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multinational business finance
Questions and Answers of
Multinational Business Finance
Ignoring transaction costs, under what conditions will covered interest arbitrage be plausible?
Explain what expectations an investor or speculator would need to undertake an uncovered interest arbitrage investment?
a. Many academics and professionals have tested the foreign exchange and interest rate markets to determine their efficiency. What have they concluded?b. What is the real interest cost (adjusted for
Tencent Holdings Limited is a Chinese multinational conglomerate holding company. If its share price rises from HK$318 to HK$324 within one year, what is the rate of return to a shareholder given
Using the same prices and exchange rates as in Problem 4.4 , Hercule Poirot and Vaniteux (B), what would be the total return on the Vaniteux investment by Laurent Vuagnoux, a Parisbased investor?Data
Assume all the same debt and equity values for Sasquatch Corporation in Problem 4.9 , with the sole exception that both A-shares and B-shares have the same voting rights—5 votes per share.a. What
A number of firms around the world have had to lower their previously reported earnings due to accounting errors or fraud. Assume that Transnational Corporation of Nigeria (Problem 4.7 ) had to lower
Maori Beer is a New Zealand-based brewery and files all of its financial statements in New Zealand dollars (NZD).The company’s European sales director Kieran Barrett has been criticized for his
Maori Beer (B): Hong Kong Dollar Debt. Maori Beer of New Zealand borrowed Hong Kong dollars (HKD) under a long-term loan agreement several years ago.The company’s new CFO believes, however, that
Mattel (U.S.) achieved significant sales growth in its major international regions between 2001 and 2004. In its filings with the United States Security and Exchange Commission (SEC), it reported
Idris Hydraulics of Kuala Lumpur, Malaysia, purchases all of its hydraulic drills from manufacturers in Thailand.The company has recently completed a corporatewide initiative in six sigma/lean
Sydney Stock Exchange Equity Returns. The Australian equity market has delivered very different returns over the past 90 years. Use the data from the table below, arranged by decade to answer the
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: AUD1.4462/EUR.b.
What is Australia’s balance on goods?Australia’s Current Account Millions of U.S. dollars Goods: credit (exports) Goods: debit (imports) Services: credit (exports) Services: debit (imports)
What is Australia’s balance on services?Australia’s Current Account Millions of U.S. dollars Goods: credit (exports) Goods: debit (imports) Services: credit (exports) Services: debit (imports)
What is Australia’s balance on goods and services?Australia’s Current Account Millions of U.S. dollars Goods: credit (exports) Goods: debit (imports) Services: credit (exports) Services: debit
What is Australia’s current account balance?Australia’s Current Account Millions of U.S. dollars Goods: credit (exports) Goods: debit (imports) Services: credit (exports) Services: debit
What is India’s balance on goods?India’s Current Account 117,068 138,528 145,525 149,164 Millions of U.S. dollars Goods: credit (exports) Goods: debit (imports) Services: credit (exports) 2010
What is India’s balance on services?India’s Current Account 117,068 138,528 145,525 149,164 Millions of U.S. dollars Goods: credit (exports) Goods: debit (imports) Services: credit (exports) 2010
What is India’s balance on goods and services?India’s Current Account 117,068 138,528 145,525 149,164 Millions of U.S. dollars Goods: credit (exports) Goods: debit (imports) Services: credit
What is India’s balance on goods, services, and income?India’s Current Account 117,068 138,528 145,525 149,164 Millions of U.S. dollars Goods: credit (exports) Goods: debit (imports) Services:
What is India’s current account balance?India’s Current Account 117,068 138,528 145,525 149,164 Millions of U.S. dollars Goods: credit (exports) Goods: debit (imports) Services: credit (exports)
Is China experiencing a net capital inflow or outflow?China’s (Mainland) Balance of Payments Assumptions (millions of U.S. dollars) 2010 A. Current 2011 237,810 136,097 215,392 2012 2013 2014 2015
What is China’s total for Groups A and B?China’s (Mainland) Balance of Payments Assumptions (millions of U.S. dollars) 2010 A. Current 2011 237,810 136,097 215,392 2012 2013 2014 2015 2016 2017
What is China’s total for Groups A through C?China’s (Mainland) Balance of Payments Assumptions (millions of U.S. dollars) 2010 A. Current 2011 237,810 136,097 215,392 2012 2013 2014 2015 2016
What is China’s total for Groups A through D?China’s (Mainland) Balance of Payments Assumptions (millions of U.S. dollars) 2010 A. Current 2011 237,810 136,097 215,392 2012 2013 2014 2015 2016
Does China’s BOP balance?China’s (Mainland) Balance of Payments Assumptions (millions of U.S. dollars) 2010 A. Current 2011 237,810 136,097 215,392 2012 2013 2014 2015 2016 2017 2020 148,204
