公司財務講義(英文版)課件

CORPORATEFINANCELING-NANOUYANGPROFESSOROFFINANCEINSTITUTEOFCONTEMPORARYFINANCESHANGHAIJIAOTONGUNIVERSITY1CORPORATEFINANCE1ValuingInternationalCashFlowsM

[E(Cj,t)×E(Ej,t)]Nj=1PV=t=1(1+r)tE(Cj,t)=expectedcashflowsdenominatedincurrencyjtobereceivedbyparentinperiodt.E(Ej,t)=expectedexchangerateatwhichcurrencyjcanbeconvertedtoRMBattheendofperiodt.r=weightedaveragecostofcapitalofparent.M=numberofcurrencies.N=numberofperiods.2ValuingInternationalCashFloRegressionModelandExpectation(1)Regression:measurerelationshipsbetweenvariableswhenestablishingpolicies.EXPt=b0+b1×

USDt-1+b2×

GNPt-1+???+ut.EXPt=%changeinChinaexportstotheU.S..b0=aconstant.USD=%changeinthevalueofU.S.dollar.b1=regressioncoefficientmeasuring1%changeinUSDt-1willleadtox%changeinEXPt.GNP=%changeintheU.S.GNP.B2=regressioncoefficientmeasuring1%changeinGNPt-1willleadtox%changeinEXPt.ut=anerrorterm.3RegressionModelandExpectatiRegressionModelandExpectation(2)Ifb0=0.002,b1=0.08,b2=0.36,USD1-1=5%,GNP1-1=-1%,ifinsertthesefiguresintotheregressionmodel,EXP1=3.84%.ItmeansthatoneyearlaterChinaexportstotheU.S.willincrease3.84%.4RegressionModelandExpectatiEquilibriumSpotExchangeRateE(RMB/$1)SE0D

Q0Qof$WhenDfor$=Sof$,Q0=theequilibriumquantityof$,E0=theequilibriumspotexchangerate.5EquilibriumSpotExchangeRatePriceElasticityofDemandandFutureSpotExchangeRateE=(ΔQ/Q)/(ΔP/P).E=priceelasticityofdemand.Q=quantityofgoodsdemanded.P=price.ΔQ=changeinQdemandedforachangeinP(ΔP).IfE>1,totalspendinggoesupwhenPdeclines.Efor$couldhaveanimpactonthefuturespotexchangerateof$andRMB.6PriceElasticityofDemandandBalanceofPaymentsandFutureSpotExchangeRate(1)Credits($inflows)Debits($outflows)a:Exportsofcivilianb:Importsofciviliangoodsgoodsc:Militarysalesd:MilitarypurchaseabroadabroadTradebalance=a+c-(b+d)7BalanceofPaymentsandFutureBalanceofPaymentsandFutureSpotExchangeRate(2)e:Exportsofservicef:Importsofservices(investmentincome(investmentincomeandfeesearned,paidout,Chinaforeigntourismintourismabroad,China,etc.)etc.)g:Netunilateraltransfers(gifts)Currentaccountbalance=a+c+e-(b+d+f+g)8BalanceofPaymentsandFutureBalanceofPaymentsandFutureSpotExchangeRate(3)h:Foreignprivatei:ChinaprivateinvestmentinChinainvestmentabroadj:Foreignofficialk:ChinesegovernmentlendinginChinalendingabroadCapitalaccountbalance=h+j-(i+k)l:NetincreaseinChinaofficialreservesOfficialreservesbalanceNote:Itemhincludesneterrorsandomissions.

