Finance Chapter ten

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What is Capital (long-term financing)?

Money used to conduct global business.
What forms of long-term financing are available to MNC’s?
- Debt-Bank (syndicated) loans, Bonds, Equity- venture
- capital, IPOs.
What is meant by integrated capital markets?

Two markets that effectively operate as one entity with investors in those markets facing-and- pricing risks unique to each market. Investors optimize their portfolios ( that is, increase returns and lower risks). Opportunity to reenter growth phase.
What are segmented markets?

Capital investment of firms of in one country is limited by the savings provided by that country’s consumers.
How can lack of integration in capital markets potentially be used to reduce the cost of capital?

Because the firm is reducing its risk
What are currency swaps?

An MNC exchanges interest payments in one currency for interest payments in another.
An MNC exchanges interest payments in one currency for interest payments in another.
- It allows an MNC to pay a fixed rate f interest in one currency and receive a fixed rate of interest (different) in another currency. Purpose is to reduce risk and save
- money.
Know how to compute the following
- Percentage change in currency value through time
- Comparative cost of debt in home v. effective cost of foreign currency using nominal cost of capital and
- expected currency appreciation/depreciation