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international financial management

Questions and Answers of International Financial Management

Longer-term currency options are becoming more popular for hedging exchange rate risk. Why do you think some firms decide to hedge by using other techniques instead of purchasing long-term currency
A put option on Australian dollars with a strike price of $.80 is purchased by a speculator for a premium of $.02. If the Australian dollar’s spot rate is$.74 on the expiration date, should the
A call option on Canadian dollars with a strike price of $.60 is purchased by a speculator for a premium of $.06 per unit. Assume there are 50,000 units in this option contract. If the Canadian
Impact of Economy on Exchange Rate The country of Zars has large capital flows with the United States. It has no trade with the United States and will not have trade with the United States in the
Impact of Economy on Exchange Rate The country of Quinland has large capital flows with the United States. It has no trade with the United States and will not have trade with the United States in the
Measuring Exchange Rate Volatility Here are exchange rates for the Japanese yen and British pound at the beginning of each of the last 5 years.Your firm wants to determine which currency is more
Movements in Cross Exchange Rates Last year a dollar was equal to 7 Swedish kronor, and a Polish zloty was equal to $.40. Today, the dollar is equal to 8 Swedish kronor, and a Polish zloty is equal
Impact of Economy on Exchange Rates Assume that inflation is zero in the United States and in Europe and will remain at zero.United States interest rates are presently the same as in Europe. Assume
Assessing Volatility of Exchange Rate Movements Assume you want to determine whether the monthly movements in the Polish zloty against the dollar are more volatile than monthly movements in some
Speculation on Expected Exchange Rates Kurnick Co. expects that the pound will depreciate from $1.70 to $1.68 in one year. It has no money to invest, but it could borrow money to invest. A bank
How Factors Affect Exchange Rates The country of Luta has large capital flows with the United States. It has no trade with the United States and will not have trade with the United States in the
Weighing Factors That Affect Exchange Rates Assume that the level of capital flows between the United States and the country of Zeus is negligible(close to zero) and will continue to be negligible.
Assessing the Euro’s Potential Movements You reside in the United States and are planning to make a 1-year investment in Germany during the next year. Since the investment is denominated in euros,
Relative Importance of Factors Affecting Exchange Rate Risk Assume that the level of capital flows between the United States and the country of Krendo is negligible (close to zero) and will continue
Speculation Diamond Bank expects that the Singapore dollar will depreciate against the U.S. dollar from its spot rate of $.43 to $.42 in 60 days. The following interbank lending and borrowing rates
Speculation Blue Demon Bank expects that the Mexican peso will depreciate against the dollar from its spot rate of $.15 to $.14 in 10 days. The following interbank lending and borrowing rates
Aggregate Effects on Exchange Rates Assume that the United States invests heavily in government and corporate securities of Country K.In addition, residents of Country K invest heavily in the United
Factors Affecting Exchange Rates Mexico tends to have much higher inflation than the United States and also much higher interest rates than the United States. Inflation and interest rates are much
Measuring Effects on Exchange Rates Tarheel Co. plans to determine how changes in U.S. and Mexican real interest rates will affect the value of the U.S. dollar. (See Appendix C for the basics of
Impact of September 11 The terrorist attack son the United States on September 11, 2001, were expected to weaken U.S. economic conditions and reduce U.S. interest rates. How do you think the weaker
Impact of Crises Why do you think most crises in countries (such as the Asian crisis) cause the local currency to weaken abruptly? Is it because of trade or capital flows?
Factors Affecting Exchange Rates If Asian countries experience a decline in economic growth(and experience a decline in inflation and interest rates as a result), how will their currency values
National Income Effects Analysts commonly attribute the appreciation of a currency to expectations that economic conditions will strengthen. Yet, this chapter suggests that when other factors are
Factors Affecting Exchange Rates In the 1990s, Russia was attempting to import more goods but had little to offer other countries in terms of potential exports. In addition, Russia’s inflation rate
Comovements of Exchange Rates Explain why the value of the British pound against the dollar will not always move in tandem with the value of the euro against the dollar.
Trade Deficit Effects on Exchange Rates Every month, the U.S. trade deficit figures are announced. Foreign exchange traders often react to this announcement and even attempt to forecast the figures
Interaction of Exchange Rates Assume that there are substantial capital flows among Canada, the United States, and Japan. If interest rates in Canada decline to a level below the U.S. interest rate,
Factors Affecting Exchange Rates What factors affect the future movements in the value of the euro against the dollar?
Speculative Effects on Exchange Rates Explain why a public forecast by a respected economist about future interest rates could affect the value of the dollar today. Why do some forecasts by
Effects of Real Interest Rates What is the expected relationship between the relative real interest rates of two countries and the exchange rate of their currencies?
Trade Restriction Effects on Exchange Rates Assume that the Japanese government relaxes its controls on imports by Japanese companies. Other things being equal, how should this affect the (a)
Income Effects on Exchange Rates Assume that the U.S. income level rises at a much higher rate than does the Canadian income level. Other things being equal, how should this affect the (a) U.S.
