EECS 1019 Lecture 27: EECS 1019 Lecture 27 Notes
EECS 1019 Lecture 27 Notes
Introduction
That Uses Multiple Currencies
• Assume that Yale Co. will receive cash in 15 different countries at the end of the next
period.
• To estimate the value of Yale Co., the first step is to estimate the amount of cash flows
that it will receive at the end of the period in each currency (such as 2 million euros, 8
million Mexican pesos, etc.).
• Seond, otain a foreast of the urren’s ehange rate for ash flos that ill arrie
at the end of the period for each of the 15 currencies (such as euro forecast ¼ $1.40,
peso forecast ¼ $.12, etc.).
• The existing exchange rate can be used as a forecast for the future exchange rate, but
there are many alternative methods
• Third, multiply the amount of each foreign currency to be received by the forecasted
exchange rate of that currency in order to estimate the dollar cash flows to be received
due to each currency.
• Fourth, add the estimated dollar cash flows for all 15 currencies in order to determine
the total expected dollar cash flows in the period.
• The previous equation captures the four steps just described.
• When applying that equation to this example, m ¼ 15 because there are 15 different
currencies.
Valuation of an MNC’s Cash Flos oer Multiple Periods
• The entire process described in the example for a single period is not adequate for
valuation because most MNCs have multi-period cash flows.
• However, the process can be easily adapted to estimate the total dollar cash flows for all
future periods.
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EECS 1019 Full Course Notes
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