Is Russia experiencing a net capital inflow?Russia’s Balance of Payments Assumptions (millions of U.S. dollars) 2010 2011 A. Current 67,452 2012 97,274 71,282 2013 2014 2015 2016 33,428 57,513
What is Russia’s total for Groups A and B?Russia’s Balance of Payments Assumptions (millions of U.S. dollars) 2010 2011 A. Current 67,452 2012 97,274 71,282 2013 2014 2015 2016 33,428 57,513
What is Russia’s total for Groups A through C?Russia’s Balance of Payments Assumptions (millions of U.S. dollars) 2010 2011 A. Current 67,452 2012 97,274 71,282 2013 2014 2015 2016 33,428 57,513
What is Russia’s total for Groups A through D?Russia’s Balance of Payments Assumptions (millions of U.S. dollars) 2010 2011 A. Current 67,452 2012 97,274 71,282 2013 2014 2015 2016 33,428 57,513
Does Russia’s BOP balance?Russia’s Balance of Payments Assumptions (millions of U.S. dollars) 2010 2011 A. Current 67,452 2012 97,274 71,282 2013 2014 2015 2016 33,428 57,513 67,777 24,469 2017
Is Iceland experiencing a net capital inflow?Iceland Balance of Payments Assumptions (millions of U.S. dollars) 2010 2011 2012 2013 2014 2015 2016 A. Current account balance -845 -716 -518 1,010 776
What is Iceland's total for Groups A and B?Iceland Balance of Payments Assumptions (millions of U.S. dollars) 2010 2011 2012 2013 2014 2015 2016 A. Current account balance -845 -716 -518 1,010 776
What is Iceland's total for Groups A through C?Iceland Balance of Payments Assumptions (millions of U.S. dollars) 2010 2011 2012 2013 2014 2015 2016 A. Current account balance -845 -716 -518 1,010
What is Iceland's total for Groups A through D?Iceland Balance of Payments Assumptions (millions of U.S. dollars) 2010 2011 2012 2013 2014 2015 2016 A. Current account balance -845 -716 -518 1,010
Does Iceland's BOP balance?Iceland Balance of Payments Assumptions (millions of U.S. dollars) 2010 2011 2012 2013 2014 2015 2016 A. Current account balance -845 -716 -518 1,010 776 986 B. Capital
Who is responsible for the implementation of corporate governance within a firm? What are the main functions of corporate governance? What does it entail?
Investors usually pay more attention to corporate governance during the processes of mergers and acquisitions. Assume you are a management consultant who is advising a MNE on whether to make an offer
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 new exchange rate favorable
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 British pounds and
In 2015, one barrel of Brent oil traded for GBP42.5 and South African rand (ZAR) 790. What is the exchange rate between the pound and the rand? How would the exchange rate change if the oil price
Mitsubishi manufactures in Japan most of the pick-up trucks it sells in Ukraine. The base platform for the Mitsubishi Triton truck line is JPY1,350,000. The spot rate of the Japanese yen against the
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 Egyptian pounds (EGP 1844) or in GBP (151.17). What is the exchange rate
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 in the value of
TEXPAK is a Pakistani-based textile firm that is facing increasing competition from other manufacturers in emerging markets selling in Europe. All garments are produced in Pakistan, with costs and
Samsung Electronics of Korea sells 25 million Chilean pesos worth of semiconductors to Empresa Nacional de Telecomunicaciones S.A., Chile, on January 1, 2019.The sale is invoiced in Chilean pesos
Scania Heavy Machinery AB. Scania Heavy Machinery AB, a manufacturer of heavy-duty machinery and vehicles near Stockholm, ships an order to a buyer in Lebanon. The purchase price is kr375,000.Lebanon
What data can a nation’s BOP provide about a country’s economy?
If the BOP always “balances,” then how do countries run a BOP deficit or surplus?
Explain the main causes behind the current account surpluses that Asian emerging economies have maintained during the last two decades.
What does a country’s consistent negative net international investment position indicate?
Classify each of the following as a transaction reported in a sub-component of the current account or of the capital and financial accounts of the two countries involved:a. A U.S. food chain imports
Low interest rates should normally lead to capital outflows to other countries and currencies in the search for higher interest rates. Explain why the opposite has occurred in the Eurozone.
What are the direct and indirect relationships between the balance of payments and inflation?
Explain the exchange rate pass through and whether it always holds true.
Can controls of capital inflow solve the Dutch Disease in resource-rich countries?
Was globalization responsible for the slowdown of multinational enterprise (MNE) business during the financial crisis of 2008?
What are the factors that affect the decisions of multinational enterprises to operate in global markets?
What are the major eurocurrencies? What is meant by a Eurocurrency market?
