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Chapter 1: Managing Finance in Foreign Subsidiaries: An Overview 3 This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher. Answers to End of Chapter Questions 1. Motives of an MNC. Describe constraints that interfere with an MNC s objective. ANSWER: The constraints faced by financial managers attempting to maximize shareholder wealth are: a. Environmental constraints countries impose environmental regulations such as building codes and pollution controls, which increase costs of production. b. Regulatory constraints host governments can impose taxes, restrictions on earnings remittances, and restrictions on currency convertibility, which may reduce cash flows to be received by the parent. c. Ethical constraints U. S.-based MNCs may be at a competitive disadvantage if they follow a worldwide code of ethics, because other firms may use tactics that are allowed in some foreign countries but considered illegal by U. S. standards. 2. International Opportunities. a. How does access to international opportunities affect the size of corporations? ANSWER: Additional opportunities will often cause a firm to grow more than if it did not have access to such opportunities. Thus, a firm that considers international opportunities has greater potential for growth. b. Describe a scenario in which the size of a corporation is not affected by access to international opportunities. ANSWER: Some firms may avoid opportunities because they lack knowledge about foreign markets or expect that the risks are excessive. Thus, the size of these firms is not affected by the opportunities. c. Explain why MNCs such as Coca Cola and PepsiCo, Inc., still have numerous opportunities for international expansion. ANSWER: Coca Cola and PepsiCo still have new international opportunities because countries are at various stages of development. Some countries have just recently opened their borders to MNCs. Many of these countries do not offer sufficient food or drink products to their consumers. 3. Impact of the Euro on U.S. Subsidiaries. McCanna Corp. has a French subsidiary that produces wine and exports to various European countries. Explain how the subsidiary s business may have been affected since the conversion of many European currencies into a single European currency (the euro) in 1999. ANSWER: The subsidiary and its customers based in countries that now use the euro as their currency would no longer be exposed to exchange rate risk. 4 International Corporate Finance This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher. ... View Full Document

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