmins dmand or Euro T Europan dmand or U.S goods and srvics and U.S inancial asss drmins supply o Euro Dollar pric o 1 Euro 2 1 Supply Dmand S D 0 Quaniy o Euros 2

3 Ky acors acing quilibrium Excang ras Rlaiv inlaion ras Purcasing Powr Pariy (PPP Rlaiv inrs ras Inrnaional Fisr Ec (IFE Rlaiv Economic Grow Ras Naions wi srong conomic grow (om will arac orign invsmn capial o acquir domsic asss Incrasd dmand or om currncy Srongr currncy (.g. wr SEK/$ Empirical suppor Ky acors acing quilibrium Excang ras Poliical and Economic Risk In gnral invsors prr o old lssr amouns o riskir asss Low risk currncis (mor poliically and conomically sabl naions ar in gnral mor igly valud (largr dmand Expcaions abou uur xcang ras Invsors xpcaions abou uur valu o currncy acs ir willingnss o olding currncy and us spo ra oday 3

4 T Ass Mark Modl T ass mark modl o xcang ra drminaion: xcang ra bwn wo currncis rprsns pric a jus balancs rlaiv supplis o, and dmand or, asss dnominad in os currncis Cangs in prrncs or asss lads o cangs in xcang ra T Ass Mark Modl T acors a ac rlaiv dmand and supply o asss ar: Sor o valu drmind by counris inlaion ra dpnds on counris monary policy Cnral bank rpuaion imporan (cnral bank indpndnc Expcaions abou uur imporan drminan Dmand or liquidiy Risk and rurns on asss in a naion Dpnds on counris rlaiv prsn and xpcd conomic grow Poliical and conomic sabiliy 4

5 Inrnaional Pariy Condiions T conomic oris a link xcang ras, pric lvls, and inrs ras ogr ar calld inrnaional pariy condiions. Ky ida a givs orical pariy condiions is concp o Arbirag (i.. assumpion a arbirag opporuniis can no xis or a long im T No-arbirag condiion T assumpion o No-arbirag lads o law o on pric T Law o On Pric I idnical producs or srvics can b sold in wo dirn marks (A and B, and no rsricions xis on sal or ransporaion coss o moving produc bwn marks, producs pric sould b sam in bo marks. I prics dir - agns can simply by in capr mark (A and sll in mark wi a igr pric (B and arn a risk r proi Wn agns buy in capr mark (A incrasd dmand on mark A will incras pric in mark A Wn agns sll in ig-pric mark (B incrasd supply on mark B will lowr pric in mark B Tus, prics mov oward qualizaion Inrnaional pariy condiions ar a consqunc o is arbirag bavior 5

6 Purcasing Powr Pariy (PPP Absolu vrsion Pric lvls sould b qual worldwid wn xprssd in a common currncy A uni o om currncy sould av sam purcasing powr around world Ignors: ransporaion coss aris, quoas and or rad rsricions produc dirniaion T orign xcang ra mus dir by (approximaly dirnc bwn domsic and orign pric lvls Rlaiv vrsion T xcang ra bwn om currncy and a orign currncy will adjus o rlc cangs in pric lvl (inlaion o counris 0 = = (1 ( i i (1 (1 + + i i Excang ra ( 0 Pric (Car Exampl USA 1 CAD = 0.9 USD 9000 USD Canada 1 USD = CAD CAD PPP olds (Pric qual in USA and Canada Inlaion ra (i Nw pric 2% 9180 USD 10% CAD I xcang ra uncangd: Canadians can by car in USA or 9180/0.9 = CAD I PPP olds xcang ra will adjus du o dirn inlaion ras Nw xcang ra ( USD apprcia, CAD dprcia 0.9 * (1.02/(1.10= USD/CAD * (1.10/(1.02= CAD/USD 6

7 Economic consquncs I xcang ra rmains uncangd manwil ras o inlaion dir bwn wo currncis, or counry wi a igr inlaion ra (Canada, xpors o goods and srvics will bcom lss compiiv, and impors rom abroad will also bcom mor compiiv an domsic producs. T counry will dvlop a dici in is balanc o paymns. T dici will vn worsn bcaus o arbirag and spculaion in radd commodiis. I will incras dmand o orign currncis and supply o om currncy. Tis will lad o a dprciaion o om currncy. Economic adjusmn sould produc a nw quilibrium xcang ra, rspcing purcasing powr pariy. Ar adjusmn rlaiv compiiv posiion o counris ar uncangd. Cangs in nominal xcang ra (acual xcang ra may b o lil signiicanc in drmining cs or irms and naions Ral Excang Ra Nominal xcang ra adjusd or cangs in rlaiv purcasing powr o ac currncy sinc som bas priod r n P Ral Excang ra = = * P P and P ar orign and om pric lvls a im (bo indx o 100 a bas priod 7

