Análisis de Aspectos Institucionales

problem

1

increasing Omnigen’s gearing should not have a significant effect on Laceto’s cost of debt, even if the overall gearing increases to 23%.

The cost of debt, using linear interpolation is: At 6% interest 12(1 – 0.3) × 2.673 = 22.45 100 × 0.840 = 84.00 106.45 At 5% interest 12(1 – 0.3) × 2.723 = 22.87 100 × 0.864 = 86.40 109.27 By interpolation: 5% + 0.47 0.47 + 2.35× 1% = 5.17%.

The weighted average cost of capital may be estimated for the full range of expected gearing:

At 18% gearing:

The weighted average cost of capital is 16.4 × 0.82 + 5.17% × 0.18 = 14.38%

At 23% gearing:

The weighted average cost of capital is 16.4 × 0.77 + 5.17% × 0.23 = 13.82%

The estimated WACC does not change dramatically over the possible range in gearing. 14% will be used as the discount rate.

Chapter 25 Foreign exchange

problem

1 There are three basic causes of movements in FX rates: 1. forces of supply and demand;

2. interest rate differentials; 3. inflation rate differentials.

Exchange rates represent the price of one currency in terms of another currency, and the price of currencies responds to the forces of supply and demand in exactly the same way as the price of anything else. Thus if lots of people want to buy the Japanese yen, the yen FX rate appreciates relative to other currencies. If people are selling the US$, then the $ FX rate depreciates. These supply and demand market forces arise out of the needs of international trade (a UK importer receives an invoice in US$ and therefore has to buy $ in order to pay the invoice) and investment (a US company wants to build a factory in Germany and there- fore has to buy euros in order to pay for the investment). However, it is thought that the most important source of supply and demand market forces arises out of speculation.

The second cause of FX movements is interest rate differentials between different countries. This idea is represented by the interest rate parity theorem which states that exchange rates should move to effectively bring about interest rate parity. Thus if the loan interest rate in US$ is 6% and in £ is 10% then IRPT states that the US$ should appreciate against £ by approximately the interest differential of 4%.

The reasoning that lies behind IRPT is that international financial markets are effi- cient and, in such markets, there is no such thing as cheap finance. Thus a UK company C H A P T E R 2 5 F O R E I G N E X C H A N G E 7 7 1

wishing to borrow money might be tempted to borrow $ rather than £. But IRPT holds that what they gain from a more favourable rate of interest they are likely to lose in an adverse movement in exchange rates: over time it would cost more and more in £ terms to pay the 6% $ interest and repay the $ loan.

The third cause of FX movements is inflation rate differentials between countries. This is the purchasing power parity theorem which states that the currency of the country with the lower rate of inflation will appreciate against the currency of the country with the higher rate of inflation by an amount approximately equal to the differ- ence between the two inflation rates.

What lies behind the PPPT is the law of one price which states that the price of a good in one particular currency, times the exchange rate, should equal the price of that same good in another currency. If not, there is an opportunity for arbitrage gain. Therefore as inflation affects the price of the good in each country, the differences in inflation rates cause the exchange rate to move in compensation so as to maintain the law of one price.

problem 2

The two extreme types of exchange rate system are a system of fixed exchange rates and a system of freely floating exchange rates. Between these two extremes are a whole series of semi-fixed/semi-floating type systems.

In a fixed rate system, exchange rates between different currencies are fixed by agree- ment between the countries concerned. Such a system makes importing and exporting much more straightforward as there is no foreign exchange risk. An importer invoiced in the overseas currency knows exactly how much that import deal will cost in his own cur- rency because the exchange rate between the two currencies is fixed and unchanging. Exporters invoicing in the foreign currency would be equally certain about the outcome of that export deal in their own currency.

The problem with fixed exchange rate systems is that they try to deny the forces of supply and demand by attempting to have a fixed price for one currency in terms of another. Such a system, almost by definition, is going to be unstable unless the economic conditions are such – equality of interest and inflation rates and a balance between imports and exports – to enable currency price stability to be maintained.

A freely floating exchange rate system does not try to deny these supply and demand market forces as the exchange rate is allowed to float to wherever these forces push it. Therefore the system is stable in as much as it is a sustainable system, but it has two main problems.

The first is that, in such a system, international trade is not encouraged because importers and exporters are exposed to the risk of adverse movements in exchange rates: foreign exchange risk. The second problem is that the exchange rate plays an important role in the macroeconomic affairs of an economy. As a result, most governments are not willing to allow their currency’s exchange rate to be determined solely by supply and demand market forces (as in a freely floating or ‘clean’ floating system).

Because all of these extremes have both advantages and disadvantages, there are many examples, throughout the world, of semi-fixed exchange rate systems that try to capture the advantages of each extreme whilst avoiding their disadvantages. One such system was the Exchange Rate Mechanism (ERM) of the European Union which was set up in 1979. In such a system the exchange rates between the member country currencies are fixed, but those rates then are allowed to appreciate or depreciate, in response to supply and demand market forces, to a very limited (and specified) extent.

Such a system is designed to encourage international trade between member countries by having (approximately) fixed exchange rates. The problem is that market forces in foreign exchange markets can be enormous. With such potentially large market forces it is very difficult to maintain only a limited movement in exchange rates unless economic

conditions (convergence of interest and inflation rates between member countries) can control them.

In document AVANCES DE ACUICULTURA Y PESCA EN COLOMBIA VOLÚMEN I (página 69-79)