9BalanceofPaymentsandFutureBalanceofPaymentsandFutureSpotExchangeRate(4)IfChinahasatradesurplusagainsttheU.S.,thevalueofRMBwillbehigherthanthatof$,spotratewillchange.10BalanceofPaymentsandFutureInflationandFutureSpotExchangeRateE(RMB/$1)S’E1SE0D’DQ1Qof$IfIFinChina>thatintheU.S.,supplyof$willmovefromStoS’becausetheChinesearelikelytodecreasetheirpurchasesofU.S.imports.Meanwhile,demandfor$willmovefromDtoD’becausetheAmericansarelikelytosubstituteChinaimportsforU.S.products.Thus,spotexchangeratewillmovefromE0toE1.11InflationandFutureSpotExchInterestRateandFutureSpotExchangeRateAllotherthingsbeingequal,wheninterestrateinChinaisgreaterthanthatintheU.S.,investorswillswitchfromdollartoRMBtotakeadvantageofthehigherRMBinterestrates.So,demandfor$andsupplyof$willchange,spotexchangeratewillchange.12InterestRateandFutureSpotNationalIncomeandFutureSpotExchangeRateAnincreaseinChinaincomewillleadtomoreChinaimportsfromtheU.S.asChinesepeoplespendsomeofincomeonU.S.products.This,however,wouldcausedemandfor$andsupplyof$tochangeandspotexchangeratetochange.13NationalIncomeandFutureSpoOtherFactorsAffectingFutureSpotExchangeRatePoliticalandeconomicenvironment:ifpoliticalandeconomicenvironmentinChinaisbetterthanthatintheU.S.,thevalueofRMBwillbehigherthanthatof$,spotratewillchange.Investments:ifAmericansinvestinChina,demandfor$andsupplyof$willchange,spotratewillchange.14OtherFactorsAffectingFutureDepreciationVersusAppreciationSupposethatonJuly19,2001,U.S.dollardevaluedby17%againstRMB.IfE0=initialRMBvalueofonedollarandE1=post-devaluationRMBvalueofonedollar,thenweknowthat(E1-E0)/E0=-17%.SolvingforE1intermsofE0yieldsE1=83%×E0.Thus,theappreciationofRMBagainstU.S.dollar=(E0-E1)/E1=(E0-83%×E0)/(83%×E0)=20.48%.15DepreciationVersusAppreciatiReasonsforGovernmentInterventionReduceeconomicexposure–ariskincurredbyexchangeratefluctuations.Adjustimportsandexports.IfRMBappreciates,ChinawilllosecomparativeadvantageinpriceagainsttheU.S.,thusreduceexports.Eliminatetheimpactofexchangeratefluctuationsoninflationathome.16ReasonsforGovernmentInterveApproachtoGovernmentInterventionE(RMB/$1)S’E1SE0D’DQ2Q1Q3Qof$TomaintainE0inthefaceofE1,eithertheAmericangovernmentortheChinesegovernmentorbothmustsell(Q3-Q2)dollarstopurchase[[(Q3-Q2)×E0]RMB,therebyeliminatingthedemandfor(Q3-Q2)dollars,andsimultaneouslyeliminatingtheexcesssupplyof[(Q3–Q2)×E0]RMB.17ApproachtoGovernmentInterveTermstoKeepExistingExchangeRateTerms=internationalreserve/balance-of-paymentsdeficit.18TermstoKeepExistingExchangSpotQuotations(1)Directquotation:RMB/$1.Indirectquotation:$/1RMB.Bidquote:buyquote.Askquote:sellquote.

19SpotQuotations(1)DirectquotSpotQuotations(2)Assumeyouhave10000RMB.AlsoassumetheBankofChina’sbidratefor$1is8.4513RMBanditsaskrateis8.4536RMB.Ifyouconvert10000RMBinto$,youget10000/8.4536=$1182.93.Ifyoureconvertthe$1182.93backtoRMB,yougetonly1182.93×8.4513=9997.30(RMB).Thebid/askspread=10000-9997.30=2.7(RMB).Or,thebid/askspread=(8.4536-8.4513)/8.4536=0.03%.20SpotQuotations(2)AssumeyouForwardQuotationsOutrightrate:actualrate.90-dayforwardbid=8.2142RMB/$1.Swaprate:aforwarddifferential=discountfrom,orapremiumon,spotrate.Ifspotrate=8.1023-30RMB/$1,90-dayforwardrate=26-22,90-dayforwardbidhas8.1026-8.1023=0.0003RMBpremium,90-dayforwardaskhas8.1030-8.1022=0.0008RMBdiscount.21ForwardQuotationsOutrightratForwardRatePremiumorDiscountExchangefor$1RMBFPorFDSpot8.451330-dayforward8.4511-0.03%90-dayforward8.45260.06%180-dayforward8.46180.01%FP=forwardpremium,FD=forwarddiscount.FPorFD=[(forward-spot)/spot]×(360/daysofforward).22ForwardRatePremiumorDiscouForwardRateFluctuationandCashFlowsCashflow$depreciation$appreciationSPSPExportsalesIIorDDDorILocalsalesDDorIIIorDLocalexpensesDDIIImportexpensesIIorDDDorIS=subsidiaryintheU.S..P=parentinChina.I=increase.D=decrease.23ForwardRateFluctuationandCCrossExchangeRateExchangerateofcurrencyAtocurrencyB=exchangerateofRMBtoA/exchangerateofRMBtoB.IftheexchangerateofRMBtoU.S.$=8.2798RMB/$1,theexchangerateofRMBtoHK$=1.0627RMB/HK$1,theexchangerateofU.S.$toKH$=8.2798/1.0627=7.7913(HK$s/U.S.$1).24CrossExchangeRateExchangeraInterestRateParityandFutureSpotRateIRP:r=(1+if)×(1+p)-1.Wherer=rateofreturnfrominterestarbitrage(buyforeigncurrencywithhomecurrency,investitonforeigndeposit,convertinterestbacktohomecurrency).if=interestrateofforeigncurrency.P=forwardpremiumordiscount.Sincer=ih(interestrateofhomecurrency),p=[(1+ih)/(1+if)]-1ih-if.If6-monthsiRMB=5%,6-monthsi$=6%,p-1%.Chineseinvestorswillreceive1%lesswhenselling$6-monthsfromnowthanwhattheypayfor$atspotrate;and,(ih-if)willinfluencethefuturespotrate.25InterestRateParityandFuturPurchasingPowerParityandFutureSpotRatePPP:Pf