Interest Rate Effects on Exchange Rates Assume U.S. interest rates fall relative to British interest rates. Other things being equal, how should this affect the (a) U.S. demand for British pounds,
Inflation Effects on Exchange Rates Assume that the U.S. inflation rate becomes high relative to Canadian inflation. Other things being equal, how should this affect the (a) U.S. demand for Canadian
Percentage Depreciation Assume the spot rate of the British pound is $1.73. The expected spot rate 1 year from now is assumed to be $1.66. What percentage depreciation does this reflect?
Issuing Stock in Foreign Markets Bloomington Co. is a large U.S.–based MNC with large subsidiaries in Germany. It has issued stock in Germany in order to establish its business. It could have
International Impact of the Credit Crisis Explain how the international integration of financial markets caused the credit crisis to spread across many countries.
How Governance Affects Stock Market Liquidity Identify some of the key factors that can allow for stronger governance and therefore increase participation and trading activity in a stock market.
Transparency and Stock Trading Activity Explain the relationship between transparency of firms and investor participation (or trading activity)among stock markets. Based on this relationship, how can
Direct versus Indirect Exchange Rates Assume that during this semester, the euro appreciated against the dollar. Did the direct exchange rate of the euro increase or decrease?Did the indirect
Explaining Variation in Bid/ask Spreads Go to the currency converter at http://finance.yahoo.com/currency and determine the bid/ask spread for the euro. Then determine the bid/ask spread for a
Pricing ADRs Today, the stock price of Genevo Co. (based in Switzerland) is priced at SF80 per share.The spot rate of the Swiss franc (SF) is $.70. During the next year, you expect that the stock
Interpreting Exchange Rate Quotations Today you notice the following exchange rate quotations:(a) $1 = 3.00 Argentine pesos and(b) 1 Argentine peso = .50 Canadian dollars. You need to purchase
Interest Rates Why do interest rates vary among countries? Why are interest rates normally similar for those European countries that use the euro as their currency? Offer a reason why the government
International Financial Markets Recently, Wal-Mart established two retail outlets in the city of Shanzen, China, which has a population of 3.7 million. These outlets are massive and contain products
Effects of September 11 Why do you think the terrorist attack on the United States was expected to cause a decline in U.S. interest rates? Given the expectations for a decline in U.S. interest rates
Financing with Stock Chapman Co. is a privately owned MNC in the United States that plans to engage in an initial public offering (IPO) of stock so that it can finance its international expansion. At
Foreign Exchange You just came back from Canada, where the Canadian dollar was worth $.70.You still have C$200 from your trip and could exchange them for dollars at the airport, but the airport
Eurocredit Loansa. 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
International Diversification Explain how the Asian crisis would have affected the returns to a U.S. firm investing in the Asian stock markets as a means of international diversification. (See the
Evolution of Floating Rates Briefly describe the historical developments that led to floating exchange rates as of 1973.
International Markets What is the function of the international money markets? Briefly describe the reasons for the development and growth of the European money market. Explain how the international
Loan Rates Explain the process used by banks in the Eurocredit market to determine the rate to charge on loans.
Syndicated Loans Explain how syndicated loans are used in international markets.
Cross Exchange Rate Assume Poland’s currency(the zloty) is worth $.17 and the Japanese yen is worth$.008. What is the cross rate of the zloty with respect to yen? That is, how many yen equal a
Indirect Exchange Rate If the direct exchange rate of the euro is worth $1.25, what is the indirect rate of the euro? That is, what is the value of a dollar in euros?
Euro Explain the foreign exchange situation for countries that use the euro when they engage in international trade among themselves.
Forward Contract The Wolfpack Corp. is a U.S.exporter that invoices its exports to the United Kingdom in British pounds. If it expects that the pound will appreciate against the dollar in the future,
Bid/Ask Spread Compute the bid/ask percent age spread for Mexican peso retail transactions in which the ask rate is $.11 and the bid rate is $.10.
Bid/Ask Spread Utah Bank’s bid price for Canadian dollars is $.7938 and its ask price is $.81.What is the bid/ask percentage spread?
Bank Services List some of the important characteristics of bank foreign exchange services that MNCs should consider.
Exchange Rate Effects on Borrowing Explain how the appreciation of the Japanese yen against the U.S. dollar would affect the return to a U.S. firm that borrowed Japanese yen and used the proceeds for
Exchange Rate Effects on Investing Explain how the appreciation of the Australian dollar against the U.S. dollar would affect the return to a U.S. firm that invested in an Australian money market
Motives for Providing Credit in Foreign Markets Explain why some financial institutions prefer to provide credit in financial markets outside their own country.
Motives for Investing in Foreign Money Markets Explain why an MNC may invest funds in a financial market outside its own country.
