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multinational business finance

Questions and Answers of Multinational Business Finance

Chronos Time Pieces of Boston exports watches to many countries, selling in local currencies to stores and distributors. Chronos prides itself on being financially conservative. At least 70% of each
Wing Sang Jeans Limited of Hong Kong is completing a new assembly plant near Bangkok, Thailand. A final construction payment of TBH28,200,000 is due in six months. (TBH is the code for Thai baht.)
Carla Surz is the director of finance for RadioEdison Manufacturing, a U.S.-based manufacturer of handheld computer systems for inventory management. RadioEdison’s system combines a low-cost active
Aidan—the Ireland based company has concluded another large sale of telecommunications equipment to Regency (UK). Total payment of £3,000,000 is due in 90 days. Terry McDermott has also learned
How do MNEs translate foreign currency into functional currency when consolidating their financial statements?
How can a firm mitigate translation exposure?
How do MNEs hedge against translation exposure and foreign exchangeexposure?
Explain the two dimensionsthat determine the translation methods thata parent company would use for consolidating itsfinancial statements.
What are the factors involvedin the determination of the functional currency of afirm?
What would be the functional currency of a self-sustaining foreign subsidiary and an integrated foreign subsidiary?
How do you evaluate the decision of a multinational company to hedge its foreign currency receivables only when it believes that its domestic currency will strengthen?
What are the various hedging transactions that are available to a multinational company that is seeking to hedge the translation exposure of its foreign subsidiaries? Do you think that the pertinent
What are various risks faced bymultinational companies and their subsidiaries?
Should multinational firms be worried about inflation and hyperinflation in countries where they operate? How can they hedge against inflation?
Multinational companies closely monitor forecasts about interest rates and inflation. How can they profit from such future expectations?
Bangkok Instruments, Ltd., the Thai subsidiary of a U.S. corporation, is a seismic instrument manufacturer. Bangkok Instruments manufactures the instruments primarily for the oil and gas industry
What is the difference between operating exposure and transaction exposure?How is operating exposure measured? Why is it difficult to measure operating exposure?
What are the main similarities between operating exposure and transaction exposure? Which of the two exposures is more relevant for long-term planning?
Explain when exchange rate uncertainty does not expose firms to exchange risk.
Why is static risk insurable while dynamic risk is not insurable?
Economic exposure is highest for MNEs with multiple foreign currency operations.Is economic exposure confined to MNEs or does it involve local firms as well?
Operating or strategic exposure has become a concern of long-term corporate strategy. Which level of management is responsible for mitigating and managing strategic exposure?Explain the various
What are the diversification strategies and financing policies that the management of the firm adopts to mitigate transaction and operating exposure?
Explain how currency switching can offset long-term exposure to a foreign currency.
Explain why suppliers are ready to get into currency risk sharing deals with MNEs. How do such deals impact the financial position of both parties?
Back-to-back loans have caused many of the banking crises in emerging economies in the 1990s. What guarantees can firms obtain in order to use this type of foreign exchange hedge?
Do currency swaps always hedge against foreign exchange exposure? What other precautions are needed for effective hedging?
Richland Crane (U.S.) exports heavy crane equipment to several Chinese dock facilities. Sales are currently 10,000 units per year at the yuan equivalent of USD24,000 each.The Chinese yuan (CNY) has
Aidan Turkey is now competing in a number of international (export) markets, growth markets, in which most of its competitors are foreign. Now how would you expect Aidan Turkey’s operating exposure
Truckee Tec is a privately held battery manufacturer located just outside of Reno, Nevada. The company is one of the leading manufacturers of lithium-ion batteries, specifically for the automobile
Ingrid Niemman, a treasurer at a German company, believes interest rates are going to rise, so she wants to swap her future floating-rate interest payments for fixed rates. Presently, she is paying
During financial crises, short-term interest rates will often change quickly (typically up) as indications that markets are under severe stress. The interest rates shown in the following table are
Frank Stapleton pays £406,000 for a four-bedroom bungalow on the outskirts of Edinburgh, Scotland. He plans to make a 20% down payment but is having trouble deciding whether he wants a 15-year fixed
The Greek government is considering a €150 million loan for a four-year maturity. It will be an amortizing loan, meaning that the interest and principal payments in total, annually, to a constant
Carlos and Wilmsberg Inc. is a rapidly growing import-export firm. It decided to borrow €35,000,000 via a euro-euro floating-rate loan for 4 years. Carlos and Wilmsberg Inc.must decide between two
Delos borrowed €80 million two years ago. The loan agreement, an amortizing loan, was for six years at 8.625 % interest per annum. Delos has successfully completed two years of debt service but now
How do you distinguish between traders and investors?
