Journal ArticleDOI
Exchange rate changes, inflation, and the value of the multinational corporation
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In this article, the effects of differing national rates of inflation and exchange rate changes on the profitability and hence the risk of multinational corporations is currently receiving much attention from both the management of these firms and the accounting profession.Abstract:
THE EFFECTS of differing national rates of inflation and exchange rate changes on the profitability and hence the risk of multinational corporations is currently receiving much attention from both the management of these firms and the accounting profession. In addition, the relationships between changes in currency values, both internal and external, and the international investing, trading, production, and marketing decisions of multinational firms are clearly of great interest to the national governments involved. This paper, with the aid of a two-country model, first focuses on the profitability issue. It then characterizes and analyzes an oligopolistic firm's binational profit-maximizing strategy under inflation and devaluation. The latter work draws heavily on Horst's [14] detailed examination of the effects of differing national tax and tariff rates on the profit-maximizing strategy of a firm selling to two national markets simultaneously. The unit of analysis here is the overseas subsidiary of an oligopolistic multinational corporation' which sells its (the subsidiary's) output both locally (country 1) and abroad (country 2). Country 1 is subject to both inflation and devaluation while country 2's price level and exchange rate are assumed to remain constant throughout this paper. Initially, production will be limited to country 1. The effects of relaxing this restriction to permit production in both countries will be analyzed later on. The results arrived at for a devaluation would be reversed for a revaluation. Accounting practice and economic theory are shown to diverge widely in their implications regarding the effects of these exchange rate changes. Most accountants and firms take a "balance sheet" approach in defining their exposure to exchange rate changes. This approach assumes that only financial items on the current balance sheet whose dollar (or some other base currency) value will be adversely affected by a devaluation areread more
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Journal ArticleDOI
The exchange-rate exposure of u.s.multinationals
TL;DR: In this article, the authors examined the exposure of U.S multinationals to foreign currency risk and found that the relationship between stock returns and exchange rates differs systematically across multinationals.
Journal ArticleDOI
Firm Valuation, Earnings Expectations, and the Exchange‐Rate Exposure Effect
Eli Bartov,Gordon M. Bodnar +1 more
TL;DR: In this article, the authors investigate the possibility that this failure is due to mispricing and find no significant correlation between the abnormal returns of their sample firms with international activities and changes in the dollar.
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Exchange Rate Exposure, Hedging, and the Use of Foreign Currency Derivatives
George Allayannis,Eli Ofek +1 more
TL;DR: The authors examined whether firms use foreign currency derivatives for hedging or for speculative purposes, and found that the decision to use derivatives depends on exposure factors (i.e. foreign sales and foreign trade) and on variables largely associated with theories of optimal hedging (e.g., size and R&D expenditures).
Journal ArticleDOI
Exchange rate exposure and industry characteristics: evidence from Canada, Japan, and the USA
TL;DR: This paper examined industry-level exchange rate exposures for Canada, Japan, and the USA and found that the relationship between exposure and industry characteristics is broadly consistent with economic theory, and that the exchange rate is important for explaining industry returns at the economy-wide level.
Journal ArticleDOI
Exchange rate exposure, hedging, and the use of foreign currency derivatives
George Allayannis,Eli Ofek +1 more
TL;DR: The authors examined whether firms use foreign currency derivatives for hedging or for speculative purposes, and found evidence that firms use currency derivatives to reduce the exchange-rate exposure of non-financial firms.
References
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Book
Foundations of Economic Analysis
TL;DR: Recent statistical techniques, including nonlinear programming, have been added to a basic survey of equilibrium systems, comparative statistics, consumer behavior theory, and cost and production theory as discussed by the authors, and they have been used in a variety of applications.
Journal ArticleDOI
The Purchasing-Power Parity Doctrine: A Reappraisal
TL;DR: The purchasing power parity (HIE) doctrine has had its ebbs and flows I over the years as mentioned in this paper and it has also had its critics, among others Taussig after World War J4 and Haberler after WWIJ,5 but it has managed to survive nevertheless.
Book
Multinational Business Finance
TL;DR: In this paper, the International Monetary System (IMSIS) is used as an algebraic primer to International Parity Conditions (IPCC) for the international currency exchange market.
Journal ArticleDOI
The Theory of the Multinational Firm: Optimal Behavior under Different Tariff and Tax Rates
TL;DR: In this paper, the impact of tariff and tax rates on the profit-maximizing strategy of a monopolistic firm selling to two national markets simultaneously is explored, and the authors show how the firm reacts to a given set of tariffs on imports and taxes on profits.
Posted Content
Price competitiveness in export trade among industrial countries
Helen B. Junz,Rudolf R. Rhomberg +1 more
TL;DR: In this article, the revaluation of the German mark initiated a period of greater flexibility in exchange rates, and about one year since a new rate structure was agreed at the Smithsonian conference.