China–U.S. Balance of Trade There is an ongoing debate between the United States and China regarding whether the Chinese yuan’s value should be revalued upward. The cost of labor in China is
Impact of Government Policies on Trade Governments of many countries enact policies that can have a major impact on international trade flows.a. Explain how governments might give their local firms a
Exchange Rate Effects on Tradea. Explain why a stronger dollar could enlarge the U.S.balance-of-trade deficit. Explain why a weaker dollar could affect the U.S. balance-of-trade deficit.b. It is
International Investments U.S.–based MNCs commonly invest in foreign securities.a. Assume that the dollar is presently weak and is expected to strengthen over time. How will these expectations
Free Trade There has been considerable momentum to reduce or remove trade barriers in an effort to achieve “free trade.” Yet, one disgruntled executive of an exporting firm stated, “Free trade
Effects of Tariffs Assume a simple world in which the United States exports soft drinks and beer to France and imports wine from France. If the United States imposes large tariffs on the French wine,
Change in International Trade Volume Why do you think international trade volume has increased over time? In general, how are inefficient firms affected by the reduction in trade restrictions among
Demand for Exports A relatively small U.S.balance-of-trade deficit is commonly attributed to a strong demand for U.S. exports. What do you think is the underlying reason for the strong demand for
Exchange Rate Effect on Trade Balance Would the U.S. balance-of-trade deficit be larger or smaller if the dollar depreciates against all currencies, versus depreciating against some currencies but
IMFa. What are some of the major objectives of the IMF?b. How is the IMF involved in international trade?
Government Restrictions How can government restrictions affect international payments among countries?
Inflation Effect on Tradea. How would a relatively high home inflation rate affect the home country’s current account, other things being equal?b. Is a negative current account harmful to a
Balance of Paymentsa. Of what is the current account generally composed?b. Of what is the capital account generally composed?
What long-range plans other than establishment of a subsidiary in Thailand are an option for Blades and may be more suitable for the company?
MNC Cash Flows and Exchange Rate Risk Asheville Co. has a subsidiary in Mexico that develops software for its parent. It rents a large facility in Mexico and hires many people in Mexico to work in
MNC Cash Flows and Exchange Rate Risk Tuscaloosa Co. is a U.S. firm that assembles phones in Argentina and transports the final assembled products to the parent, where they are sold by the parent in
Shareholder Rights of Investors in MNCs MNCs tend to expand more when they can more easily access funds by issuing stock. In some countries, shareholder rights are very limited, and the MNCs have
Exposure of MNCs to Exchange Rate Movements Because of the low labor costs in Thailand, Melnick Co. (based in the United States)recently established a major research and development subsidiary there
Impact of the Credit Crisis on MNC Value Much of the attention to the credit crisis was focused on its adverse effects on financial institutions. Yet, many other types of firms were affected as well.
Exposure of MNCs to Exchange Rate Movements Arlington Co. expects to receive 10 million euros in each of the next 10 years. It will need to obtain 2 million Mexican pesos in each of the next 10
Impact of Uncertainty on MNC Value Minneapolis Co. is a major exporter of products to Canada. Today, an event occurred that has increased the uncertainty surrounding the Canadian dollar’s future
Impact of Exchange Rates on MNC Value Olmsted Co. has small computer chips assembled in Poland and transports the final assembled products to the parent, where they are sold by the parent in the
Uncertainty Surrounding an MNC’s Valuation Carlisle Co. is a U.S. firm that is about to purchase a large company in Switzerland at a purchase price of $20 million. This company produces furniture
Valuation of an MNC Yahoo! has expanded its business by establishing portals in numerous countries, including Argentina, Australia, China, Germany, Ireland, Japan, and the United Kingdom.It has cash
Impact of International Business on Cash Flows and Risk Nantucket Travel Agency specializes in tours for American tourists. Until recently, all of its business was in the United States. It just
Valuation of Wal-Mart’s International Business In addition to all of its stores in the United States, Wal-Mart has 13 stores in Argentina, 302 stores in Brazil, 289 stores in Canada, 73 stores in
Assessing Motives for International Business Fort Worth, Inc., specializes in manufacturing some basic parts for sports utility vehicles (SUVs) that are produced and sold in the United States. Its
Valuation of an MNC Birm Co., based in Alabama, is considering several international opportunities in Europe that could affect the value of its firm. The valuation of its firm is dependent on four
Impact of Eastern European Growth The managers of Loyola Corp. recently had a meeting to discuss new opportunities in Europe as a result of the recent integration among Eastern European
International Joint Venture Anheuser-Busch, the producer of Budweiser and other beers, expanded into Japan by engaging in a joint venture with Kirin Brewery, the largest brewery in Japan. The joint
Impact of September 11 Following the terrorist attack on the United States, the valuations of many MNCs declined by more than 10 percent. Explain why the expected cash flows of MNCs were reduced,
Impact of Political Risk Explain why political risk may discourage international business.
International Business Methods Snyder Golf Co., a U.S. firm that sells high-quality golf clubs in the United States, wants to expand internationally by selling the same golf clubs in Brazil.a.
Methods Used to Conduct International Business Duve, Inc., desires to penetrate a foreign market with either a licensing agreement with a foreign firm or by acquiring a foreign firm. Explain the
Macro versus Micro Topics Review the Table of Contents and indicate whether each of the chapters from Chapter 2 through Chapter 21 has a macro or micro perspective.

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