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business
multinational business finance
Questions and Answers of
Multinational Business Finance
Kaili Razor (B). Encouraged by the results in the previous problem’s analysis, corporate management of Supermax wishes to continue to reposition profit in China. It is, however, facing two
Kaili Razor (C). Not to leave any potential tax repositioning opportunities unexplored, Supermax wants to combine the components of Problem 15.6 with a redistribution of overhead costs. If overhead
Global Taxes. Websites like TaxWorld.org provide detailed insights into the conduct of business and the associated tax and accounting requirements of doing business in a variety of
International Taxpayer. The Japanese National Tax Agency (NTA) provides detailed support and document requirements for international tax payers. Use the NTA website to find the legal rules and
Official Government Tax Authorities. Tax laws are constantly changing, and an MNE’s tax planning and management processes must therefore include a continual updating of tax practices by country.
Tax Practices for International Business. Many of the major accounting firms provide online information and advisory services for international business activities as related to tax and accounting
Discover the key elements of an import or export business transaction that define the trade relationship?
Explore how the three key documents in import/export combine to finance both the transaction and to manage its risks?
Describe the variety of government programs to help finance exports?
Examine the major trade financing alternatives?
Evaluate the use of a specialized technique, forfaiting, for medium- to long-term trade financing?
Unaffiliated Buyers. Why might different documentation be used for an export to a non-affiliated foreign buyer who is a new customer, as compared to an export to a non-affiliated foreign buyer to
Affiliated Trade Relationship. Affiliated exporters and importers resort to some types of trade protection.What is the difference between trade protection used by affiliated and non-affiliated
Intra-firm Trade. Why has the volume of intra-firm trade surged in the past two decades? What are the main advantages and disadvantages of intra-firm trade?
Foreign Trade Documents. What are the instruments that reduce risks of foreign trade partners?
International Trade Transaction Risks. What are the two main risks associated with international trade transactions? How can these risks be managed?
Secure Letter of Credit (L/C). What is an L/C? What is the most secure type of L/C for exporters?
Letters of Credit. What is the difference between confirmed and unconfirmed letters of credit?
Documenting an Export of Hard Drives. List the steps involved in the export of computer hard disk drives from Penang, Malaysia, to San José, California, using an unconfirmed letter of credit
Export Credit Insurance. Exporters face substantial non-payment risks from the importing party. One method to mitigate this risk is export credit insurance.What is export credit insurance? What are
Governmental Trade Promotion Measures. As part of an overall export-promotion strategy, various governments have followed measures to enhance their exports and international trade mainly through
Nikken Microsystems (A). Assume Nikken Microsystems has sold Internet servers to Telecom España for €700,000. Payment is due in three months and will be made with a trade acceptance from Telecom
Nikken Microsystems (B). Assume that Nikken Microsystems prefers to receive U.S. dollars rather than euros for the trade transaction described in Problem 16.1. It is considering two alternatives:
Motoguzzie (A). Motoguzzie exports large-engine motorcycles (greater than 700cc) to Australia and invoices its customers in U.S. dollars. Sydney Wholesale Imports has purchased $3,000,000 of
Motoguzzie (B). Assuming the facts in Problem 16.3, Bank of America is now willing to buy Motoguzzie’s bankers’ acceptance for a discount of 6% per annum.What would be Motoguzzie’s annualized
Nakatomi Toyota. Nakatomi Toyota buys its cars from Toyota Motors (U.S.), and sells them to U.S. customers.One of its customers is EcoHire, a car rental firm that buys cars from Nakatomi Toyota at a
Forfaiting at Umaru Oil (Nigeria). Umaru Oil of Nigeria has purchased $1,000,000 of oil drilling equipment from Gunslinger Drilling of Houston, Texas. Umaru Oil must pay for this purchase over the
Sunny Coast Enterprises (A). Sunny Coast Enterprises has sold a combination of films and DVDs to Hong Kong Media Incorporated for US$100,000, with payment due in six months. Sunny Coast Enterprises
Sunny Coast Enterprises (B). Sunny Coast Enterprises has been approached by a factor that offers to purchase the Hong Kong Media Imports receivable at a 16% per annum discount plus a 2% charge for a
