Multinational Financial Management

FRL 453 Multinational Financial Management Formula Sheet

(X-M) + (CI-CO) +(FI-FO) + FXB = BOP n  E (CF$,t )  V = ∑ t  t =1  (1 + k )  m

E (CF$,t ) = ∑ [ E (CF j ,t ) × E ( ER j ,t )] j =1

 m  [ E (CF j ,t ) × E ( ER j ,t )]  n ∑ j =1  V = ∑  (1 + k ) t t =1     

− S 360 F * * 100 f = S n FC

n

$ / FC1 Cross Exchange Rate = = FC2 / FC1 $ / FC2 Bid $ : FC1 Bid FC2 : FC1 = Ask $ : FC2 Ask $ : FC1 Ask FC2 : FC1 = Bid $ : FC2

Bid / Ask Spread =

%∆S =

Ask - Bid Ask

S t - S t −1 * 100 S t −1

(1 + ρ ) =

(1 + ih ) (1 + i f )

Note: Variable “S” represents direct quotation of exchange rate. The Textbook uses “e” instead of “S”, so “e” and “S” are interchangeable in the equations.

F = S (1 + ρ ) F −S ≅ ih − i f ρ= S

P *S = P $

FC

PI S= PI

FC

$

St +1 (1 + π $ ) = St (1 + π FC ) S −S π −π = S (1 + π ) FC

$

t +1

t

FC

t +1

S -S = i -i (1 + i ) S S

t +1

FC

t

FC

t

F = (1 + i ) (1 + i ) S $

t,t +1

FC

t

S −F F t

i −i = (1 + i ) $

t,t +1

FC

FC

t ,t +1

i −i F −S = S (1 + i ) $

t,t +1

FC

t

FC

t

i = r + Π + rΠ

i$ = r$ + Π$ ; iFC = rFC + ΠFC

E = p

%∆ Q % ∆P

d

C E = E * C $

$

R

N

$

FC

Buyer of Call Option: Profit/Loss = Spot Rate – (Strike Price + Premium) Writer of Call Option: Profit/Loss = Premium –(Spot Rate –Strike Price) Buyer of Put Option: Profit/Loss = Strike Price – (Spot Rate + Premium) Writer of Put Option: Profit/Loss = Premium – (Strike Price – Spot Rate)

RCHp = NCHp - NCp RCHr = NRr - NRHr Delta =

∆Premium ∆Spot Rate

Theta =

∆Premium ∆time

Lambda =

∆Premium ∆volatility

RHO =

∆Premium ∆US Dollar Interest Rate

PHI =

∆Premium ∆Foreign Interest Rate

(Size of Option)*(Premium)*(Spot Rate) = (Cost of Option) Net Exposed Assets = Exposed Assets – Exposed Liabilities

International : Principal * Interest Rate *

British : Principal * Interest Rate *

Swiss : Principal * Interest Rate *

Exact Days 360

Exact Days 365

Average 30 360

    X  Y  1 +  R0, x * 360  * (1 + R x , y ) = 1 +  R0, y * 360        Premium on Call Option using spot rate : C = e -rf T SN (d 1 ) − Ee − rd T N (d 2 )

σ2  S  T ln  +  rd − r f + 2  E  d1 = σ T d 2 = d1 − σ T Premium of Call Option using Forward Rate :

[

]

C = FN(d1 ) − EN (d 2) e rd T 2  F  σ ln  +  E  2 d1 = σ T

 T 

d 2 = d1 − σ T Premium of Put Option : P = [F(N(d1 ) − 1) − F(N(d 2 ) − 1)]e rd T

n

NPV = − IO + ∑ t =1

CFt SVn + t (1 + k ) (1 + k ) n

n  CFt  SVn =  IO − ∑ (1 + k ) n t  t =1 (1 + k )  