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multinational business finance
Questions and Answers of
Multinational Business Finance
Outsourcing and MNEs. How can global outsourcing enable a firm to become a multinational enterprise?
Market Conditions. The decisions of MNEs to move to new markets invariably take advantage of both market imperfections and market efficiencies. Explain.
Why Go. Why do firms become multinational?
Investment Motives of Firms. What is the difference between proactive and defensive investment motives?
Ganado’s Phases. What are the main phases that Ganado passed through as it evolved into a truly global firm?What are the advantages and disadvantages of each?
Financial Globalization. Explain the twin agency problems. How do the twin agency problems limit financial globalization?
Comparing Cheap Dates Around the World. Comparison of prices or costs across different country and currency environments requires translation of the local currency into a single common currency. This
Blundell Biotech. Blundell Biotech is a U.S.-based biotechnology company with operations and earnings in a number of foreign countries. The company’s profits by subsidiary, in local currency (in
Production and Consumption. What is the production and consumption of China and France without trade?They assume that China and France each have 1,000 production units. With one unit of production (a
Specialization. Assume complete specialization, where China produces only toys and France produces only wine. What would be the effect on total production?They assume that China and France each have
Trade at China’s Domestic Price. China’s domestic price is 10 containers of toys equals 7 cases of wine.Assume China produces 10,000 containers of toys and exports 2,000 to France. Assume France
Trade at France’s Domestic Price. France’s domestic price is 2 containers of toys equals 7 cases of wine.Assume China produces 10,000 containers of toys and exports 400 containers to France.
Trade at Negotiated Mid-Price. The mid-price for exchange between France and China can be calculated as follows. What happens to total production and consumption?They assume that China and France
Peng Plasma Pricing. Peng Plasma is a privately held Chinese business. It specializes in the manufacture of plasma cutting torches. Over the past eight years it has held the Chinese renminbi price of
Andreas Delon’s Compensation. Andreas Delon is a French citizen who has been offered the position of CEO of LakePharma, a large French pharmaceuticals firm. LakePharma produces high-quality
EuroVirtual’s Consolidated Earnings. EuroVirtual pays different tax rates for each of its country operations.a. What are its earnings per share in EUR after deducting taxes?b. What is the
EuroVirtual’s EPS Sensitivity to Exchange Rates (A).On January 15, 2015 the Swiss National Bank (SNB)decided to unpeg the franc, which was fixed at CHF1.20/€since 2011. Suppose the SNB was to
EuroVirtual’s EPS Sensitivity to Exchange Rates(B). Assume a major weather crisis hits Switzerland, reducing its agricultural and food industries and subsequently leading to a macroeconomic
EuroVirtual’s EPS and Euro Appreciation/Depreciation. Since its introduction in 2003, the euro has been fluctuating against major global currencies.a. What is the impact of 15% appreciation of all
EuroVirtual’s Global Taxation and Effective Tax Rate.All MNEs attempt to minimize their global tax liabilities.Return to the original set of baseline assumptions and answer the following questions
International Capital Flows: Public and Private. Major multinational organizations (some of which are listed next) attempt to track the relative movements and magnitudes of global capital investment.
There was the short story, and the longer more complex story. Iceland had seen both. And what was the moral of the story? Was the moral that it’s better to be a big fish in a little pond, or was it
The Rules of the Game. Under the gold standard, all national governments promised to follow the “rules of the game.” What did this mean?
Defending a Fixed Exchange Rate. What did it mean under the gold standard to “defend a fixed exchange rate,”and what did this imply about a country’s money supply?
Bretton Woods. What was the foundation of the Bretton Woods international monetary system, and why did it eventually fail?
Technical Float. What specifically does a floating rate of exchange mean? What is the role of government?
Fixed Exchange Rate. Why do many emerging market economies prefer to adopt a fixed exchange rate?
De facto and de jure. What do the terms de facto and de jure mean in reference to the International Monetary Fund’s use of the terms?
Exchange Rates. Why do many developing countries fix their currencies, while emerging economies adopt a crawling peg?
Global Eclectic. What does it mean to say the international monetary system today is a global eclectic?
The Impossible Trinity. With reference to the impossible trinity, what are the possible policy mixes that a nation could have?
Eurozone Central Banks. How does the European Central Bank operate and what is its relationship with the central banks of the various jurisdictions of the Eurozone?
Currency Boards. What is the difference between central banks and currency boards?
Argentine Currency Board. How did the Argentine currency board function from 1991 to January 2002 and why did it collapse?
SDRs. What are the advantages and disadvantages of Special Drawing Rights (SDRs)?
Currency Strength. Is a strong currency good or bad for the domestic economy?
