公司财务讲义(英文版)

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1、CORPORATE FINANCELING-NAN OUYANGPROFESSOR OF FINANCEINSTITUTE OF CONTEMPORARY FINANCESHANGHAI JIAO TONG UNIVERSITY 1Valuing 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 excha

2、nge 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.2Regression Model and Expectation(1)nRegression:measure relationships between variables when establishing policies.nEXPt=b0+b1 USDt-1+b2

3、 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 EX

4、Pt.ut=an error term.3Regression 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%.4Equilibrium Spot Exchange Raten E(RMB/$1)S E0 D Q0 Q of$nW

5、hen D for$=S of$,Q0=the equilibrium quantity of$,E0=the equilibrium spot exchange rate.5Price 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.6Balance 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)7Balance 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)8B

8、alance 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 balancenN

9、ote:Item h includes net errors and omissions.9Balance 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.10Inflation and Future Spot Exchange RatenE(RMB/$1)S E1 S E0 D D Q1 Q of$nIf IF in Chin

10、a 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 E1.11Inte

11、rest 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.12Natio

12、nal 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.13Other Factors Affecting Future Spot

13、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.14D

14、epreciation 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 against

15、 U.S.dollar=(E0-E1)/E1=(E0-83%E0)/(83%E0)=20.48%.15Reasons 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.nEliminate

16、the impact of exchange rate fluctuations on inflation at home.16Approach 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 elimin

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

18、:sell quote.19Spot 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 bid

19、/ask spread=10000-9997.30=2.7(RMB).Or,the bid/ask spread=(8.4536-8.4513)/8.4536=0.03%.20Forward 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-da

20、y forward bid has 8.1026-8.1023=0.0003 RMB premium,90-day forward ask has 8.1030-8.1022=0.0008 RMB discount.21Forward 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 dis

21、count.FP or FD=(forward-spot)/spot (360/days of forward).22Forward 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 Chi

22、na.I=increase.D=decrease.23Cross 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$=8.2798/1.0627=7.7913(HK$s/

23、U.S.$1).24Interest 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.nSinc

24、e 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.25Purchasing Power Parity and Future Spot R

25、atenPPP: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%.nBas

26、ed 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.26International Fisher Effect and Future Spot RatenIFE:r=(1+if)(1+ef)-1.Where r=the effective return on the foreign deposit.nSince r=i

27、h,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.27Regression and Future Spot ratenVRMB=b0+b1 INF+b2 INC+.Where VRMB=quarterly%change in RMB value

28、.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 and

29、 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.28Sensitivity 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=inf

30、lation 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 f

31、uture spot rate.29Market 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 w

32、ill 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.30Speculating on Anticipated Exchange Rates(1)nAssume that the 30-day forward rate=$0.12/1 RMB

33、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 w

34、ill cause the forward rate of RMB and$to increase until the speculative demand stops.31Speculating on Anticipated Exchange Rates(2)nAssume$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 Borro

35、wing 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.32

36、Speculating 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 them

37、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.33Speculating with Currency Futur

38、esnCurrency 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 de

39、preciate,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.34Speculating with Currency Call OptionnCurrency call option:a right to buy a specified amount of a particular currency at a specified price within a giv

40、en 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.35Speculating with Currency Put OptionnCurrency put option:a right to se

41、ll 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.36L

42、ocational 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 B

43、ank As ask price equal to Bank Bs bid price in the end.37Triangular 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 yo

44、u 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.38Covered interest ArbitragenAssume you start with 8 million RMB.Also assume spot rate=8.2741 RMB/$1,90-day forward rate=8.2714

45、 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=0.318

46、million RMB.39Transaction 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 invoic

47、ed 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$.This,therefore,reduces transaction exposure.40Transaction Exposure and Future Contract HedgenTo hedge RMB value on future payables in$,buy a contract and lock in the

48、amount of RMB.nTo hedge RMB value of future receivables in$,sell a contract and lock in the amount of RMB.41Transaction Exposure and Forward Contract HedgenIf you pay$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,you

49、 can sell a forward contract to lock in the 30-day forward rate.42Transaction 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 on

50、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 82

51、7.14-817.14=10 million RMB.nNon-deliverable Forward Contract hedges exchange risk.43Transaction Exposure and Money Market Hedge on PayablesnTake a money market position to cover a future payables position.nIf you pay$1 million in 30 days,if the annual interest rate of$is 5%,you need 1000000/1+(6%/12

