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multinational business finance

Questions and Answers of Multinational Business Finance

Yize Chen trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar (USD) to Singapore dollar (SGD) cross-rate. The current spot rate is
Andreas Broszio just started as an analyst for Credit Suisse in Geneva, Switzerland. He receives the following quotes for Swiss francs (CHF) against the dollar (USD) for spot, 1 month forward, 3
Christoph Hoffeman of RiverRock Capital now believes the Swiss franc (CHF) will appreciate versus the U.S. dollar in the coming 3-month period. He has USD100,000 to invest. The current spot rate is
What is exchange rate pass-through?
With reference to foreign exchange turnover in 2013:a. Rank by volumn the relative size of spot, forwards, and swaps.b. List the five most important geographic locations for foreign exchange turnover
Christoph Hoffeman trades currency for RiverRock Capital of Geneva. Christoph has USD10 million to begin with, and he must state all profits at the end of any speculation while the 30-day forward
Why is the approximate form of the Fisher Effect frequently used instead of the precise formulation? Does this introduce significant analysis error?
Explain the meaning and probable significance for international business of the following contract specifications:a. Notional principalb. Marginc. Marked to market
Tony Begay, a currency trader for Chicago-based Saguaro Funds, uses the following futures quotes on the British pound (£) to speculate on the value of the pound.a. If Tony buys 5 June pound
On Friday June 17, 2016, the Central Bank of Nigeria (CBN) abandoned the Nigerian naira’s (NGN or N) fixed exchange rate and allowed the currency to float. Previously fixed against the U.S. dollar
Laura Cervantes, the currency speculator we met earlier in the chapter, sells eight June futures contracts for 500,000 pesos (Ps) at the closing price quoted in Exhibit 7.1.a. What is the value of
What is a credit spread? What credit rating changes have the most profound impact on the credit spread paid by corporate borrowers?
Using facts in the chapter for Ganado Europe, assume that the exchange rate on January 2, 2020, in Exhibit 11.5 appreciated from $1.2000 = €1.00 to $1.5000 = €1.00. Calculate Ganado Europe’s
Why do many firms only allow hedging of existing exposures and not allow the hedging of anticipated exposures?
What were the impacts on Novo as a result of operating in a segmented market? What were the primary causes of the market segmentation?
Ultimately, what actions did Novo take to escape its segmented market?
The Lafayette Group, a private equity firm headquartered in Boston, borrows £5,000,000 for one year at 7.375% interest.a. What is the dollar cost of this debt if the pound depreciates from $2.0260
San Mateo Servers (U.S.) has sold Internet servers to Telecom España for EUR700,000. Payment is due in three months and will be made with a trade acceptance from Telecom España Acceptance. The
Which viewpoint gives results closer to the effect on consolidated earnings per share?
What is an option delta? How does it change when the option is in-the-money, at-the-money, or out-of-the-money?
A foreign subsidiary does not have an independent cost of capital. However, in order to estimate the discount rate for a comparable host-country firm, the analyst should try to calculate a
What are some of the characteristics of a well-designed dispute resolution process?
What are the primary pros and cons of using a gradual investing strategy to mitigate political risk?
What is investment insurance, and what organizations provide such coverage?
Have studies found that more or less government involvement in a prospective project is helpful in the success of the business?
What are the seven most common political risk mitigation strategies employed by multinational enterprises?
Lawful expropriation must be accompanied by lawful compensation. What criteria have to be met to fulfill this requirement?
Answer the following:a. What is the difference between expropriation and creeping expropriation?b. What is the difference between direct and indirect expropriation?
What criteria have to be met for a government's seizure of a company's business to be considered ‘'lawful' by international law?
Define the following types of political risk:a. Adverse regulatory changeb. Breach of contractc. Expropriation
How do the major categories of potential financial losses to multinational companies associated with political risk differ across financial form – profitability, cash flow, and asset ownership?
How is political risk defined, and how does political risk associated with business differ from a more general political risk to all social activities? What is the difference between firm-specific
A strongly competitive home market can sharpen a firm’s competitive advantage relative to firms located in less competitive markets. This phenomenon is known as Porter’s “diamond of national