×(1+If)×(1+ef)=Ph

×(1+Ih).WherePf=priceindexofforeigncountry.If=inflationrateofforeigncountry.ef=%changeinvalueofforeigncurrency.h=homecountry.SincePh=Pf,ef=[(1+Ih)/(1+If)]-1Ih-If.IfIRMB=5%,I$=3%,e$

2%.$willappreciateby2%.IfIRMB=4%,I$=7%,e$

-3%.$willdepreciateby3%.BasedonthePPP,Sj,t+1=Sj

×[1+(Ih-If)].Sj,t+1=newvalueofspotrateofagivencurrency.Sj=spotrateinequilibrium.Obviously,(Ih-If)couldinfluencethefuturespotrate.26PurchasingPowerParityandFuInternationalFisherEffectandFutureSpotRateIFE:r=(1+if)×(1+ef)-1.Wherer=theeffectivereturnontheforeigndeposit.Sincer=ih,ef=[(1+ih)/(1+if)]-1ih-if.IfoneyeariRMB=11%,oneyeari$=12%,e$

-1%.Thismeansthat$willdepreciateby1%inordertomakei$equalto11%.Thisalsomeansthat(ih-if)willinfluencethefuturespotrate.27InternationalFisherEffectanRegressionandFutureSpotrateVRMB=b0+b1

×INF+b2

×INC+???+.WhereVRMB=quarterly%changeinRMBvalue.INF=quarterly%changeininflationdifferentialbetweenChinaandtheU.S..INC=quarterly%changeinincomegrowthdifferentialbetweenChinaandtheU.S..b1=1%changeinINF,VRMBwillchangebyx%.b2=1%changeinINC,VRMBwillchangebyx%.=anerrorterm.IfrecentINF=4%andINC=2%,ifb0=0.002,b1=0.8andb2=1,VRMB=5.4%.ThismeansthatRMBshouldappreciateby5.4%,otherthingsheldconstant;and,thefuturespotrateshouldbeadjusted.28RegressionandFutureSpotratSensitivityAnalysisandFutureSpotRateERt=b0+b1

×INTt+b2

×INFt-1+???+.WhereERt=%changeinexchangerateovert.INTt=realinterestratedifferentialovert.INFt-1=inflationdifferentialinprevioust.INT1%changeinER1P-3%0.1%+(-0.7)×(-3%)+0.6×1%=2.8%20%-4%0.1%+(-0.7)×(-4%)+0.6×1%=3.5%50%-5%0.1%+(-0.7)×(-5%)+0.6×1%=4.2%30%Hereb0=0.1%,b1=-0.7,b2=0.6,INF1-1ofRMBand$=1%.Oneyearhence,Theweightedaverageappreciationof$=3.6%.This,however,willinfluencethefuturespotrate.29SensitivityAnalysisandFuturMarketExpectationandFutureSpotRateAssumethatthe30-dayforwardrate=$0.12/1RMBandthegeneralexpectationofspeculatorsforthefuturespotratein30days=$0.17/1RMB.Thus,buyingRMB30daysforwardat$0.12/1RMBandsellingthemwhenreceivedin30daysat$0.17/1RMBwillearn$0.05/1RMB.Ifalargenumberofspeculatorsimplementthisstrategy,thesubstantialdemandtobuyRMBforwardwillcausetheforwardrateofRMBand$toincreaseuntilthespeculativedemandstops.30MarketExpectationandFuture

