International Finance

International finance case study

Understanding International Finance through an Integrated MNC Case Study

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Case: Edific Engineering Ltd. (India) Edific Engineering Ltd., an Indian multinational company, exports industrial machinery to customers across the USA, Europe, and Asia. As the company expands globally, it encounters various aspects of international business. International finance encompasses a wide range of interconnected concepts that are best understood through a logical sequence of business events […]

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Hedging

Hedging: A Tool to Manage Foreign Currency Risk

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Students, suppose you are working in the treasury department of an MNC. Your company enters into foreign currency transactions every day. We know that forex market is volatile and exchange rate volatility can turn profits into losses overnight. Therefore, your responsibility is not to predict the market, but to protect the company using hedging tools

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Purchasing Power Parity

Understanding Purchasing Power Parity (PPP) in Foreign Exchange Transactions

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Purchasing power parity (PPP) is an economic theory of exchange rate determination. It states that the price levels between two countries should be equal. Example: If markets are efficient and trade is possible, exchange rates should reflect the purchasing power of currencies. This idea leads to the Purchasing Power Parity (PPP) Theory. In simple words:

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Understanding Transaction and Translation Risk Adjustments in Financial Statements

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Translation Exposure: The translation exposure is also called accounting exposure or balance sheet exposure. Translation risk is based on assets, equities, liabilities on the Balance Sheet in foreign currency to domestic currency.  Strictly speaking. There is no actual gain or loss seen here. Transaction Exposure: A firm may have some contractually fixed payments and receipts

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Understanding Operating Risk Adjustments in Financial Statements

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A firm dealing with foreign exchange may be exposed to foreign currency exposures. The exposure is the result of possession of assets and liabilities and transactions denominated ‘in foreign currency. When exchange rate fluctuates, assets, liabilities, revenues, expenses that have been expressed in foreign currency will result in either foreign exchange gain or loss. A

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Financing through the International Debt Market

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International capital markets refer to financial markets that facilitate the buying and selling of financial instruments such as equities, bonds, and derivatives across national borders. There are two main ways that someone accesses the capital markets—either as debt or equity. Companies may raise debt (ECB, Eurobond), equity (ADR, GDR), or hybrid securities (FCCB) depending on

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Arbitrage in business strategy

Arbitrage Learning in Business Strategy

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In theory, a given currency should carry the same price in different locations/markets. However, market inefficiencies resulting from communication difficulties may result in different prices emerging in different locations at the same time. Arbitrage, takes advantage of these inefficiencies to the benefit of a trader. The process of buying goods/currency in one market and selling

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