1. Bond Financing Analysis.
Sambuka, Inc. can issue bonds in either U.S. dollars or in Swiss francs. Dollardenominated bonds would have a coupon rate of 15 percent; Swiss francdenominated bonds would have a coupon rate of 12 percent. Assuming t
5. Benefits of Hedging. If hedging is expected to be more costly than not
hedging, why would a firm even consider hedging?
ANSWER: Firms often prefer knowing what their future cash flows will be as
opposed to the uncertainty involved with an op
5. Financing from Subsidiaries.
Explain why an MNC parent would consider financing from its subsidiaries.
ANSWER: A parent may obtain funds at a lower cost from its subsidiaries
than from a bank, since a bank will maintain a spread between what
7. Effective Yield.
Fort Collins, Inc., has $1 million in cash available for 30 days. It can earn 1%
on a 30 day investment in the U.S. Alternatively, if it converts the dollars to
Mexican pesos, it can earn 1 1/2% on a Mexican deposit. The spo
2. International Opportunities.
a. How does access to international opportunities affect the size of
ANSWER: Additional opportunities will often cause a firm to grow more than
if it did not have access to such opportunities. Thus,
26. Comparing PPP and IFE.
How is it possible for PPP to hold if the IFE does not?
ANSWER: For the IFE to hold, the following conditions are necessary:
(1) investors across countries require the same real returns,
(2) the expected inflation rate
2. Risk of Currency Futures.
Currency futures markets are commonly used as a means of capitalizing on
shifts in currency values, because the value of a futures contract tends to move
in line with the change in the corresponding currency value. R
5. International Financial Markets.
Recently, Wal-Mart established two retail outlets in the city of Shanzen,
China, which has a population of 3.7 million. These outlets are massive and
contain products purchased locally as well as imports. As W
8. International Investments.
In recent years many U.S.-based MNCs have increased their investments in
foreign securities, which are not as susceptible to negative shocks in the U.S.
market. Also, when MNCs believe that U.S. securities are overv
5. Capital Budgeting Analysis.
A project in South Korea requires an initial investment of 2 billion South
Korean won. The project is expected to generate net cash flows to the
subsidiary of 3 billion and 4 billion won in the two years of operat
2. Assessing Economic Exposure.
Alaska Inc. plans to create and finance a subsidiary in Mexico that produces
computer components at a low cost and exports them to other countries. It has
no other international business. The subsidiary will prod
3. Forms of Country Risk.
List some forms of country risk other than a takeover of a subsidiary by the
host government, and briefly elaborate on how each factor can affect the risk
to the MNC. Identify common financial factors for an MNC to con
4. Exchange Rate Systems.
Compare and contrast the fixed, freely floating, and managed float exchange
rate systems. What are some advantages and disadvantages of a freely floating exchange rate system versus a fixed exchange rate system?
5. Transaction versus Economic Exposure.
Compare and contrast transaction exposure and economic exposure. Why
would an MNC consider examining only its net cash flows in each currency
when assessing its transaction exposure?
11. Measuring Forecast Accuracy.
You are hired as a consultant to assess a firms ability to forecast. The firm
has developed a point forecast for two different currencies presented in the
following table. The firm asks you to determine which cur
6. Testing Interest Rate Parity.
Describe a method for testing whether interest rate parity exists. Why are
transactions costs, currency restrictions, and differential tax laws important
when evaluating whether covered interest arbitrage can be
5. DFI Strategy.
J.C. Penney has recognized numerous opportunities to expand in foreign
countries and has assessed many foreign markets, including Brazil, Greece,
Mexico, Portugal, Singapore, and Thailand. It has opened new stores in
2. Capital Structure of MNCs.
Present an argument in support of an MNCs favoring a debt-intensive capital
structure. Present an argument in support of an MNCs favoring an equityintensive capital structure.
ANSWER online: MNCs that are well dive
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,