Whatchamacallit Sports (A). Whatchamacallit Sports (Whatchamacallit) is considering bidding to sell $100,000 of ski equipment to Phang Family Enterprises of Seoul, South Korea. Payment would be due
Whatchamacallit Sports (B). Whatchamacallit could also buy export credit insurance from FCIA for a 1.5%premium. It finances the $100,000 receivable from Phang from its credit line at 6% per annum
Inca Breweries of Peru. Inca Breweries of Lima, Peru, has received an order for 10,000 cartons of beer from Alicante Importers of Alicante, Spain. The beer will be exported to Spain under the terms
Swishing Shoe Company. Swishing Shoe Company of Durham, North Carolina, has received an order for 50,000 cartons of athletic shoes from Southampton Footware, Ltd., of England, with payment to be in
Going Abroad. Assume that Great Britain charges an import duty of 10% on shoes imported into the United Kingdom. Swishing Shoe Company, in Problem 16.12, discovers that it can manufacture shoes in
Letter of Credit Services. Commercial banks worldwide provide a variety of services to aid in the financing of foreign trade. Contact any of the many major multinational banks (a few are listed
Barclays Letter of Credit Discounting. Barclays provides discounting services for confirmed letters of credit. Use the following website to explore how that process works.Barclays
Demonstrate how key competitive advantages support a strategy to sustain direct foreign investment?
Explore the decision process of the multinational in its choices of markets and structural choices for market entry?
Define and classify the political risks faced by multinational firms when investing abroad?
Examine the financial impacts of political risk on the multinational firm?
Discuss the many different methods employed by multinationals to mitigate political risks?
Evolving into Multinationalism. As a firm evolves from purely domestic into a true multinational enterprise, it must consider (1) its competitive advantages, (2) its production location, (3) the type
Market Imperfections. MNEs strive to take advantage of market imperfections in national markets for products, factors of production, and financial assets.Large international firms are better able to
Competitive Advantage. When firms decide to invest in foreign countries, their decision is based on the competitive advantage of the firm as well as those of the host country. What are some of
Economies of Scale and Scope. It is recognized that economies of scale and scope reduce the average costs of MNEs. Should MNEs avoid excessive expansion to avoid potential diseconomies of scale and
Competitiveness of the Home Market. One method by which MNEs can increase profitability and competitiveness is to operate in competitive home markets.What are the factors that can enhance a home
OLI Paradigm. The OLI paradigm attempts to explain why MNEs choose FDI to alternative modes of foreign market entry. Explain how the financial strategies of MNEs are directly related to the OLI
Financial Links to OLI. Financial strategies are directly related to the OLI Paradigm.a. Explain how proactive financial strategies are related to OLI.b. Explain how reactive financial strategies are
Where to Invest. The decision about where to invest abroad is influenced by behavioral factors.a. Explain the behavioral approach to FDI.b. Explain the international network theory explanation of FDI.
Investing Abroad. What are the factors that lead a firm to expand its investment and production operations into new foreign markets?
Licensing and Management Contracts Versus Producing Abroad. What are the advantages and disadvantages of licensing and management contracts compared to producing abroad?
MNE Entry in a Foreign Market. What is the optimal entry mode into a foreign market for MNEs that require tight control over technological know-how?Explain.
Greenfield Investment Versus Acquisition. What are the advantages and disadvantages of serving a foreign market through a greenfield foreign direct investment compared to an acquisition of a local
Strategic Alliance. What are the main advantages and disadvantages that parties should consider before forming strategic alliances?
Governance Risk. Explain the methods by which MNEs can tackle issues of governance as they expand into new nations.
Host Government Investment Duties. Host governments often engage investment advisers to assist them with investments, investment agreements, and investment insurance. What are advisors’
Common Forms. Define the following types of political risk:a. Adverse regulatory changeb. Breach of contractc. Expropriation
Lawful Expropriation. What criteria have to be met for a government’s seizure of a company’s business to be considered “lawful” by international law?
Political Risks. What are the various micro and macro political risks that MNEs have to assess before deciding to invest in a foreign country?
Blocked Funds. Why do MNEs operate in countries that impose transfer restrictions and how can they manage impending transfer risks?
