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business
multinational business finance

Questions and Answers of Multinational Business Finance

Statoll, the national oil company of Norway, has acquired debt capital in a variety of foreign currencies (see Exhibit 7.11). After borrowing the capital, however, Statoil swapped its currency
Merck Pharmaceutical is a MNE with an enormous operating exposure problem. Merck does all of its product research and development and manufacturing in the United States. Because of the capital and
Florida-Pure, K.K., the Japanese affiliate of a U.S. beverage company, mixes and bottles citrus drinks for sale in the Japanese domestic market. Florida-Pure K.K.'s Junc 30 balance sheet is:Exchange
Using ficts in this chapter for Instruments du Rhone, assume the exchange rate on January 2. 2002, in Fxhibit 8.4 is \(\$ 0.9918\) /€ rather than \(\$ 1.0000\) / Recalculate Instruments du Rhone's
Exhibits 8.7 and 8.8 in this chapter combine to create the consolidated balance sheet for Jefferson Controls, Inc. Instead of the rates used in the chapter, assume current rates are as reflected in
Cuzco Carpets, S.A., is the Peruvian subsidiary of the U.S. firm, Carolina Fabrics, Inc. Cuzco Carpets manufactures high-quality carpets from llama wool and sells its finished carpets to its U,S.
Multinational business is risky. Explain the difference between macro political risk, micro political risk, country-specific risk, and firm-specific risk.
Before executives can "manage," they must be clear on the goals to be pur- sued, both personal and corporate. The two major philosophies described in the chapter, shareholder wealth maximization and
Universal Principles versus Culturally Determined Norms Explain whether the following financial tasks are actually guided by universal principles or culturally determined norms:a. Calculating the
The U.S. Securities and Exchange Commission has recently reaffirmed the desirability of U.S. firms pursuing a one-share-one-vote policy. On the other hand, many European companies have two types of
It is widely believed that the goal of most large Japanese companies is to maxi- mize corporate wealth in the long run. The survival of the firm is paramount, rather than maximizing shareholder
MNEs undertake foreign direct investment for different reasons. Match the following list of motivations with the list of MNES (counting only the main motive). Motives Market seekers Raw material
The so-called Asian crisis began in Thailand in July 1997. Since then a number of other countries and regions have been affected.a. Explain how and why you think this crisis began.b. How and why did
In your opinion how do you think the euro will compete against the U.S. dol- lar and Japanese yen with respect to its use in denominating the following.a. International trade transactionsb.
The Argentine peso is pegged to the U.S. dollar on a one-to-one basis using a currency board. The Brazilian real floats and in 1999 it depreciated from about R1.2000/$ to above R2.000/$.a. Why do you
Before the Asian currency crisis the Malaysian ringgit (RM) traded at about RM2.5000/S. In the initial months of the crisis the ringgit depreciated to above RM4.000/S. On September 1, 1998, 14 months
Isaac Díez. Isaac Díez Peris lives in Rio de Janeiro.While attending school in Spain he meets Juan Carlos Cordero from Guatemala. Over the summer holiday Isaac decides to visit Juan Carlos in
Victoria Exports. A Canadian exporter, Victoria Exports, will be receiving six payments of €12,000, ranging from now to 12 months in the future. Since the company keeps cash balances in both
Forward Premiums on the Japanese Yen. Use the following spot and forward bid-ask rates for the Japanese yen/U.S. dollar (¥/$) exchange rate from October 1, 2014, to answer the following questions:a.
Credit Suisse Geneva. Andreas Broszio just started as an analyst for Credit Suisse in Geneva, Switzerland.He receives the following quotes for Swiss francs against the dollar for spot, 1 month
Munich to Moscow. On your post-graduation celebratory trip you decide to travel from Munich, Germany, to Moscow, Russia. You leave Munich with 15,000 euros in your wallet. Wanting to exchange all of
Jumping to Japan. After spending a week in London you get an email from your friend in Japan.He can get you a very good deal on a plane ticket and wants you to meet him in Osaka next week to continue
Asian Pacific Crisis. The Asian financial crisis that began in July 1997 wreaked havoc throughout the currency markets of East Asia.a. Which of the following currencies had the largest depreciations
Bloomberg Currency Cross Rates. Use the table at the top of the page from Bloomberg to calculate each of the following:a. Japanese yen per U.S. dollar?b. U.S. dollars per Japanese yen?c. U.S. dollars
Dollar/Euro Forwards. Use the following spot and forward bid-ask rates for the U.S. dollar/euro (US$/€)from December 10, 2010, to answer the following questions:a. What is the mid-rate for each
Swissie Triangular Arbitrage. The following exchange rates are available to you. (You can buy or sell at the stated rates.) Assume you have an initial SF12,000,000.Can you make a profit via
Aussie Dollar Forward. Use the following spot and forward bid-ask rates for the U.S. dollar/Australian dollar (US$ = A$1.00) exchange rate from December 10, 2010, to answer the following questions:a.
Transatlantic Arbitrage. A corporate treasury working out of Vienna with operations in New York simultaneously calls Citibank in New York City and Barclays in London. The banks give the following
Venezuelan Bolivar (A). The Venezuelan government officially floated the Venezuelan bolivar (Bs) in February 2002. Within weeks, its value had moved from the pre-float fix of Bs778/$ to Bs1025/$.a.
Venezuelan Bolivar (B). The Venezuelan political and economic crisis deepened in late 2002 and early 2003.On January 1, 2003, the bolivar was trading at Bs1400/$.By February 1, its value had fallen
Indirect on the Dollar. Calculate the forward premium on the dollar (the dollar is the home currency) if the spot rate is €1.3300/$ and the 3-month forward rate is€1.3400/$.
