International Finance
International Finance

Author: Maurice D. Levi

Publisher: McGraw-Hill Companies

Published: 1990

Total Pages: 582

ISBN-13:

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This new edition has made greater use of appendices and asterisks in an effort to clarify certain parts of the text. There is new material on curves, countertrade, forfeiting currency options, theories of exchange rates and international asset pricing.

The International Diversification Puzzle when Goods Prices Are Sticky
The International Diversification Puzzle when Goods Prices Are Sticky

Author: Mr.Charles Engel

Publisher: International Monetary Fund

Published: 2009-01-01

Total Pages: 49

ISBN-13: 1451871597

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This paper develops a two-country monetary DSGE model in which households choose a portfolio of home and foreign equities, and a forward position in foreign exchange. Some nominal goods prices are sticky. Trade in these assets achieves the same allocations as trade in a complete set of nominal state-contingent claims in our linearized model. When there is a high degree of price stickiness, we show that not much equity diversification is required to replicate the complete-markets equilibrium when agents are able to hedge foreign exchange risk sufficiently. Moreover, temporarily sticky nominal goods prices can have large effects on equity portfolios even when dividend processes are very persistent.

Foreign Direct Investment
Foreign Direct Investment

Author: International Monetary Fund

Publisher: International Monetary Fund

Published: 1990-07-01

Total Pages: 32

ISBN-13: 1451963513

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This paper summarizes the theory and empirical evidence on the determinants of foreign direct investment. These determinants include expected relative rates of return, risk diversification, market size, technological advantage, market failure, oligopolistic rivalry, liquidity, currency strength, political instability, tax policy, and government regulations. While most explanations of foreign direct investment receive some empirical support, there is not sufficient favorable evidence on any one of them to merit rejection of all the others.

Multinationals and the Gains from International Diversification
Multinationals and the Gains from International Diversification

Author: Patrick F. Rowland

Publisher:

Published: 1998

Total Pages: 74

ISBN-13:

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One possible explanation for home bias is that investors may obtain indirect international diversification benefits by investing in multinational firms rather than by investing directly in foreign markets. This paper employs mean-variance spanning tests to examine the diversification potential of multinational firms and foreign market indices for investors domiciled in Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. We find that in most countries and most time periods, the portfolio of domestic stocks spans the risk and return opportunities of a portfolio that includes domestic and multinational stocks. However, there is weak evidence that U.S. multinationals provided global diversification benefits in the full 1984-92 sample and in the post-1987 subsample. We also find that the addition of foreign market indices to a domestic portfolio - inclusive of multinationals - provides diversification benefits. The economic importance of the shift of the portfolio frontier - measured as the utility gain from diversification - varies considerably from market to market and often reflects the benefits of large short positions in certain markets.

'Corporate International Diversification, Exchange Rate Exposure, and Firm Value' An Analysis on United Kingdom Multinationals
'Corporate International Diversification, Exchange Rate Exposure, and Firm Value' An Analysis on United Kingdom Multinationals

Author: Md Bhuiya

Publisher:

Published: 2015

Total Pages: 22

ISBN-13:

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It is widely believed that exchange rate exposure can affect the value of the multinationals. More specifically, an increase in home currency value decreases multinationals value by decreasing foreign currency dominated cash flows and assets, and vice-versa. However, empirical results found on this issue are contradictory. This paper is investigating this contradictory issue by analyzing performance of 103 UK based multinationals from FTSE-250 from the time period of January 2005 to July 2010. This paper is considering stock return as an indicator of firm value and using two factor regression model proposed by Jorion (1990). After analyzing 103 UK based multinationals, this paper has not found any significant relationship between pound sterling value and UK multinationals value. Regression analysis on 103 UK multinationals has shown that approximately 85% UK multinationals do not have any significant relationship between pound sterling fluctuation and firm value. Only approximately 6% multinationals with significant t-value and negative beta coefficient accept the theory that depreciation in pound sterling value increases firms' value. Around 9% multinationals with significant t-value and positive beta coefficient for exchange rate contradict with the theory.