EECS 1520 Lecture 1: EECS 1520 Lecture 1 Notes
21 Jun 2018
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EECS 1520 Lecture 1 Notes
Introduction
Summary of International Effects
Google now receives more than half of its total revenue from outside the United States
as it provides advertising for non-U.S. companies targeted at non-U.S. users.
Consequently, Google’s dollar cash flows are favorably affected when the currencies it
receives appreciate against the dollar over time.
As Facebook attracts more users in Europe, it will attract more demand for advertising
by European firms and therefore will receive more cash flows in euros.
As it sells more ads to firms in other countries, it will receive more cash flows in their
respective currencies.
Its international revenue as a percentage of total revenue has consistently increased
over the last four years and it is now approaching 50 percent.
As Facebook’s international business continues to grow, its estimated dollar cash flows
in any period will necessarily become more sensitive to the exchange rates of these
currencies relative to the dollar.
If the revenue it receives is denominated in currencies that appreciate against the dollar
over time, then its dollar cash flows and valuation will increase.
Conversely, if the revenue it receives is denominated in currencies that depreciate
against the dollar over time, its dollar cash flows and valuation will decrease.
Many MNCs have cash outflows in one or more foreign currencies because they import
supplies or materials from companies in other countries.
When an MNC anticipates future cash outflows in foreign currencies, it is exposed to
exchange rate movements but in the opposite direction.
If those foreign currencies strengthen, then the MNC will require more dollars to obtain
the foreign currencies needed to make its payments.
This dynamic reduces the MNC’s dollar cash flows (on a net basis) overall and so
diminishes its value.
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Document Summary
Google now receives more than half of its total revenue from outside the united states as it provides advertising for non-u. s. companies targeted at non-u. s. users. Consequently, google"s dollar cash flows are favorably affected when the currencies it receives appreciate against the dollar over time. If the revenue it receives is denominated in currencies that appreciate against the dollar over time, then its dollar cash flows and valuation will increase. This dynamic reduces the mnc"s dollar cash flows (on a net basis) overall and so diminishes its value. Google"s dollar cash flows are favorably affected when the currencies it receives appreciate against the dollar over time. As facebook attracts more users in europe, it will attract more demand for advertising by european firms and therefore will receive more cash flows in euros. As it sells more ads to firms in other countries, it will receive more cash flows in their respective currencies.