52、)=$995025 to hedge the payables.And,if the spot rate is 8.2714 RMB/$1,you need 995025 8.2714=8230250(RMB)to purchase$995025 and invest them.When they mature in 30 days,you will be able to cover the payables regardless of how exchange rate changes over 30 days.44Transaction Exposure and Money Market

53、Hedge on ReceivablesnTake a money market position to cover a future receivables position.nIf you receive$400000 in 90 days,if the annual interest rate of$is 8%,you need 400000/1+(8%/4)=$392157 to hedge the receivables.And,if you borrow$392157 and convert them into RMB and invest the RMB,then use rec

54、eivables to pay off the loan in 90 days,you can not only earn profit on RMB investment,but also get rid of transaction exposure.45Hedging Payables with Currency Call OptionnAssume you will pay$10000 in 90 days.Also assume there is a call option with an exercise price of 8.3114 RMB for$1.If,however,p

55、remium paid on each call option=0.32 RMB,spot rate in 90 days=8.2714 RMB/$1,you need(0.32+8.3114)10000=86314(RMB)to hedge$10000 payables.But,you will not exercise the call option because you can purchase the$10000 at 8.2714 RMB for$1 in the spot market.46Hedging Receivables with Currency Put Optionn

56、Assume you receive$60000 in 90 days.Also assume there is a put option with an exercise price of$1 for 8.3114 RMB.If,however,premium on each put option=0.24 RMB,spot rate in 90 days=8.2714 RMB/$1,you will receive(8.3114-0.24)60000=484284 (RMB)for hedging$60000 receivables.But,you will exercise the pu

57、t option because you can sell$60000 at$1 for 8.3114 RMB rather than$1 for 8.2714 RMB.47Transaction Exposure and Currency SwapnCurrency swap:a technique for hedging long-term transaction exposure.nAssume you receive$in the U.S.in 5 years.At the same time,an American is paid RMB in China.If the two si

58、des arrange a currency swap allowing for an exchange of$for RMB in 5 years at some negotiated exchange rate,you could lock in the RMB value,and the American could lock in the$value.nConsidering exchange rate movements,a swap agreement may require periodic payments from one party to the other.48Trans

59、action Exposure and Parallel(Back-to-back)Loann$25 million A Chinese Loan contract An American 10 million RMBn 1 million RMB A Chinese Interest payment An American$2 millionn 10 million RMB A Chinese Payment of principal An American$25 millionnTwo parties would make net interest payment at a specifi

60、ed exchange rate in each of x years.49Transaction Exposure and Leading and LaggingnLeading and lagging:an adjustment in the timing of payment or disbursement to reflect future currency movements.nIf you purchase supplies from the U.S.,if RMB will depreciate against$,you could accelerate the timing o

61、f payment.Similarly,if RMB will appreciate against$,you could stall your payment until after RMB appreciates.50Transaction Exposure and Cross-hedgingnCross-hedging:a method when a currency cannot be hedged.nAssume you have payables in currency A in 90 days.Also assume hedging techniques are not poss

62、ible for A.In this case,if there is a currency that can be hedged and is positively correlated with A,you can purchase a 90-day forward contract on that currency and then exchange it for A.Since the two currencies would move in a similar direction against RMB,you can lock in the RMB value.51Transact

63、ion Exposure and Currency DiversificationnIf you have inflows in$in 90 days,if RMB appreciates,you will be hurt.But,if you have inflows in several currencies,and if the currencies are not highly positively correlated,you will not be as damaging when RMB appreciates because lower positive correlation

64、s or negative correlations can reduce the variability of the RMB value of all foreign currency inflows.52Economic exposure(1)nEconomic exposure:a degree to which PV of future cash flows can be influenced by exchange rate fluctuations.53Economic exposure(2)nVariables RMB appreciation nSales in China

65、Cheaper foreign substitutes,nExports in RMB No changenExports in$Less RMB converted nInterests from$investment Less RMB convertednImports in RMB No changenImports in$Less RMB needednInterests on$borrowing Less RMB needednIf PV of RMB inflows that of RMB outflows,RMB appreciation has a negative impac

66、t on the firm.54Management of Economic ExposurenIf$strengthens consistently over the long run,to either increase sales in the U.S.or reduce orders of materials from the U.S.or reduce loans from the U.S.could increase EBT (earnings before taxes)in RMB.55Translation Exposure(1)nThe exposure of a multinational companys consolidated financial statements to exchange rate fluctuations.56Translation Exposure(2)n$TR RMB Sales 12 WA:8.2714 99 Cost of sales 8 HI:8.3714 67 Gross profit 4 32 Operating expen