Questions and Answers of International Financial Management 14th

Bradenton, Inc., has a foreign subsidiary in Asia that commonly obtains short-term financing from local banks. If Asia suddenly experiences an economic crisis, explain why Bradenton may not be able
Homewood Co. commonly finances some of its U.S. expansion by repeatedly borrowing on a short-term basis. Explain how a global credit crisis might limit the firm’s ability to repeatedly borrow
Jacksonville Corp. is a U.S.-based firm that needs $600,000. It has no business in Japan but is considering one-year financing with Japanese yen, because the annual interest rate would be 5 percent
a. Discuss the corporate control of your business. Explain why your business in Mexico is exposed to agency problems.b. How would you attempt to monitor the ongoing operations of the business?c.
a. If you pursue this idea, explain how the factors that affect international trade flows (identified in Chapter 2) could affect the Mexican demand for your DVDs. Which of these factors would likely
Mexican interest rates are normally substantially higher than U.S. interest rates.a. What does this imply about the forward premium or discount of the Mexican peso?b. What does this imply about your
Rollins, Inc., has $3 million in cash available for 1 year. It can earn 3% on a U.S. Treasury bill or 5% on a British Treasury security. The British investment does require conversion of the
Assume that the one‑year U.S. interest rate is 2% and the one‑year Canadian interest rate is 5%. If a U.S. firm invests its funds in Canada, by what percentage will the Canadian dollar have to
What are the advantages and disadvantages to a U.S. corporation that uses currency options on euros rather than a forward contract on euros to hedge its exposure in euros? Explain why an MNC might
a. How can corporations use currency futures?b. How can speculators use currency futures?
1. Explain how the international trade flows should initially adjust in response to the changes in inflation (holding exchange rates constant). Explain how the international capital flows should
1. How can the Sports Exports Company use currency futures contracts to hedge against exchange rate risk? Are there any limitations when using currency futures contracts that would prevent the firm
1. If Blades uses call options to hedge its yen payables, should it use the call option with the exercise price of $0.00756 or the call option with the exercise price of $0.00792? Describe the
Assume that substantial capital flows occur among Canada, the U.S., and Japan. If the interest rates in Canada decline to a level below the U.S. interest rate, and inflationary expectations remain
Assume that the Japanese government relaxes its controls on imports by Japanese companies. Other things being equal, how should this affect the(a) The U.S. demand for Japanese yen(b) The supply of
Given Jim’s expectations, will the Sports Exports Company be favorably or unfavorably affected by the future changes in the value of the pound?
1. How are percentage changes in a currency’s value measured? Illustrate your answer numerically by assuming a change in the Thai baht’s value from a value of $0.022 to $0.026.2. What are the
Given Jim’s expectations, forecast whether the pound will appreciate or depreciate against the dollar over time.
Why do you think the terrorist attacks on the U.S. were expected to cause a decline in U.S. interest rates? Given the expectations for a potential decline in U.S. interest rates and stock prices, how
a. With regard to Eurocredit loans, who are the borrowers?b. Why would a bank desire to participate in syndicated Eurocredit loans?c. What is LIBOR and how is it used in the Eurocredit market?
Explain the process used by banks in the Eurocredit market to determine the rate to charge on loans.
Assume Poland’s currency (the zloty) is worth $.17 and the Japanese yen is worth $.008. What is the cross-exchange rate of the zloty with respect to yen? That is, how many yen equal one
If the direct exchange rate of the euro is $1.25, what is the euro’s indirect exchange rate? That is, what is the value of a dollar in euros?
Explain how the Sports Exports Company is exposed to exchange rate risk and how it could use the forward market to hedge this risk.
Explain how the Sports Exports Company could utilize the spot market to facilitate the exchange of currencies. Be specific.
1. One point of concern for you is the tradeoff between the higher interest rates in Thailand and the delayed conversion of baht into dollars. Explain what this means.2. If the net baht received from
a. What are some of the major objectives of the IMF? b. How is the IMF involved in international trade?
Identify the factors that affect the current account balance between the U.S. and the U.K. Explain how each factor may potentially affect British demand for the footballs produced by the Sports
a. Savanta’s business could be adversely affected because its imports from Ketraz may be prevented by the U.S. government due to violations of child labor laws. Even if the U.S. government does not
1. How could a higher level of inflation in Thailand affect Blades (assuming U.S. inflation remains constant)?2. How could competition from firms in Thailand and from U.S. firms conducting business
a. What are the main components of the current account?b. What are the main components of the financial account?
a. Rochester Co. is a U.S. firm that operates a language institute in France. This institute attracts Americans who want to learn the French language. Rochester Co. charges tuition to the American
Odessa Co., Midland Co., and Roswell Co. are U.S. firms in the same industry and have the same valuation as of yesterday, based on the present value of the future cash flows of each company. Odessa
a. Assume that Bangor Co. (a U.S. firm) knows that it will have cash inflows of $900,000 from domestic operations, cash inflows of 200,000 Swiss francs resulting from exports to Swiss operations, and
If a U.S. recession occurred without any change in interest rates, identify the part of the MNC valuation equation that would likely be most affected. subsidiary there. The wholly owned subsidiary
If a U.S. recession occurred without any change in interest rates, identify the part of the MNC valuation equation that would likely be most affected.
Nantucket Travel Agency specializes in tours for American tourists. Until recently, all its business was in the U.S. It just established a subsidiary in Athens, Greece, which provides tour services
In addition to its stores in the United States, Walmart Stores, Inc. has numerous retail units in Argentina, Brazil, Canada, China, Mexico, and the United Kingdom. Consider that the value of Walmart
Birm Co., based in Alabama, is considering several international opportunities in Europe that could affect the firm’s value. The valuation depends on four factors: (1) expected cash flows in
Snyder Golf Co., a U.S. firm that sells high-quality golf clubs in the U.S., wants to expand internationally by selling the same golf clubs in Brazil. a. Describe the tradeoffs that are involved
Sports Exports Company has no immediate plans to engage in direct foreign investment. However, it might consider other less costly methods of establishing its business in foreign markets. What
a. Do you think that either the acquisition of a foreign firm or licensing will result in greater growth for an MNC? Which alternative is likely to have more risk?b. Describe a scenario in which the
How would Jim Logan decide which foreign markets he would attempt to enter? Should he initially focus on one or many foreign markets?
What long-range plans other than establishing a subsidiary in Thailand are possible for Blades? Would these other options be more suitable for the company?
Does Sports Exports Company have any comparative advantage over potential competitors in foreign countries that could produce and sell footballs there?
Which theories of international business described in this chapter apply to Blades, Inc. in the short run? In the long run?
Why are the agency costs lower for Sports Exports Company than for most MNCs?
What are some of the disadvantages Blades could face as a result of foreign trade in the short run? In the long run?
What are the advantages Blades could gain from importing from and/or exporting to a foreign country such as Thailand?

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