Chapter 20 - Financial Management and Accounting in the Global Firm Flashcards
Equity Financing
Issuing shares to raise capital from investors and the use of retained earnings
Debt Financing
Borrowing money from banks or other financial intermediaries, or selling corporate bonds to individuals or institutions in order to raise capital
Global Money Market
The collective financial markets where firms and governments raise short-term financing
Global Capital Market
The collective financial markets where firms and governments raise intermediate-term and long-term financing
Global Equity Market
The worldwide market of funds for equity financing - the stock exchanges throughout the world where investors and firms meet to buy and sell shares
Eurodollars
US dollars held in banks outside the United States, including foreign branches of US banks
Eurocurrency
Any currency deposited in a bank outside its country of origin
Bond
A debt instrument that enables the issuer to raise capital by promising to repay the principal along with the interest on a specified date
Global Bond Market
The international marketplace in which bonds are bought and sold, primarily through banks and stockbrokers
Foreign Bond
A bond sold outside the issuer’s country and denominated in the currency of the country in which it is issued
Eurobond
A bond sold outside the issuer’s home country but denominated in its own currency
Intra-Corporate Financing
Funds provided from sources inside the firm (both the headquarters and subsidiaries) such as equity, loans and trade credits
Fronting Loan
A loan between the parent and its subsidiary, channelled through a large bank or other financial intermediary
Multilateral Netting
The strategic reduction of cash transfers within the multinational enterprise family through the elimination of offsetting cash flows
Transaction Exposure
The currency risk that firms face when outstanding accounts receivable or payable are denominated in foreign currencies
Translation Exposure
The currency risk that results when a firm translates financial statements denominated in a foreign currency into the functional currency of the parent firm, as part of consolidating international financial results
Consolidation
The process of combining and integrating the financial results of foreign subsidiaries into the financial statements of the parent firm
Economic Exposure
The currency risk that results from exchange rate fluctuations affecting the pricing of products, the cost of inputs and the value of foreign investments
Spot Rate
The exchange rate applicable to the trading of foreign currencies in which the current rate of exchange is used and delivery is considered immediate
Forward Rate
The exchange rate applicable to the collection or delivery of a foreign currency at some future date
Direct Quote
The number of units of the domestic currency needed to acquire one unit of the foreign currency
Indirect Quote
The number of units of the foreign currency obtained for one unit of domestic currency
Hedgers
Currency traders who seek to minimise the risk of exchange rate fluctuations, often by buying forwards or similar financial instruments
Speculators
Currency traders who seek profits by investing in currencies with the expectation that they will rise in value in the future
Arbitragers
Currency traders who buy and sell the same currency in two or more foreign exchange markets to take advantage of differences in the currency’s exchange rate
Hedging
Using financial instruments and other measures to reduce or eliminate exposure to currency risk
Forward Contract
A financial instrument to buy or sell a currency at an exchange rate that is agreed at the initiation of the contract, for delivery and settlement in the future
Futures Contract
An agreement to buy or sell a currency in exchange for another at a pre-specified price and on a pre-specified date
Currency Option
A contract that gives the purchaser the right, but not the obligation, to buy a certain amount of foreign currency at a set exchange rate within a specified amount of time
Currency Swap
An agreement to exchange one currency for another, according to a specified schedule
Transparency
The degree to which companies regularly reveal substantial information about their financial condition and accounting practices
Current Rate Method
The translation of foreign currency balance sheet and income statements at the current exchange rate - the spot exchange rate that is in effect on the day or for the period for which the statements are prepared
Temporal Method
The translation of foreign currency balance sheet and income statements at an exchange rate that varies with the underlying method of valuation
Tax Haven
A country that is hospitable to business and inward investment because of its low corporate income taxes
