Overbought Position Overbought means that a bank’s assets and purchases of a particular foreign currency exceed its liabilities and sales of that currency. Oversold Position Oversold means that a bank’s liabilities and sales in a particular foreign currency exceeds the assets and purchases of that currency. In order to avoid risk on account of exchange… Read More »
Interest Rate and Exchange Rate The question of interest rate arises when currencies are borrowed or lent; whereas exchange rates are involved when different currencies are being bought or sold. The exchange rate is subject to more fluctuations than interest rates. Interest rate effect The interest rate is a factor that affects the exchange rate. High… Read More »
What is the difference between Hedging and Speculating? What is hedging? Hedging means avoiding or covering foreign exchange risk. The need of hedging arises because exchange rate fluctuates continuously. Accordingly, individuals, companies, and banks who expect to make or receive payments in foreign currencies at a future date face the risk of going to pay… Read More »
Sensitivity Analysis Today I want to turn to sensitivity analysis. In other words, having set up our DCF and having completed all the inputs, now, let’s push it around a little bit and just see how robust and sensitive our valuation is. So we can make the most informed decision possible. So let’s get started. And we’re going to start with… Read More »
Decision criteria and free cash flow Last time we applied our forecast drivers to our free cash flow formula to forecast free cash flows for our tablet project. Today I want to take those free cash flows and apply our different decision criteria to come up with decisions regarding our project. In particular, we asked, what do we do with… Read More »
Forecasting free cash flows Today, I want to apply the forecast drivers to the free cash flow formula to forecast free cash flows into the future for the tablet project. Today we are going to be talking about forecasting free cash flows. Today I want to apply those forecast drivers to actually forecast dollar cash flow. Dollar free… Read More »
Free Cash Flows Today I want to talk about free cash flows, a critical element in implementing any of those decision rules. Remember, there are two components to NPV. There are Free Cash Flows, and there is a discount rate, because NPV if you recall from last time, is little more than just a discounted stream of cash… Read More »
Components of free cash flow What I want to do in this lecture is talk about forecast drivers, or the assumptions required to forecast each component of the free cash flow formula out into the future. And we are going to do it by way of a specific example. So let’s get started. So imagine we are a company… Read More »
Return on investment – ROI Today I want to talk about return on investment and in particular, what I want to discuss is the strengths and weaknesses of the internal rate of return relative to the net present value rule. So let’s get started. Today we are turning to a new topic, return on investment. But before diving in… Read More »
Term structure of interest rates Last time we talked about interest rates. In particular, we talked about how interest rates are quoted versus how interest rates are used to discount cash flows. We also talked about how to deal with cash flow streams when the cash flows arrived more than once a year or less frequently than once a… Read More »