FIN 621 Lecture Notes - Lecture 1: North American Free Trade Agreement, Bearer Instrument, Foreign Exchange Risk
1 Mar 2016
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Document Summary
What is special about international finance: foreign exchange risk. Risk that foreign currency profits may evaporate in dollar term due to unanticipated unfavorable exchange rate. Translation of currency (one dollar today may not be worth the same amount in 5 years) usd= 1000 yen, 10 years later, investment grows 10%, but the value of the yen fell (therefore the value of the investment is at a loss: political risk. Regulate movement of goods, capital and people across boarders. China ban canola (genetically improved product: market imperfections (differences in market structures) Legal restrictions on movement of goods, people and money. Does not make sense to play in only one corner of the sandbox . In what currency should we maximize their wealth. Stakeholders include: employees, suppliers, customers (who they are and what currency used) Japanese keiretsu: family of firms to which individual firm belongs. Corporate scandals where managers pursue private interests at expense of shareholders when not closely monitored.
