Questions and Answers of Multinational Business Finance

Antithesis Ltd sells its service on credit at the rate of £6 million a year. Customers take varying lengths of time to pay, but the average is 65 days. The business does not experience any
What credit checks would most prudent businesses take before dispatching goods in respect of a credit sale?
North Anglia Engineering Ltd (NAE), a manufacturing business, has recently obtained the financial statements of some of its industry rivals and has discovered that it holds, on average, twice the
For a business, what (briefly) are the advantages and disadvantages of using a bank overdraft as a means of financing?
Supertraders Ltd is experiencing severe liquidity problems, which you, as a business consultant, have been asked to investigate. You have identified the problem as being caused principally by a very
Is corporate restructuring a good thing for businesses that are pursuing a shareholder wealth maximisation objective? Explain your response.
ABB plc has a cost of capital of 20 per cent p.a. It is expected to generate annual end-of-year cash inflows of £12 million a year for ever.The capital projects department has identified a smaller
How should shareholders in a ‘target’ logically assess an offer for their shares (on a share-for-share exchange basis) from the bidder?
Taking the same circumstances as in Problem 14.1 , without the takeover CDD Ltd had expected annual end-of-year cash inflows of £1.5 million for ever and an estimated cost of capital of 18 per cent
Thruster plc is a dynamic, expanding business. Relaxation plc is a solid but unambitious one operating in the same industry. Thruster plc has recently launched a takeover bid for Relaxation plc. The
What is the general stance of UK monopolies regulation with regard to mergers and takeovers?
Expansion plc has consistently expanded its activities over the past decade, partly through takeover and partly through organic growth using retention of much of its annual profits. Consolidation plc
What is the difference between a management buy-in and a management buy-out?
What is the difference between a sell-off and a spin-off?
Generally, have mergers in the UK been successful?
Broadly, there are four types of people or organisations that use the foreign exchange market. Who are they?
What are the four theoretical rules on foreign exchange rates that derive from the law of one price?
What causes foreign exchange markets not to be price efficient?
How are the three risks of being involved in international business usually described?
What is a ‘money market hedge’?
What recent business trend is tending to promote the establishment and expansion of small, specialist businesses?
Tiny Tim Ltd, an unlisted business, is quite like Mega plc, a listed one, in terms of activities and gearing. Tiny Tim Ltd has steady after-tax profits of £350,000 a year. Mega plc’s published
A plc and B Ltd are two businesses similar in size, activity, gearing and dividend cover. A plc is Stock Exchange listed, B Ltd is not. The dividend yield for A plc is 10 per cent. B Ltd has recently
Why would it normally be appropriate for a small business to discount project cash flows at a higher rate than might be applied to a similar prospective project under consideration by a larger
XYZ Ltd, an unlisted business, is quite like ABC plc, a listed one, in term of activities, gearing and dividend policy. XYZ Ltd recently paid a dividend for the year of £0.20 per share. ABC plc’s
C plc and D Ltd are two businesses similar in size, activity and gearing. C plc is listed, D Ltd is not. The P/E ratio for C plc is 12; the after-tax earnings per share for D Ltd have been £0.30
PR Industries plc, a major listed conglomerate, is considering acquiring an interest in Howard Pope Ltd, an unlisted business that has been trading for about 40 years as a manufacturer of domestic
When valuing unlisted shares, what problems arise when basing the valuation on the price/earnings ratio and/or dividend yield of a similar listed business?
The statement of financial position of E Ltd is as shown below. What is the value of each E Ltd share? Statement of financial position of E Ltd at 31 December Non-current assets Current assets Equity
What is wrong with using the statement of financial position values of assets and claims when deducing the value of the shares of a small business?
What particular problem will face potential equity investors in small businesses, which may make the investors hesitant to buy shares and/or to seek higher expected returns than they would normally
Why would dividend policy tend to be easier to decide for the typical small business than for the typical large one?
Kristian Thalen has just joined the corporate treasury group at Electrolux of Sweden, a multinational Swedish appliance maker. Electrolux is considering making an offer for GE's appliance business
Ferrari, the famous high-performance automotive group, launched its initial public offering (IPO) on October 20, 2015. Although the share price had initially risen to over 57 per share, by the end of
If shareholders are unhappy with the current leadership of a firm—its actual management and control—what are their choices?a. Remain quietly disgruntledb. Sell their sharesc. Change managementd.
Crystal Gomez, who lives in Mexico City, bought 100 Pokécoins for 17 Mexican pesos (Ps or MXN). Nintendo of Japan, one of the part owners of Pokémon Go, will need to convert the Mexican pesos (Ps
Sarah Shetty lives in Milan, Italy. She can buy a U.S. dollar for EUR0.9000. Alex North, living in Chicago, can buy a euro for USD1.1000. What is the foreign exchange rate between the dollar and
Kyle, after an arduous post-graduation job search, has received an offer of the following three different country posts with a major multinational company. Each of the three countries -- the United
Giselle Nolan had planned her trip to the Olympic Games in Tokyo, Japan, for many months. She had budgeted – saved – USD15,000 for expenses while in Tokyo. Gisell had waited till the last minute,
Cecilia Alvarez had always wanted to see Singapore. This was her chance. A roundtrip airfare on Singapore Airlines (premium economy) from San Francisco where she lived was SNG1670. A three-night stay
"Hercule Poirot is a New York-based investor. He has been closely following his investment in 100 shares of Vaniteux, a French firm that went public in February 2010. When he purchased his 100 shares
Hercule Poirot chooses not to sell his shares at the time described in Problem 4.3. He waits, expecting the share price to rise further after the announcement of quarterly earnings. His expectations
Tickets for the Euro 2020 Championship match between Germany and France, to be held in Munich on June 15, 2021 (Euro 2020 was canceled due to the global pandemic, so 2020 championships were held in
What do reserve currencies tell us about what the world’s central banks think of what currencies will retain value over time?
What will be the likely impacts on the international monetary system of the introduction of digital currencies like the digital yuan? Will they replace physical currency—paper money? Or will they
On your summer study abroad program in Europe you stay an extra two weeks to travel from Paris to Moscow. You leave Paris with 2,000 euros (EUR) in your belt pack. Wanting to exchange all of these
Anne Dietz lives in Singapore, but is making her first business trip to Sydney, Australia. Standing in Singapore’s new terminal #3 at Changi Airport, she looks at the foreign exchange quotes posted
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.

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