What is the difference between technical and fundamental analysis?
Can governments dampen capital inflow volatility in emerging nations?
Why and when do central banks intervene in currency markets?
Compare and contrast the currency crises of Russia in 1998 and Argentina in 2002.
Why are most export prices in inflationary nations quoted in terms of stable currencies?
Excessive currency speculation has been named among the factors blamed for the onset of financial crises. Give three examples where rampant speculation has given birth to financial crises. What other
MNEs with multiple foreign subsidiaries depend on currency forecasting to plan future expansion and contraction of their operations. What are the criteria that analysts use to forecast future
The Turkish lira (TRY) weakened, due to an unconventional monetary policy, from TRY11.68 = EUR1.00 to TRY14.41 = EUR1.00 on November 22, 2021. What was the percentage devaluation of the lira?
The value of the Japanese Yen (JPY) was JPY 125.5 to EUR 1.00 on Friday, March 4, 2022. It then plunged in value to JPY136 to EUR1.00 on Monday, March 28, 2022. What was the percentage change in its
As illustrated in the graph below, the Zimbabwe dollar moved from its fixed exchange rate of ZWD 460.52 = EUR1.00 to ZWD 515.49 = EUR1.00 in a span of three months in 2010. After a brief period of
The Canadian dollar’s value against the U.S. dollar has seen some significant changes over recent history. Use the graph of the C$ to US$ exchange rate on the next page for the 30-year period
Conchita Marquez is a famous Mexican entrepreneur with a multi-million-dollar business dealing in copper. In 1994, she decided to take up residence in Switzerland as part of her longterm retirement
Calculate the percentage change in the value of the peso for the three different cross-rates shown in the table for the six dates. Did the peso fall further against the U.S. dollar or the Swiss
BP (the United Kingdom) and Mexicana Oil (Mexico) severed a long-term joint venture in 1993, with Mexicana buying out BP with $75 billion in cash and a 30% interest (equity interest) in Mexicana
What are the current spot exchange rates for the following cross rates?a. Japanese yen to U.S. dollar exchange rateb. Japanese yen to Australian dollar exchange ratec. Australian dollar to U.S.
Assuming purchasing power parity, and assuming that the forecasted change in consumer prices is a good proxy of predicted inflation, forecast the following cross rates:a. Japanese yen to U.S. dollar
Assuming International Fisher—one version of purchasing power parity—applies to the coming year, forecast the following future spot exchange rates using the government bond rates for the
If the nominal interest rate is the government bond rate, and the current change in consumer prices is used as expected inflation, calculate the implied “real” rates of interest by currency.a.
Using the spot rates and three month interest rates in the table, calculate the 90-day forward rates for:a. Japanese yen to U.S. dollar exchange rateb. Japanese yen to Australian dollar exchange
Calculate the country’s Misery Index (unemployment + inflation) and then use it like an interest differential to forecast the future spot exchange rate, one year into the future.a. Japanese yen to
The Japanese yen–euro cross rate is one of the more significant currency values for global trade and commerce. The following graph shows this cross rate from when the euro was launched in January
Explain how a Singaporean corporation could hedge a receivable in British pounds using a forward contract. What is the cost of such a forward market hedge?