8 Exampl Excang ra 1980 Excang ra 1995 USA $ /Yn $ /Yn Japan Yn /$ Yn 93.96/$ T Yn apprciad wi 58 % during priod masurd in nominal rms CPI, 1980 CPI, r1980 r1995 = = (119.2/ * (152.4/82.4 ( * (100 = $ / Yn = $0.0044/ Yn Exampl In ral rms Yn apprciad by 71 % Tis rprsns a larg compiiv prssur on Japans xporrs as dollar pric o ir xpor ros ar mor an U.S. ra o inlaion ( /0.0044= 71% 8

9 Empirical Evidnc Empirical sing o PPP and law o on pric as bn don, bu as no provd PPP o b accura in prdicing uur xcang ras. Two gnral conclusions can b mad rom s ss: PPP olds up wll ovr vry long run bu poorly or sorr im priods T ory olds br or counris wi rlaivly ig ras o inlaion and undrdvlopd capial marks T Fisr Ec (FE Nominal inrs ras in ac counry ar qual o rquird ral ra o rurn plus compnsaion or xpcd inlaion. r = a + i r = nominal inrs ra, a = ral inrs ra i = xpcd inlaion. Gnralizd vrsion o FE Ral rurns ar (roug arbirag qualizd across counris a = r i a a = r = a r r i r i = i i = r i 9

10 T Gnralizd Fisr Ec r r = i i In quilibrium nominal inrs ra dirnc will approximaly qual dirnial bwn anicipad inlaion bwn counris T rlaionsip is suppord by mpirical vidnc Inrnaional Fisr Ec (IFE r r r and r E( = xpcd xcang ra priod 0 E( 0 = 0 = inrs ras om and abroad = xcang ra priod 0 T xpcd rurn rom invsing a om sould qual xpcd rurn rom invsing abroad in rms o om currncy Currncis wi low inrs ras ar xpcd o apprcia rlaiv o currncis wi ig inrs ras 10

11 Spo ra Inrs ra Exampl: IFE Europ Eur 0.125/SEK 4% Swdn SEK 8/EUR 11% Equilibrium i sam ra o rurn or a on-yar invsmn: I I invs 1 SEK in Swdn, ar on yar I g 1.11 SEK. I I invs 1 SEK in Europ, ar on yar, I g 1/8 x 1.04 EUR. I mark quilibrium, 1.11 SEK = (0.125 * 1.04 EUR* (SEK X/EUR, X=? (SEK X/EUR=1.11/(0.125*1.04 = 8.54 Spo ra a nd o yar: SEK 8.54/EUR T SEK as dprciad wi (8.54-8/8 = 7% IFE Inrs ra dirnial: 11-4 =7% Inrs Ra Pariy Tory Dscribs rlaionsip bwn inrs ra dirnials and orward ra dirnials bwn counris A orward ra is an xcang ra quod or slmn a som uur da. 11

12 Forward Prmium/Discoun T orward prmium or discoun is prcnag dirnc bwn spo and orward xcang ra, sad in annual prcnag rms. Forward prmium Forward ra - Spo Spo ra ( + or discoun ra 360 Nr. Days (- = 100 For w wr abroad and T = Inrs Ra Pariy (IRP av 0 r no and (unil orward (1 (1 - arbirag (1 + r (1 + r nd + + r ra r r o ar im a, priod 0 im condiion = 0 inrs orward is currn n o ra old om spo ra. givn by and ra : 12

13 Forward ra vs Spo ra T orward ra is calculad or any spciic mauriy by adjusing currn spo xcang ra by raio o currncy (counris inrs ras o sam mauriy or wo subjc currncis. According o IRP ory: T currncy o counry wi a lowr inrs ra sould b a a orward prmium in rms o currncy o counry wi igr ra Exampl: IRP Inrs ra (r Spo ra Dnmark 7% DKK /SIT Slovnia 8% SIT 21.03/DKK IRP givs: Forward ra = Spo (1+ inrs ra om / (1+ inrs ra orign = x (1.07 / 1.08 = Assum acual orward ra = Arbirag possibiliy: Borrow X million SIT, urn m ino DKK, invs in DKK and Buy 10 Million SIT in orward mark a