What does it mean for a country—or its government—to compete for business on the basis of taxation?
How is cross-border digital commerce challenging the traditional ways in which multinational companies are taxed?
What is Section 482 of the U.S. Internal Revenue Code and what guidelines does it recommend when setting transfer prices?
What is the difference between a direct tax and an indirect tax?
What is meant by the term ‘tax morality’? If for example, your company has a subsidiary in Russia where some believe tax evasion is a fine art, should you comply with Russian tax laws or violate
What is the primary objective of multinational tax planning?
What are the primary alternatives for the external financing of a foreign subsidiary?
What is the advantage of securiational corptized debt instruments sold on a market versus bank borrowing for multinorations?
ADRs and GDRs can be sponsored or unsponsored. What does it mean and will it matter to the investors purchasing the shares?
What is the difference between a GDR, ADR, and GRS? How are these differences significant?
What are the three key elements related to raising equity capital in the global marketplace?
What is the paradox?
How do some firms attempt to hedge their long-term operation exposure with contractual hedges? What assumptions do they make in order to justify contractual hedging of their operating exposure? How
Explain how back-to-back loans can hedge foreign exchange operating exposure. Would firms have any specific worries about their partner in a back-to-back loan arrangement?
Explain how matching currency cash flows can offset operating exposure.
Operating exposures can be partially managed by adopting operating or financing policies that offset anticipated foreign exchange exposures. What are four of the most commonly employed proactive
Explain how the concept of macroeconomic uncertainty expands the scope of analyzing operating exposure.
What is hyperinflation and what are the consequences for translating foreign financial statements in countries experiencing hyperinflation?
Why do many firms only allow hedging of booked exposures, and not quotation or backlog exposures?
What is the difference between a balance sheet hedge, a financing hedge, and a money market hedge.
Which contract is more likely not to be performed, a payment due from a customer in foreign currency (a currency exposure), or a forward contract with a bank to exchange the foreign currency for the
How does currency hedging theoretically change the expected cash flows of the firm?
What – according to financial theory – is the value of a firm?
Define currency risk.
Which of the three currency exposures relate to cash flows already contracted for, and which of the exposures do not?
Why are there significantly larger swings in the value of a cross-currency swap than there is in a plain vanilla interest rate swap?
How do corporate borrowers use interest rate or cross currency swaps to reduce the costs of their debt?
If interest rate swaps are not the cost of government borrowing, what credit quality do they represent?
What would be the preferred strategy for a borrower paying interest on a future date if they expected interest rates to rise?
From the point of view of a borrowing corporation, what are credit and repricing risks? Explain steps a company might take to minimize both.
What is the difference between a historic volatility and an implied volatility?
What are the three different prices or ‘rates' integral to every foreign currency option contract?
What is the difference between the price of an option, the value of an option, the premium on an option, and the cost of a foreign currency option?
If transaction costs for undertaking covered or uncovered interest arbitrage were large, how do you think it would influence arbitrage activity?
According to the theory of purchasing power parity, what should happen to a currency which is undervalued?
Convert the following indirect quotes to direct quotes and direct quotes to indirect quotes:a. Euro: €1.22/$ (indirect quote);b. Russia: Rub 30/$ (indirect quote);c. Canada: $0.72/C$ (direct
Brazil has experienced periodic depreciation of its currency over the past 20 years despite occasionally running a current account surplus. Why has this phenomenon occurred?
What is the difference between a “real” asset and a “financial” asset?
What institution provides the primary source of similar statistics for balance of payments and economic performance worldwide?
What does it mean to say the international monetary system today is a global eclectic?
How does a crawling peg fundamentally differ from a pegged exchange rate?
What do the terms de facto and de jure mean in reference to the International Monetary Fund's use of the terms?

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