1. Mark Grinblatt Sheridan Titman Financial Markets and Corporate Strategy, 2/e McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-1

2. Mark Grinblatt Sheridan Titman Financial Markets and Corporate Strategy, 2/e McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-2 Part VI Risk Management

3. Mark Grinblatt Sheridan Titman Financial Markets and Corporate Strategy, 2/e McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-3 Chapter 21 Risk Management and Corporate Strategy

4. Mark Grinblatt Sheridan Titman Financial Markets and Corporate Strategy, 2/e McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-4 Exhibit 21.1: Microtronics’ Unhedged Value in Four Scenarios* *Assumes the firm is unhedged and that customer confidence is high. Weak yen Strong yen $150 million 200 million $ 95 million 125 million Strong U.S. Economy Weak U.S. Economy

5. Mark Grinblatt Sheridan Titman Financial Markets and Corporate Strategy, 2/e McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-5 Exhibit 21.2: Microtronics’ Hedged Value in four Scenarios Weak yen Strong yen $165 million 185 million $110 million 110 million Strong U.S. Economy Weak U.S. Economy

6. Mark Grinblatt Sheridan Titman Financial Markets and Corporate Strategy, 2/e McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-6 Exhibit 21.3: Distribution of Profits with and without Hedging

7. Mark Grinblatt Sheridan Titman Financial Markets and Corporate Strategy, 2/e McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-7 Exhibit 21.4: Categories of currency Risk

8. Mark Grinblatt Sheridan Titman Financial Markets and Corporate Strategy, 2/e McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-8 Exhibit 21.5: Real and Nominal Exchange Rates in Five Countries* (Part 1 of 3) *Based on authors’ calculations using data from the International Financial Statistics (IFS) database. 1990 1995 2000 Year Rupiah (per dollar) Exchange Rate Indonesia CPIU.S. CPI Real Exchange Rate 1990 Rupiah/1990 Dollar Indonesia Consumer Price Indexes 1,901.00 2,308.00 9,675.00 65.00 100.00 222.00 85.76 100.00 112.99 2,508.18 2,308.00 4,924.32 1990 1995 2000 Year Yen Exchange Rate Japan CPIU.S. CPI Real Exchange Rate 1990 Yen/1990 Dollar Japan Consumer Price Indexes 134.40 102.83 109.50 93.00 100.00 101.00 85.76 100.00 112.99 123.94 102.83 122.50

9. Mark Grinblatt Sheridan Titman Financial Markets and Corporate Strategy, 2/e McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-9 Exhibit 21.5: Real and Nominal Exchange Rates in Five Countries* (Part 2 of 3) *Based on authors’ calculations using data from the International Financial Statistics (IFS) database. 1990 1995 2000 Year Peseta(per dollar) Exchange Rate Spain CPIU.S. CPI Real Exchange Rate 1990 Peseta/1990 Dollar Spain Consumer Price Indexes 96.91 121.41 190.16 78.00 100.00 114.00 85.76 100.00 112.99 106.55 121.41 188.47 1990 1995 2000 Year Baht Exchange Rate Thailand CPIU.S. CPI Real Exchange Rate 1990 Baht/1990 Dollar Thailand Consumer Price Indexes 25.29 25.19 43.20 79.00 100.00 123.00 85.76 100.00 112.99 27.45 25.19 39.69

10. Mark Grinblatt Sheridan Titman Financial Markets and Corporate Strategy, 2/e McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-10 Exhibit 21.5: Real and Nominal Exchange Rates in Five Countries* (Part 3 of 3) *Based on authors’ calculations using data from the International Financial Statistics (IFS) database. 1990 1995 2000 Year Lira (per dollar) Exchange Rate Turkey CPIU.S. CPI Real Exchange Rate 1990 Lira/1990 Dollar Turkey Consumer Price Indexes 2,930.00 59,650.00 684,684.00 5.00 100.00 1,583.00 85.76 100.00 112.99 50,256.04 59,650.00 48,871.70