SpeculatingonAnticipatedExchangeRates(1)Assumethatthe30-dayforwardrate=$0.12/1RMBandthegeneralexpectationforthefuturespotratein30days=$0.17/1RMB.Thus,buyingRMB30daysforwardat$0.12/1RMBandsellingthemwhenreceivedin30daysat$0.17/1RMBwillearn$0.05/1RMB.Ifalargenumberofspeculatorsimplementthisstrategy,thesubstantialdemandtobuyRMBforwardwillcausetheforwardrateofRMBand$toincreaseuntilthespeculativedemandstops.31

SpeculatingonAnticipatedExSpeculatingonAnticipatedExchangeRates(2)Assume$willappreciatefrom8.2714RMB/$1to8.3714RMB/$1in30days.Alsoassumeshort-termannualinterestratesininter-bankmarketare:CurrencyLendingrateBorrowingrateRMB6.72%7.20%$6.48%6.96%Youborrow20millionRMBforinstance.Convertthemto20/8.2714=$2.418million.Lendthe$for30days.Youreceive2.418×{1+[6.48%×(30/360)]}=$2.431million.Convertthe$to2.431×8.3714=20.351millionRMB.Youearnaprofitof20.351-20×{1+[7.20%×(30/360)]}=0.231millionRMB.32SpeculatingonAnticipatedExcSpeculatingonAnticipatedExchangeRates(3)Assume$willdepreciatefrom8.2714RMB/$1to8.1714RMB/$1in30days.Alsoassumeshort-termannualinterestratesininter-bankmarketare:CurrencyLendingrateBorrowingrateRMB6.72%7.20%$6.48%6.96%Youborrow$2.418millionforinstance.Convertthemto2.418×8.2714=20millionRMB.LendtheRMBfor30days.Youreceive20×{1+[6.72%×(30/360)]}=20.112millionRMB.ConverttheRMBto20.112/8.1714=$2.461million.Youearnaprofitof2.461-2.418×{1+[6.96%×(30/360)]}}=$0.029millionwhichisequalto0.029×8.1714=0.237millionRMB.33SpeculatingonAnticipatedExcSpeculatingwithCurrencyFuturesCurrencyfutures:acontractentitledaspecifiedamountofaspecifiedcurrencyforastatedpriceonaspecifieddate.If$willappreciate,youpurchaseafuturecontract.Onthesettlementdate,youpurchase$atthespecifiedrateandthensellthemattheappreciatedratetomakeprofit.If$willdepreciate,yousellafuturecontract.Onthesettlementdate,youbuy$atthedepreciatedrateandthensellthematthespecifiedratetomakeprofit.34SpeculatingwithCurrencyFutu

SpeculatingwithCurrencyCallOptionCurrencycalloption:arighttobuyaspecifiedamountofaparticularcurrencyataspecifiedpricewithinagivent.Tospeculate,youcanpurchase$calloptions.Once$appreciates,youexercisecalloptionbypurchasing$atthestrikepriceandthensellthemattheappreciatedratetomakeprofit.Oncethe$depreciates,yougiveupcalloption.35

SpeculatingwithCurrencyCalSpeculatingwithCurrencyPutOptionCurrencyputoption:arighttosellaspecifiedamountofaparticularcurrencyataspecifiedpricewithinagivent.Tospeculate,youcanpurchase$putoptions.Once$appreciates,yougiveupputoption.Once$depreciates,youpurchase$atthedepreciatedrateandthenexerciseputoptionbyselling$atthestrikepricetomakeprofit.36SpeculatingwithCurrencyPutLocationalArbitrageBankABankBBidAskBidAskRMB/$18.26148.27148.27188.2723