Fixed Exchange Rates in Emerging Market Economies.What are the methods available to an emerging market economy if it elects to adopt a pegged exchange rate system? What is the ideal system if it
The Yuan as a Reserve Currency. What is a reserve currency? Do you believe that the Chinese yuan will reach reserve currency status?
Triffin Dilemma. What is the Triffin Dilemma? How does it apply to the development of the Chinese yuan as a true global currency?
China and the Impossible Trinity. What choices do you believe that China will make in terms of the Impossible Trinity as it continues to develop global trading and use of the Chinese yuan?
Albert’s Trip to Canada. Albert visits Toronto and buys 1.74 Canadian dollars (CAD) for one British pound (GBP). When he returns home to the U.K., he converts CAD1 into GBP0.59. Is the new exchange
Lottery winner. Aisha lives in Melbourne, Australia.She wins €150 in an online lottery on Thursday and wishes to convert the amount into Australian dollars(AUD). If the exchange rate is 0.5988
Gilded Question. In 1923, one ounce of gold costs 380 French francs (FRF). If at the same time one ounce of gold could be purchased in Britain for GBP4.50, what was the exchange rate between the
Brent oil. In 2015 one barrel of Brent oil traded for GBP42.5 and South Africa rands (ZAR) 790. What is the exchange rate between the pound and the rand?How would the exchange rate change if the oil
Toyota Exports to the United Kingdom. Toyota manufactures in Japan most of the vehicles it sells in the United Kingdom. The base platform for the Toyota Tundra truck line is ¥1,650,000. The spot
Online shopping. Tamara lives in Egypt and has placed a bundle of items in her Amazon.co.uk account basket.She has the choice to pay in Egyptian pounds (EGP 1844) or in GBP (151.17). What is the
Israeli Shekel Changes Value. One British Pound(GBP) traded against Israeli Shekels (ILS) 5.82 in 2013, but the exchange rate rose to 6.78 in late 2014.What is the percentage change of the ILS? Has
Hong Kong Dollar and the Chinese Yuan. The Hong Kong dollar has long been pegged to the U.S. dollar at HK$7.80/$. When the Chinese yuan was revalued in July 2005 against the U.S. dollar from
Chinese Yuan Revaluation. Many experts believe that the Chinese currency should not only be revalued against the U.S. dollar as it was in July 2005, but also be revalued by 20% or 30%. What would be
TEXPAK (Pakistan) in the United Kingdom. TEXPAK is a Pakistani-based textile firm that is facing increasing competition from other manufacturers in emerging markets selling in Europe. All garments
Vietnamese Coffee Coyote. Many people were surprised when Vietnam became the second largest coffee producing country in the world in recent years, second only to Brazil. The Vietnamese dong, VND ord,
Chunnel Choices. The Channel Tunnel or “Chunnel”passes underneath the English Channel between Great Britain and France, a land-link between the Continent and the British Isles. One side is
Barcelona Exports. Oriol D’ez Miguel S.R.L., a manufacturer of heavy-duty machine tools near Barcelona, ships an order to a buyer in Jordan. The purchase price is €425,000. Jordan imposes a
International Monetary Fund’s Special Drawing Rights. Use the IMF’s Web site to find the current weights and valuation of the SDR.International Monetary
Malaysian Currency Controls. The institution of currency controls by the Malaysian government in the aftermath of the Asian currency crisis is a classic response by government to unstable currency
Personal Transfers. As anyone who has traveled internationally learns, the exchange rates available to private retail customers are not always as attractive as those accessed by companies. The
Exchange Rate History. Use the Pacific Exchange Rate database and plot capability to track value changes of the British pound, the U.S. dollar, and the Japanese yen against each other over the past
One area within the balance of payments that has received intense interest in the past decade is that of remittances.The term remittance is a bit tricky. According to the International Monetary Fund
Balance of Payments Defined. What is the balance of payments?
BOP Data. When central banks publish data about BOP, what other analytical data do central banks present?
Importance of BOP. Business managers and investors need BOP data to anticipate changes in host-country economic policies that might be driven by BOP events.From the perspective of business managers
Managing BOP Deficits. How does a central bank manage BOP deficits?
Economic Activity. What data can a nation’s BOP provide about a country’s economy?
Balance. If the BOP always “balances,” then how do countries run a BOP deficit or surplus?
Official Reserve Account. Why does the central bank of a nation hold official reserve assets? What are its major components?
Current Account Surpluses. Explain the main causes behind the current account surpluses that Asian emerging economies have maintained during the last two decades.
BOP Accounting Deficits. A deficit in the BOP is not necessarily a bad thing, but must be analyzed in relation to the business cycle and economy. Explain.
Current Account. Is the current account the same as the balance of trade (BOT)? Give debit and credit examples of current account and BOT transactions by a German automobile MNE.