How has the global financial crisis exposed the fragility of assets and institutions of the global system?
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.
Why do you think the U.K. government has resolved against the total elimination of LIBOR benchmarks after the scandal?
The key to understanding most theories is what they say and what they don’t. Name four key limitations to the theory of comparative advantage.
At what point in the globalization process did Aidan become an MNE?
The decisions of MNEs to move to new markets invariably take advantage of both market imperfections and market efficiencies. Explain.
Why do firms become multinational?
What is the difference between proactive and defensive investment motives?
What are the main phases that Aidan passed through as it evolved into a truly global firm?What are the advantages and disadvantages of each?
Explain the twin agency problems. How do the twin agency problems limit financial globalization?
Mark Du Plessis lives in Johannesburg, South Africa. He can buy one euro for R16.3700 (South African rand). At the same time, Richard Nolan, living in Paris, can buy a South African rand for
Krisianto, after an intensive post-graduation job search, has received job offers from three multinational companies. Each position is based in a different country—Mozambique, Uzbekistan, and
Steven McGregor had planned his trip to the Rugby World Cup in Japan for almost a year. He had budgeted—saved—€17,000 for expenses while in Japan. But he had postponed exchanging the euros for
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 chemicals used by pharmaceutical firms
Under the gold standard, all national governments promised to follow the “rules of the game.” What did this mean?
Speaking very specifically—technically, what does a floating rate of exchange mean? What is the role of government?
Why do many emerging market economies prefer to adopt a fixed exchange rate?
Why do many developing countries fix their currencies while emerging economies adopt a crawling peg?
With reference to the impossible trinity what are the possible policy mixes that a nation could have?
How does the European Central Bank operate and what is its relationship with the central banks of the various jurisdictions of the eurozone?
What is the difference between central banks and currency boards?
What are the advantages and disadvantages of Special Drawing Rights (SDR)?
Is a strong currency good or bad for the domestic economy?
What are the methods available to an emerging market economy if it elects to adopt a pegged exchange rate system? What is the ideal system if it needs to manage inflation and economic growth?
Hedging (I) There are several schools of thought regarding hedging and its impact on the value of the firm. One school argues that, if the owners of the firm wish to hedge, they can do so in their
Default risk Consider the following basic data on a one-year Ecuadorian Brady Bond (dollar denominated sovereign obligation). It has a face value of \($100\) payable at maturity, but no coupon.
Stock options as executive compensation You were hired by Sparkle.com, a telecommunications company, last year (exactly a year ago today). The company agreed to pay you £12,000 annual salary plus an
Hedging (II) Martha Exporter, Miami Baking Ltd, exports her delicious Martha’s Brownies to the United Kingdom and has accounts receivables in pounds sterling of £100,000 in 90 days. Basic data: US
Balance sheet hedging Gateaux Antoinette, SA, a subsidiary of Antoinette Cakes Inc., New York, had cash of €100,000 and accounts receivable of €100,000 each on its books (or €200,000 in total)
Your European subsidiary has cash and accounts receivable of 100 and 300 euros respectively, and accounts payable and short-term debt of 100 and 200 euros respectively. US headquarters re-measures
The time value of money Consider the following cash flows from today (year zero) to year 3 in pounds sterling:Your interest rate (or discount rate) in pounds is 10 percent. a Compute the net present
The equilibrium exchange rate Consider the following quantity of dollars demanded and supplied daily in millions as a function of the dollar’s peso price, S:a. Solve for the equilibrium exchange
Intervention in the foreign exchange market Argentina pegged its currency, the peso, to the US dollar at a rate of 1 to 1 from April 1991 to November 2001. Under the rules of the currency board, the
The bid–ask spread (I) In Table 3.14, consider the bid and ask spot quotations in dollars per pound (\($/£),\) i.e. in American terms:a. Compute the bid and quotations in European terms, i.e. in
The bid–ask spread (II) Consider the spot quotations in pounds per dollar (£/\($)\) and dollars per pound (\($/£)\) in Table 3.15: a. Compute the bid quotations in American and European
Points quotations In Table 3.16, consider the spot quotations in dollars per pound (\($/£)\) and the forward quotations in basis points (1/10,000). On the basis of the points quotations in Table
Interest rate parity Consider Figure 3.29, which indicates (approximately) the difference between interest rates in the United States and the UK, Rus Ruk on a one-year T-bill (i.e. a two-year bill
Purchasing power parity You are given the data in Table 3.17 on prices in local currency in the United States, Mexico, and England.a. What are the rates of currency exchange suggested by the absolute
1.1 Globalization Risks for MNEs. Was globalization responsible for the slowdown of MNE business dur- ing the financial crisis of 2008?
1.2 MNEs and Operation in Global Markets. What are the factors that affect the decisions of multinational enterprises to operate in global markets?
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