Assumeyoustartwith100millionRMB.Ifyoubuy$fromBankAattheaskpriceandthensellthemtoBankBatthebidprice,yougain[(100/8.2714)×8.2718]-100=0.005millionRMB.However,thelawofmarketwouldmakeBankA’saskpriceequaltoBankB’sbidpriceintheend.37LocationalArbitrageTriangularArbitrageQuotedBidQuotedAskRMB/$18.27148.2814RMB/￡112.621212.6312￡/$10.660.66￡/$1*0.76*0.86*￡/$1=(RMB/$1)÷(RMB/￡1)=calculatedcrossexchangerate.￡/$1*=quotedcrossexchangerate.Assumeyoustartwith100millionRMB.Ifyoupurchase100/8.2714=$12.09million,convertthemto12.09×0.76=￡9.19million,andthenexchangethe￡for9.19×12.6212=115.99millionRMB,yougain115.99-100=15.99millionRMB.38TriangularArbitrageCoveredinterestArbitrageAssumeyoustartwith8millionRMB.Alsoassumespotrate=8.2741RMB/$1,90-dayforwardrate=8.2714RMB/$1,90-dayinterestrateonRMB=2%,and90-dayinterestrateon$=4%.Tohaveanarbitrage,youcovertRMBto8/8.2741=$0.967million,deposittheminanAmericanBank,andthensetupaforwardcontracttosellthemsimultaneously.Bythetimethedepositmatures,yougain{[0.967×(1+4%)]×8.2714}-8=0.318millionRMB.39CoveredinterestArbitrageAssuTransactionExposureandInvoicePolicyTransactionexposure:adegreetowhichthevalueoffuturecashtransactionscanbeaffectedbyexchangeratefluctuations.AssumeanAmericanexportersendsgoodsinvoicedin$toaChinesefirm.AlsoassumetheChinesefirmexportsproductsinvoicedin$toothercorporationsintheU.S..The$receivablesfromtheChinesefirm’sexportscanbeusedtopayoffitsfuturepayablesin$.This,therefore,reducestransactionexposure.40TransactionExposureandInvoiTransactionExposureandFutureContractHedgeTohedgeRMBvalueonfuturepayablesin$,buyacontractandlockintheamountofRMB.TohedgeRMBvalueoffuturereceivablesin$,sellacontractandlockintheamountofRMB.41TransactionExposureandFuturTransactionExposureandForwardContractHedgeIfyoupay$in30days,youcanbuyfromabankaforwardcontracttolockinthe30-dayforwardrate.Ifyouexpectreceivablesin$in30days,youcansellaforwardcontracttolockinthe30-dayforwardrate.42TransactionExposureandForwaTransactionExposureandNon-deliverableForwardContractHedgeNon-deliverableForwardContract:aforwardcontractwithoutactualexchangeofcurrencies.Assumeyouwillneed$100millionin90days.

Alsoassumeyoubuy$100milliononJuly1.Ifspotrate=8.2714RMB/$1,RMBposition=100×8.2714=827.14million.IfratebyJuly1=8.3714RMB/$1,RMBposition=100×8.3714=837.14million,youwillreceive837.14-827.14=10millionRMBfromthebank.IfratebyJuly1=8.1714RMB/$1,RMBposition=100×8.1714=817.14million,youwillowethebank827.14-817.14=10millionRMB.Non-deliverableForwardContracthedgesexchangerisk.43TransactionExposureandNon-dTransactionExposureandMoneyMarketHedgeonPayablesTakeamoneymarketpositiontocoverafuturepayablesposition.Ifyoupay$1millionin30days,iftheannualinterestrateof$is5%,youneed1000000/[1+(6%/12)]=$995025tohedgethepayables.And,ifthespotrateis8.2714RMB/$1,youneed995025×8.2714=8230250(RMB)topurchase$995025andinvestthem.Whentheymaturein30days,youwillbeabletocoverthepayablesregardlessofhowexchangeratechangesover30days.44TransactionExposureandMoneyTransactionExposureandMoneyMarketHedgeonReceivablesTakeamoneymarketpositiontocoverafuturereceivablesposition.Ifyoureceive$400000in90days,iftheannualinterestrateof$is8%,youneed400000/[1+(8%/4)]=$392157tohedgethereceivables.And,ifyouborrow$392157andconvertthemintoRMBandinvesttheRMB,thenusereceivablestopayofftheloanin90days,youcannotonlyearnprofitonRMBinvestment,butalsogetridoftransactionexposure.45TransactionExposureandMoneyHedgingPayableswithCurrencyCallOptionAssumeyouwillpay$10000in90days.Alsoassumethereisacalloptionwithanexercisepriceof8.3114RMBfor$1.If,however,premiumpaidoneachcalloption=0.32RMB,spotratein90days=8.2714RMB/$1,youneed(0.32+8.3114)×10000=86314(RMB)tohedge$10000payables.But,youwillnotexercisethecalloptionbecauseyoucanpurchasethe$10000at8.2714RMBfor$1inthespotmarket.46HedgingPayableswithCurrencyHedgingReceivableswithCurrencyPutOptionAssumeyoureceive$60000in90days.Alsoassumethereisaputoptionwithanexercisepriceof$1for8.3114RMB.If,however,premiumoneachputoption=0.24RMB,spotratein90days=8.2714RMB/$1,youwillreceive(8.3114-0.24)×60000=484284(RMB)forhedging$60000receivables.But,youwillexercisetheputoptionbecauseyoucansell$60000at$1for8.3114RMBratherthan$1for8.2714RMB.