Negative Net International Investment Position. What does a country’s consistent negative net international investment position indicate?
BOP and Foreign Exchange. The Swiss franc was officially unpegged from the euro in January 2015.Explain the reason behind this decision with reference to the Swiss BOP.
Classifying Transactions. Classify each of the following as a transaction reported in a sub-component of the current account or of the capital and financial accounts of the two countries involved:a.
Current Account Deficits. A deficit on the current account increases foreign liabilities. Explain why this is more of a concern to the eurozone than a country like Brazil.
Twin Surpluses. Why are China’s twin surpluses—surpluses in both the current and financial accounts—considered unusual?
Treasury Bonds. After the Global Financial Crisis especially, sovereign and portfolio investors from emerging market economies have purchased significant volumes of European treasury bonds. Discuss
Capital Mobility—Eurozone. Low interest rates should normally lead to capital outflows to other countries and currencies in the search for higher interest rates.Explain why the opposite has
BOP Transactions. Identify the correct BOP account for each of the following transactions:a. A German-based pension fund buys U.S. government 30-year bonds for its investment portfolio.b.
BOP and Inflation. What are the direct and indirect relationships between the balance of payments and inflation?
J-Curve Dynamics. What is the J-Curve adjustment path?
Pass Through. Explain the exchange rate pass through and whether it always holds true.
Restrictions on Capital Mobility. What factors seem to play a role in a government’s choice to restrict capital mobility?
Dutch Disease. Can controls of capital inflow solve the Dutch Disease in resource-rich countries?
Globalization and Capital Mobility. How does capital mobility typically differ between industrialized countries and emerging market countries?
What is Australia’s balance on goods?Use the following balance of payments data for Australia from the IMF to answer this problems. Assumptions (million US$) 2000 Goods, credit (exports) Goods,
What is Australia’s balance on services?Use the following balance of payments data for Australia from the IMF to answer this problems. Assumptions (million US$) 2000 Goods, credit (exports) Goods,
What is Australia’s balance on goods and services?Use the following balance of payments data for Australia from the IMF to answer this problems. Assumptions (million US$) 2000 Goods, credit
What is Australia’s current account balance?Use the following balance of payments data for Australia from the IMF to answer this problems. Assumptions (million US$) 2000 Goods, credit (exports)
What is India’s balance on goods?Use the following balance of payments data for India from the IMF to answer this problems. Assumptions (millions of US$) 2000 2001 2002 2003 2004 2005 2006 2007
What is India’s balance on services?Use the following balance of payments data for India from the IMF to answer this problems. Assumptions (millions of US$) 2000 2001 2002 2003 2004 2005 2006 2007
What is India’s balance on goods and services?Use the following balance of payments data for India from the IMF to answer this problems. Assumptions (millions of US$) 2000 2001 2002 2003 2004 2005
What is India’s balance on goods, services, and income?Use the following balance of payments data for India from the IMF to answer this problems. Assumptions (millions of US$) 2000 2001 2002 2003
What is India’s current account balance?Use the following balance of payments data for India from the IMF to answer this problems. Assumptions (millions of US$) 2000 2001 2002 2003 2004 2005 2006
Is China experiencing a net capital inflow or outflow?Use the following balance of payments data for China (Mainland) from the IMF to answer this problem. Assumptions (million US$) 2000 2001 2002
What is China’s total for Groups A and B?Use the following balance of payments data for China (Mainland) from the IMF to answer this problem. Assumptions (million US$) 2000 2001 2002 2003 2004 2005
What is China’s total for Groups A through C?Use the following balance of payments data for China (Mainland) from the IMF to answer this problem. Assumptions (million US$) 2000 2001 2002 2003 2004
What is China’s total for Groups A through D?Use the following balance of payments data for China (Mainland) from the IMF to answer this problem. Assumptions (million US$) 2000 2001 2002 2003 2004
Does China’s BOP balance?Use the following balance of payments data for China (Mainland) from the IMF to answer this problem. Assumptions (million US$) 2000 2001 2002 2003 2004 2005 2006 2007 2008
Is Russia experiencing a net capital inflow?Use the following balance of payments data for Russia (Russian Federation) from the IMF to answer this problem. Assumptions (million US$) 2000 2001 2002
What is Russia’s total for Groups A and B?Use the following balance of payments data for Russia (Russian Federation) from the IMF to answer this problem. Assumptions (million US$) 2000 2001 2002
What is Russia’s total for Groups A through C?Use the following balance of payments data for Russia (Russian Federation) from the IMF to answer this problem. Assumptions (million US$) 2000 2001
What is Russia’s total for Groups A through D?Use the following balance of payments data for Russia (Russian Federation) from the IMF to answer this problem. Assumptions (million US$) 2000 2001
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