CFFM6, ch 17, IM, 11-12-08 - LearningObjectives Chapter17 ,

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Chapter 17 Multinational Financial Management Learning Objectives After reading this chapter, students should be able to: Identify the primary reasons companies choose to go “global.” Explain how exchange rates work and interpret different exchange rate quotations. Discuss the intuition behind interest rate parity and purchasing power parity. Explain the different opportunities and risks that investors face when they invest overseas. Identify some specific challenges that a multinational corporation faces and discuss how they  influence its capital budgeting, capital structure, and working capital policies. Chapter 17:  Multinational Financial Management Learning Objectives 197
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Lecture Suggestions This chapter presents an overview of multinational financial management, including exchange rates,  interest rate and purchasing power parity, international capital markets, multinational capital budgeting,  international capital structures, and multinational working capital management. What we cover, and the way we cover it, can be seen by scanning the slides and Integrated Case  solution for Chapter 17, which appears at the end of this chapter solution.  For other suggestions about  the lecture, please see the “Lecture Suggestions” in Chapter 2, where we describe how we conduct our  classes. DAYS ON CHAPTER: 3 OF 58 DAYS (50-minute periods) 198 Lecture Suggestions Chapter 17:  Multinational Financial Management
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Answers to End-of-Chapter Questions 17-1 Taking into account differential labor costs abroad, transportation, tax advantages, and so forth,  U.S. corporations can maximize long-run profits. There are also nonprofit behavioral and strategic  considerations, such as maximizing market share and enhancing the prestige of corporate  officers. 17-2 A dollar will buy more euros. 17-3 There will be an excess supply of dollars in the foreign exchange markets, and thus, this will tend  to drive down the value of the dollar.  Foreign investments in the United States will increase. 17-4 The foreign project’s cash flows have to be converted to U.S. dollars, since the shareholders of  the U.S. corporation (assuming they are mainly U.S. residents) are interested in dollar returns.  This subjects them to exchange rate risk, and therefore requires an additional risk premium.  There is also a risk premium for political risk (mainly the risk of expropriation) that should be  included.
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