47HedgingReceivableswithCurreTransactionExposureandCurrencySwapCurrencyswap:atechniqueforhedginglong-termtransactionexposure.Assumeyoureceive$intheU.S.in5years.Atthesametime,anAmericanispaidRMBinChina.Ifthetwosidesarrangeacurrencyswapallowingforanexchangeof$forRMBin5yearsatsomenegotiatedexchangerate,youcouldlockintheRMBvalue,andtheAmericancouldlockinthe$value.Consideringexchangeratemovements,aswapagreementmayrequireperiodicpaymentsfromonepartytotheother.48TransactionExposureandCurreTransactionExposureandParallel(Back-to-back)Loan$25millionAChineseLoancontractAnAmerican10millionRMB1millionRMBAChineseInterestpaymentAnAmerican$2million10millionRMBAChinesePaymentofprincipalAnAmerican$25millionTwopartieswouldmakenetinterestpaymentataspecifiedexchangerateineachofxyears.

49TransactionExposureandParalTransactionExposureandLeadingandLaggingLeadingandlagging:anadjustmentinthetimingofpaymentordisbursementtoreflectfuturecurrencymovements.IfyoupurchasesuppliesfromtheU.S.,ifRMBwilldepreciateagainst$,youcouldacceleratethetimingofpayment.Similarly,ifRMBwillappreciateagainst$,youcouldstallyourpaymentuntilafterRMBappreciates.50TransactionExposureandLeadiTransactionExposureandCross-hedgingCross-hedging:amethodwhenacurrencycannotbehedged.AssumeyouhavepayablesincurrencyAin90days.AlsoassumehedgingtechniquesarenotpossibleforA.Inthiscase,ifthereisacurrencythatcanbehedgedandispositivelycorrelatedwithA,youcanpurchasea90-dayforwardcontractonthatcurrencyandthenexchangeitforA.SincethetwocurrencieswouldmoveinasimilardirectionagainstRMB,youcanlockintheRMBvalue.51TransactionExposureandCrossTransactionExposureandCurrencyDiversificationIfyouhaveinflowsin$in90days,ifRMBappreciates,youwillbehurt.But,ifyouhaveinflowsinseveralcurrencies,andifthecurrenciesarenothighlypositivelycorrelated,youwillnotbeasdamagingwhenRMBappreciatesbecauselowerpositivecorrelationsornegativecorrelationscanreducethevariabilityoftheRMBvalueofallforeigncurrencyinflows.52TransactionExposureandCurreEconomicexposure(1)Economicexposure:adegreetowhichPVoffuturecashflowscanbeinfluencedbyexchangeratefluctuations.53Economicexposure(1)EconomicEconomicexposure(2)VariablesRMBappreciationSalesinChina

Cheaperforeign

substitutes,ExportsinRMB

NochangeExportsin$

LessRMBconvertedInterestsfrom$investmentLessRMBconvertedImportsinRMBNochangeImportsin$

LessRMBneededInterestson$borrowingLessRMBneededIfPVofRMBinflows<thatofRMBoutflows,RMBappreciationhasanegativeimpactonthefirm.54Economicexposure(2)VariablesManagementofEconomicExposureIf$strengthensconsistentlyoverthelongrun,toeitherincreasesalesintheU.S.orreduceordersofmaterialsfromtheU.S.orreduceloansfromtheU.S.couldincreaseEBT(earningsbeforetaxes)inRMB.55ManagementofEconomicExposurTranslationExposure(1)Theexposureofamultinationalcompany’sconsolidatedfinancialstatementstoexchangeratefluctuations.

56TranslationExposure(1)TheexTranslationExposure(2)$TRRMBSales12WA:8.271499Costofsales8HI:8.371467Grossprofit432Operatingexpenses1WA:8.27148Operatingprofit324Gainontranslation