Chapter 21: International Financial Management
Chapter 21
International Financial Management
Discussion Questions
21-1.
What risks does a foreign affiliate of a multinational firm face in today’s business world?
21-2.
In addition to the normal risks that a domestic firm faces (such as the risk associated with maintaining sales and market share, the financial risk of too much leverage, and so on), the foreign affiliate of a multinational firm is exposed to foreign exchange risk and political risk.
What allegations are sometimes made against foreign affiliates of multinational firms and against the multinational firms themselves?
21-3.
Some countries have charged that foreign affiliates subverted their governments and caused instability for their currencies in international money and foreign exchange markets. The less developed countries (LDCs) have, at times, alleged that foreign business firms exploit their labor with low wages. The multinational companies are also under constant criticism in their home countries. The home country’s labor unions charge the MNCs with exporting jobs, capital, and
technology to foreign nations, while avoiding their fair share of taxes. In spite of all these criticisms, the multinational companies have managed to survive and prosper.
List the factors that affect the value of a currency in foreign exchange markets.
Factors affecting the value of a currency are inflation, interest rates, balance of payments, and government policies. Other factors that have an influence include the stock market, gold prices, demand for oil, political turmoil, and labor strikes. All of the above factors will not affect each currency in the same way at any given point in time.
Chapter 21: International Financial Management
21-4. Explain how exports and imports tend to influence the value of a currency.
21-5.
21-6.
21-7.
When a country sells (exports) more goods and services to foreign countries than it purchases (imports), it will have a surplus in its balance of trade.
Since foreigners are expected to pay their bills for the exporter’s goods in the exporter’s currency, the demand for that currency and its value will go up. On the other hand, continuous deficits in balance of payments are expected to depress the value of the currency of a country because such deficits would
increase the supply of that currency relative to the demand. Of course, a number of other factors may also influence these patterns such as the economic and political stability of the country.
Differentiate between the spot exchange rate and the forward exchange rate.
The spot rate for a currency is the exchange rate at which the currency is traded for immediate delivery. An exchange rate established for a future delivery date is a forward rate.
What is meant by translation exposure in terms of foreign exchange risk?
The foreign-located assets and liabilities of a multinational corporation are denominated in their respective foreign currencies and need to be translated back to their local currency. This is called accounting or translation exposure. The amount of loss or gain resulting from this currency exposure and the treatment of it in the parent company’s books depends upon the accounting rules established by the parent company’s government.
What factors influence a U.S. business firm to go overseas?
Factors that influence a U.S. business firm to go overseas are avoidance of tariffs; lower production and labor costs; usage of superior American
technology abroad in such areas as oil exploration, mining, and manufacturing; tax advantages such as postponement of U.S. taxes until foreign income is repatriated, lower foreign taxes, and special tax incentives; defensive measures to keep up with competitors going overseas; and the achievement of
international diversification. There also is the potential for higher returns than on purely domestic investments.
Chapter 21: International Financial Management
21-8.
21-9.
What procedure(s) would you recommend for a multinational company in
studying exposure to political risk? What actual strategies can be used to guard against such risk?
In studying exposure to political risk, a company may hire outside consultants or form their own advisory committee consisting of top-level managers from headquarters and foreign subsidiaries.
Strategic steps to guard against such risks include:
a. Establish a joint venture with a local entrepreneur.
b. Enter into a joint venture with firms from other countries. c. Purchase insurance.
What factors beyond the normal domestic analysis go into a financial feasibility study for a multinational firm?
21-10.
An international financial feasibility study must go beyond domestic factors to also consider the treatment of foreign tax credits, foreign exchange risk, and remittance of cash flows.
What is a letter of credit?
A letter of credit is normally issued by the importer’s bank, where the bank promises to pay money for the merchandise when delivered.
金融管理基础英文版第16版人大版MGH版简答题附答案BHD_16e_SM_Chapter_21