14 Exampl: IRP Borrow in SIT (Slovnian Tolar: 10,000,000 SIT/ 1.08 = 9,259,259 SIT (coss 10,000,000 in 1 yar Excang SIT o DKK: 9,259,259 SIT x DKK/SIT = 440,278 DKK Invs in DKK: 440,278 x 1.07 = 471,097 DKK Rpaymn o loan (buy orward a 0.045: 10,000,000 SIT x = 450,000 DKK Proi ar on yar: (471, ,000 = 21,097 DKK Incrasd dmand or loans: T Slovnian inrs ra will incras Incrasd supply o invsmn: T Danis inrs ra will dcras T spo ra will dcras (incrasd dmand or DKK T acual orward ra will go up (incrasd dmand Torically, mark sould rac again quilibrium. Unbiasd orward ra (UFR Forward xcang ras ar unbiasd prdicors o uur spo xcang ras. Inuiivly is mans a disribuion o possibl acual spo ras in uur is cnrd on orward ra. Unbiasd mans on avrag Posiiv and ngaiv prdicion rrors cancl ou in long run 14

15 Excang ra Forward Ra - an Unbiasd Prdicor or Fuur Spo ra S 2 F 2 S 1 Error Error F 3 F 1 S 3 Error S 4 Tim Inrnaional Pariy Condiions in Equilibrium UFR Expcd cang in spo xcang ra +4% (apprc. IFE Forward discoun/prmium on orign currncy +4% IRP PPP Nominal inrs ra dirnial -4% Expcd inlaion ra dirnial -4% FE 15

16 Fixd xcang ra sysm T xcang ra is s roug ngoiaions wi or naions Can cang roug r-ngoiaion or orcd o cang du o spculaiv aacks T ixd ra is mainaind by aciv inrvnion (buy and sll currncy by cnral banks In ordr or a ixd sysms o old conomic dvlopmn in paricipaing counris mus b similar (.g. inlaion ras Imporan or irms o monior poliical and conomic condiions in paricipaing counris. Sam conomic acors (inlaion-, inrs ra dirnials, conomic grow as in a loaing xcang ra sysm will pu prssur on ixd xcang ra Forcasing Excang Ras Mark-Basd Forcass Forcass can b obaind by using mark xpcaions - a ar givn by currn inrs ras and orward xcang ras T orward ra or 90 days sows spo xcang ra a mark xpcs o prvail in 90 days, i.. E( 1 = 1. Forward ras limid o 1 yar (absnc o longr-rm orward conracs Rlaiv inrs ra dirnials can b usd or longr rm orcass: Forward ra = Spo (1+ inrs ra om / (1+ inrs ra orign Exampl: 5 yar inrs ra Europ: 5 %, USA: 6%, Spo ra: $ 0.9/EUR 5 =0.9*( /( = $ /EUR 16

17 Forcasing Excang Ras Modl-basd orcass Fundamnal Analysis Basd on analysis o macroconomic variabls (rlaiv inlaion, inrs ras, naional incom grow, cangs in mony supply c. a ar likly o inlunc currncy Basd on orical rlaionsips as PPP c. Exampl: Expcd inlaion ra annually USA: 4 %, Sou Arica: 9 %, Spo ra: $ 0.008/RAND PPP: 2 = 0 * (1+i US 2 / (1+i SA 2 2 = 0.008*( / ( = $ /RAND (dprciaion o RAND, apprciaion o $ Economric modls may b usd Common orcasing approac paricular or longr orcasing orizons Forcasing Excang Ras Modl-basd orcass Tcnical analysis Tcnical analyss, (cariss, ocus on pric and volum daa o drmin pas rnds a ar xpcd o coninu ino uur. (do no us or conomic variabls T singl mos imporan lmn o cnical analysis is a uur xcang ras ar basd on currn xcang ra In pracic mos commonly usd or sor-rm orcass Excang ra movmns can b subdividd ino dirn priods: Inra daily variaion Day-o-day Sor-rm (svral days o svral mons Long-rm 17

18 Tcnical Analysis SEK/$ Acual ra Dirn mods: To ind rnds, sysmaic parns and urning poins Moving avrags ar commonly usd o dc urning poins Tim Forcasing Excang Ras On imporan qusion concrns orcasing orizon a invsors and companis nd: long rm orcass or capial budging and inancial srucur sor rm orcass or cas managmn, dging and spculaion Drmins coic o orcasing mod 18

19 Forcasing in Pracic Numrous orign xcang orcasing srvics xis, many o wic ar providd by banks and indpndn consulans Som mulinaional irms av ir own inous orcasing capabiliis Prdicions can b basd on labora conomric modls, cnical analysis o cars and rnds, inuiion Usually mix o mods: Sor-run: Tcnical analysis Long-run: Fundamnal analysis Survy rom Pric Warous, 1997 Mulinaional corporaions: 78% mak rgular orcass, 16% non-rgular orcass, 4% purcasd orcass, 2% no orcass. 38% orcas only dircion o xcang ra movmn, 31% orcas svral uur das, 2% us probabiliy disribuions. 6.5% considr a prdicion modls ar usul, 45% considr a orcasing is a wak insrumn or xcang risk managmn. 19