Emerging Market Cultural Risks. Give examples of the cultural risks specific to emerging markets that MNEs could encounter?
Emerging Market Institutional Risks. It is commonly argued that many cultural risks in emerging market economies can be reduced by institutional development.Do you agree? Explain.
Sovereign Credit Risk. Is sovereign credit risk an example of a micro or macro risk? How can it impact MNEs?
MNEs and Protectionism. Answer the following questions:a. What are the main reasons that emerging economies protect their domestic markets?b. What are some of the arguments against protectionism?c.
Political Risks. Should MNEs worry more about micro, country-specific, or global political risks?
Mitigating Political Risks. Explain whether it is more feasible for MNEs to manage or mitigate micro, country-specific, or global political risks.
Reputation Risk. MNEs are forbidden to engage in unethical transactions by the local anti-bribery, antichild-labor law, and anti-corruption laws of the countries in which they operate as well as
Blocked Funds. Explain the strategies used by an MNE to counter blocked funds.
Global Corruption Report. Transparency International(TI) is considered by many to be the leading non-governmental anticorruption organization in the world today. Recently, it has introduced its own
Sovereign Credit Ratings Criteria. The evaluation of credit risk and all other relevant risks associated with the multitude of borrowers on world debt markets requires a structured approach to
Milken Capital Access Index. The Milken Institute’s Capital Access Index (CAI) is one of the most recent informational indices that aids in the evaluation of how accessible world capital markets
Korea Trade Insurance Corporation. The Korea Trade Insurance Corporation (KSURE) aims to promote international trade and support Korean exports and investments by providing a broad range of insurance
Political Risk and Emerging Markets. Check the World Bank’s political risk insurance blog for current issues and topics in emerging markets.Political Insurance Blog
Where does crowdfunding fit in the capital lifecycle of business development?
Is crowdfunding really all that unique? What does it offer that traditional funding channels and institutions do not?
What is likely to differentiate successes from failures in emerging market crowdfunding programs?
Why would the Chinese government wish the renminbi to become a global currency? What are the costs and benefits of that greater global role?
What are the theoretical requirements in order for a currency to be considered internationalized or global?
At what stage is the Chinese renminbi in its globalization process? What is keeping it from becoming fully globalized?
Where are remittances across borders included within the balance of payments? Are they current or financial account components?
Under what conditions—for example, for which countries currently—are remittances significant contributors to the economy and overall balance of payments?
Why is the cost of remittances the subject of such intense international scrutiny?
What potential do new digital currencies—cryptocurrencies like Bitcoin—have for cross-border remittances?
Why did Volkswagen’s leadership decide to use defeat devices?
Who controls the strategic and operating decisions at VW?
Describe the various stakeholders and their individual interests in VW. Whose interest dominated in the decision to pursue the defeat device strategy?
How did VW react to the discovery of its deceit?Do you think this was the proper crisis management response? What would you recommend that they do differently—next time?
Why does a country like Venezuela impose capital controls?
In the case of Venezuela, what is the difference between the gray market and the black market?
Create a financial analysis of Santiago’s choices. Use it to recommend a solution to his problem.
Why are interest rates so low in the traditional core markets of USD and EUR?
What makes this “emerging market carry trade” so different from traditional forms of uncovered interest arbitrage?
Why are many investors shorting the dollar and the euro?
What were the expectations—and the fears—of the South Korean exporting firms that purchased the KiKos?
What is the responsibility of a bank that is offering and promoting these derivative products to its customers?Does it have some duty to protect their interests? Who do you think was at fault in this
If you were a consultant advising firms on their use of foreign currency derivative products, what lessons would you draw from this case, and how would you communicate that to your clients?
What role is played by legal clauses such as the collective action clause and the pari passu clause in sovereign debt issuances?
What is the difference between a typical hedge fund investing in sovereign debt (even distressed sovereign debt) and the so-called vulture funds?
If you were appointed as a mediator by the court to find a solution, what options or alternatives would you suggest for resolving this crisis?
Do you think a country the size of Iceland—a Lilliputian—is more or less sensitive to the potential impacts of global capital movements?
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