FOREIGN EXCHANGE AND CROSS‐BORDER VALUATION

Thomas J. O'Brien

Journal of Applied Corporate Finance, 2004, vol. 16, issue 2‐3, 147-154

Abstract: Should a corporate financial manager analyze a cross‐border investment proposal from the perspective of the foreign currency or the home currency? The conventional wisdom among economists is that it doesn't matter–the valuation of an asset should be the same in one currency as in another, given the spot FX rate. This assertion implies that it is irrelevant whether we analyze an overseas investment's NPV in the home currency or the foreign currency, as long as we use consistent cross‐border conversions. But what happens if managers' foreign exchange forecasts differ from the efficient markets forecast that is implicit in interest rates? In that case, as this article demonstrates through a series of examples, managers' FX forecasts can affect their investment, hedging, and financing decisions.

Date: 2004
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/j.1745-6622.2004.tb00546.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jacrfn:v:16:y:2004:i:2-3:p:147-154

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1078-1196

Access Statistics for this article

Journal of Applied Corporate Finance is currently edited by Donald H. Chew Jr.

More articles in Journal of Applied Corporate Finance from Morgan Stanley
Bibliographic data for series maintained by Wiley Content Delivery ().