Kirt C. Butler, Solutions for
PART I Overview and Background
Chapter 1 An Introduction to Multinational Finance
Answers to Conceptual Questions
List the MNC’s key stakeholders. How does each have a stake in the MNC?
Stakeholders narrowly defined include shareholders, debtholders, and management. More broadly
defined, stakeholders also would include employees, suppliers, customers, host governments, and
residents of host countries.
In what ways do cultural differences impact the conduct of international business?
Because they define the rules of the game, national business and popular cultures impact each of the
functional disciplines of business from research and development right through to marketing,
production, and distribution.
What is country risk? Describe several types of country risk one might face when conducting business
in another country.
Country risks refer to the political and financial risks of conducting business in a particular foreign
country. Country risks include foreign exchange risk, political risk, and cultural risk.
What is political risk?
Political risk is the risk that a sovereign host government will unexpectedly change the rules of the
game under which businesses operate.
What is foreign exchange risk?
Foreign exchange risk is the risk of unexpected changes in foreign currency exchange rates.
What investment opportunities might MNCs enjoy that are not available to local firms?
Operating cash flows can be increased by increasing revenues or decreasing operating expenses. The
text mentions revenue enhancing opportunities such as global branding, advantages of size and scope,
and flexibility in marketing and distribution; operating cost reductions through access to low-cost
labor or raw materials, flexibility in sourcing or production, and economies of scale or vertical
integration; and business strategies such as follow the customer, lead the customer, follow the leader,
and building capacity directly in a foreign market (going local).
How can MNCs can reduce operating expenses relative to domestic firms.
MNCs can enjoy several advantages over domestic firms including global brands, size, and flexibility
in marketing and distribution. Strategies for enhancing revenues include follow the customer, lead the
customer, follow the leader, and establishing local production. Operating costs can be reduced through
access to low-cost raw materials and labor, flexibility in sourcing, production, or site selection, and
economies of scale or vertical integration.
What are the perfect financial market assumptions? What is their implication for multinational