Direct on the Dollar. Calculate the forward discount on the dollar (the dollar is the home currency) if the spot rate is $1.5800/£ and the 6-month forward rate is$1.5550/£.
Around the Horn (A). Assuming the following quotes, calculate how a market trader at Citibank with$1,000,000 can make an intermarket arbitrage profit. Banks Spot Rates Citibank $1.6194/ National
Around the Horn (B). Assume the following bid-ask quotes and calculate how the market trader can now make an intermarket arbitrage profit. Banks Spot Rates Citibank $1.6192-96/ National Westminster
Around the Horn. Assuming the following quotes, calculate how a market trader at Citibank with$1,000,000 can make an intermarket arbitrage profit. Citibank quotes U.S. $1.5900 = 1.00 dollar per pound
Great Pyramids. Inspired by his recent trip to the Great Pyramids, Citibank trader Ruminder Dhillon wonders if he can make an intermarket arbitrage profit using Libyan dinars (LYD) and Saudi
Bank for International Settlements. The Bank for International Settlements (BIS) publishes a wealth of effective exchange rate indices. Use its database and analyses to determine the degree to which
Bank of Canada Exchange Rate Index (CERI). The Bank of Canada regularly publishes an index of the Canadian dollar’s value, the CERI. The CERI is a multilateral trade-weighted index of the Canadian
Forward Quotes. FXStreet foreign exchange services provides representative forward rates on a multitude of currencies online. Use the following Web site to search out forward exchange rate quotations
Federal Reserve Statistical Release. The United States Federal Reserve provides daily updates of the value of the major currencies traded against the U.S. dollar on its Web site. Use the Fed’s Web
Daily Market Commentary. Many different online currency trading and consulting services provide daily assessments of global currency market activity. Use the following GCI site to find the market’s
Pacific Exchange Rate Service. The Pacific Exchange Rate Service Web site, managed by Professor Werner Antweiler of the University of British Columbia, possesses a wealth of current information on
It’s late afternoon on March 10th, 2004, and Santiago opens the window of his office in Caracas, Venezuela. Immediately he is hit with the sounds rising from the plaza—cars honking, protesters
Definitions. Define the following terms:a. Foreign exchange marketb. Foreign exchange transactionc. Foreign exchange
Functions of the Foreign Exchange Market. What are the three major functions of the foreign exchange market?
Structure of the FX Market. How is the global foreign exchange market structured? Are digital telecommunications replacing people?
Market Participants. For each of the foreign exchange market participants, identify their motive for buying or selling foreign exchange.
Foreign Exchange Transaction. Define each of the following types of foreign exchange transactions:a. Spotb. Outright forwardc. Forward-forward swaps
Swap Transactions. Define and differentiate the different type of swap transactions in the foreign exchange markets.
Nondeliverable Forward. What is a nondeliverable forward and why does it exist?
Foreign Exchange Market Characteristics. With reference to foreign exchange turnover in 2013, rank the following:a. The relative size of spot, forwards, and swapsb. The five most important geographic
Foreign Exchange Rate Quotations. Define and give an example of the following:a. Bid rate quoteb. Ask rate quote
Reciprocals. Suppose that Australia is the home country.Determine whether the following quotes are direct or indirect, and convert indirect (direct) quotes to direct (indirect) quotes:a. Euro:
Geography and the Foreign Exchange Market.Answer the following:a. What is the geographical location of the foreign exchange market?b. What are the two main types of trading systems for foreign
Organization. Explain the change in the foreign exchange market from a two-tier (interbank/wholesale and client/retail) market to a single-tier market.
Cross Rates. Calculate the cross rates for the following currencies:a. Find the cross rate JPY/CAD from the spot rates JPY104.8/USD and CAD1.06/USD.b. Find the cross rate MXN/BRL from the spot rates
Base and Price Currency. Define base currency, unit currency, price currency, and quote currency.
Cross Rates and Intermarket Arbitrage. Why are cross currency rates of special interest when discussing intermarket arbitrage?
Percentage Change in Exchange Rates. Why do percentage change calculations end up being rather confusing on occasion?
The concept of crowdfunding has a number of parallels in traditional Kenyan culture. Harambee is a long-used practice of collective fundraising for an individual obligation like a travel or medical
Globalization Risks for MNEs. Was globalization responsible for the slowdown of MNE business during the financial crisis of 2008?
MNEs and Operation in Global Markets. What are the factors that affect the decisions of multinational enterprises to operate in global markets?
Eurocurrencies and Eurocurrency Markets. What are the major eurocurrencies? What is meant by a eurocurrency market?
Fragility of the Global Financial Marketplace. How has the global financial crisis exposed the fragility of assets and institutions of the global system?
MNEs and LIBOR. Most MNEs either take loans in eurocurrencies or issue eurobonds with a floating coupon rate tied to the LIBOR. Explain how MNEs were affected by the LIBOR scandal.
Post-LIBOR Scandal. Why do you think the UK government has resolved against the total elimination of LIBOR benchmarks after the scandal?
Limitations of Comparative Advantage. Key to understanding most theories is what they say and what they don’t. Name four key limitations to the theory of comparative advantage.
Comparative Advantage in the Twenty-First Century.With reference to the theory of comparative advantage, explain how MNEs outsource some services to emerging market economies.
Ganado’s Globalization. After reading the chapter’s description of Ganado’s globalization process, how would you explain the distinctions between international, multinational, and global
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?

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