The international weighted average cost of capital Consider the data below of a European IBM subsidiary (in euros; percent per annum). The borrowing rates represent those of the subsidiary in terms
Transfer pricing Consider Figure 5.14, which indicates the marginal costs of production of an intermediate good as well as the marginal cost of marketing the final good. The intermediategood and the
Foreign currency conversion of free-cash flows Consider the data below on the United States and the UK (percent per annum). Assume the required real rates of return are the same.a If the WACC in US
Trade finance (I) You intend to export 100 computers worth $2,000 each from Miami, Florida to Cochabamba, Bolivia. This is the first shipment to a new client, and naturally you hope to be paid in USD
Trade finance (II) You have received a confirmed standby L/C indicating that Citibank, Nassau will pay you $1,000,000 (one million Bahamian dollars) every 30 days for one year beginning in 30 days.a
International taxation (I) a The headquarters of your computer company is located in Texas, but you have a branch for assembly and re-export to Europe that is located in Ireland, where the corporate
International taxation (II) As Treasurer of US Exports Inc., you have set up an FSC in the Bahamas for the export to Europe of your US manufactures, and are applying arm’s length pricing of your
Mergers and acquisitions Consider the data below, which indicate the NPV of Firms A and B:a What is the current value of the shares of each firm?b If Firm A acquires Firm B, and the value of the
An international business plan Consider whether or not to acquire a subsidiary that has the cash flow shown below in euros. There is no terminal value. You are given the basic data and the WACC in
Offshore banking You are the head of new accounts in Citybank, New York, when one afternoon Raúl, the brother of the former President of Mexico, appears in your office with your bank’s external
Optimal portfolio analysis Consider the following utility function of an investor:where E(rc ) is the expected rate of return on her complete portfolio (composed of a risky asset and a risk-free
Optimal investment analysis Consider the following data on a complete portfolio composed of 50 percent (that is, z 0.50) risky assets with p 2 0.4 and E(rP) 0.20. The complete portfolio thus
2.1 The Rules of the Game. Under the gold standard, all national governments promised to follow the "rules of the game." What did this mean?
2.2 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?
2.3 Bretton Woods. What was the foundation of the Bretton Woods international monetary system, and why did it eventually fail?
2.4 Technical Float. Speaking very specifically- technically, what does a floating rate of exchange mean? What is the role of government?
2.5 Fixed Exchange Rate. Why do many emerging mar- ket economies prefer to adopt a fixed exchange rate?
2.6 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?
2.7 Exchange Rates. Why do many developing countries fix their currencies while emerging economies adopt a crawling peg?
2.8 Global Eclectic. What does it mean to say the inter- national monetary system today is a global eclectic?
2.9 The Impossible Trinity. With reference to the impos- sible trinity, what are the possible policy mixes that a nation could have?
2.10 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?
2.11 Currency Boards. What is the difference between cen- tral banks and currency boards?
2.12 Argentine Currency Board. How did the Argentine currency board function from 1991 to January 2002, and why did it collapse?
2.13 SDRs. What are the advantages and disadvantages of Special Drawing Rights (SDRs)?
2.14 Currency Strength. Is a strong currency good or bad for the domestic economy?
2.15 Fixed Exchange Rates in Emerging Market Econo- mies. What are the methods available to an emerg- ing market economy if it elects to adopt a pegged exchange rate system? What is the ideal system
2.16 Globalizing the Yuan. What are the major changes and developments that must occur for the Chinese yuan to be considered "globalized"?
2.17 Triffin Dilemma. What is the Triffin Dilemma? How does it apply to the development of the Chinese yuan as a true global currency?
2.18 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?
2.1 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 United Kingdom, he converts CAD1 into GBP0.59. Is the
2.2 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
2.3 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
2.4 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
2.5 Ukraine Imports. Mitsubishi manufactures in Japan most of the pick-up trucks it sells in Ukraine. The base platform for the Mitsubishi Triton truck line is 1,350,000. The spot rate of the
2.6 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 Egyp- tian pounds (EGP 1,844) or in GBP (151.17). What is
2.7 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?
2.8 Dollar Peg for Hong Kong. The Hong Kong dollar has long been pegged to the U.S. dollar at HK$780/$. When the Chinese yuan was revalued in July 2005 against the U.S. dollar from Yuan8.28/$ to
2.9 Renminbi 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
2.10 TEXPAK 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 are
2.11 Vietnamese Coffee Coyote. Many people were sur- prised when Vietnam became the second largest coffee-producing country in the world in recent years, second only to Brazil. The Vietnamese dong,

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