International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Students have asked these similar questions
Consider a US-based MNC with a wholly owned Italian subsidiary. Following a depreciation of the dollar against the euro, which of the following conclusions are correct?
Group of answer choices
a. The cash flow in euros could be altered due a change in the firm's competitive position in the marketplace.
b. A given operating cash flow in euros will be converted to a higher US dollar cash flow.
c. Both A and B
d. None of the above
The foreign subsidiary of a U.S. firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S. dollars. This is an example of which one of the following?
A.
Interest rate disparities
B.
Short-run exposure to exchange rate risk
C.
Long-run exposure to exchange rate risk
D.
Political risk associated with the foreign operations
E.
Translation exposure to exchange rate risk
If a U.S.-based MNC focused completely on exporting, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time.
Group of answer choices
True
False
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- Suppose InBev Corporation (a non-U.S. MNC) buys Anheuser-Busch Corporation (a U.S. corporation) by paying the U.S. shareholders in cash. Which of the following can be said of the US capital account? Group of answer choices The acquisition of cash by US shareholders will decrease foreign ownership, which will be recorded as a debit. The US federal reserve will increase its currency reserves. InBev's reduction in cash will be recorded as a debit on the U.S. capital account.. InBev's increased ownership of US assets is recorded as a credit. U.S. shareholders increased ownership in InBev will be recorded as a credit.arrow_forward1. Explain the differences and similarities between Forward, Futures, andOptions. Then why can there be a Long Term Funding Deficit related to a company's cash flows? and Explain the meaning of international parity conditions, and why it can be used to predict exchange rates. and what is the meaning of foreign exchange exposure and types of foreign exchange exposure faced by multinational companies.arrow_forwardInvestors and MNCs exporting or importing goods and services or making foreign investments throughout the global economy are faced with an exchange rate risk,which can have severe financial consequences on firms profitability,cash flows,and their market value,if not managed appropriately. MNC's use a number of external techniques of risk(exposure)management and resort to contractual relationships outside thier companies in order to reduce (or redistribute)the risk of foreign exchange losses.What are the determinants of hedging currency risk or foreign exchange exposures which pose risks to MNC's cashflows,competitiveness,marker value and financial reporting.arrow_forward
- How may the domestic cost of capital for a foreign venture be adjusted to account for currency rate risk, political risk, and nation risk?arrow_forwardExplain the International Fisher effect and Interest Rate Parity theories. If these theories exist, explain MNCs' justification to invest excess cash in foreign country. Present a situation in which investment in the foreign money market would provide a higher rate of return than the one offered at the home market.arrow_forwardInternational Investments U.S.-based MNCs commonly invest in foreign securities. Assume that the dollar is presently weak and is expected to strengthen over time. How will these expectations affect the tendency of U.S. investors to invest in foreign securities?arrow_forward
- Transaction exposure: A. measures the extent to which foreign exchange volatility may affect a firm's future ongoing revenues and costs. B. measures the effects of FX changes on the balance sheet of the firm. C. refers to the extent to which the value of the firm's cash flows may be affected by changes in the exchange rate. D. tries to measure the impact of unexpected exchange rate fluctuations on the net present value of the firm's future cash flows.arrow_forwardA key issue facing financial executives of multinational firms is exposure to exchange rate changes.a. Define exposure, differentiating between accounting and economic exposure. What role does inflation play?b. Describe at least three circumstances under which economic exposure is likely to exist? c. Of what relevance are the international Fisher effect and purchasing power parity to your answers to parts a and b? d. What is exchange risk, as distinct from exposurearrow_forwardA U.S. exporting firm may use foreign exchange futures to hedge its exposure to exchange rate risk. Its position in futures will depend in part on anticipated payments from its customers denominated in foreign currency.a. In general, however, should its position in futures be more or less than the number of contracts necessary to hedge these anticipated cash flows? (Hint: Think about the firm's stream of cash flows extending out over many years.)b. What other considerations might enter into the hedging strategy?arrow_forward
- Explain the International Fisher effect and Interest Rate Parity. If these parity exists, explain the justification for MNCs to invest excess cash in foreign country. Provide examples in which situation the excess cash investment would gain higher rate of return that the one offered at the home market.arrow_forwardThe following are bad consequences of inadequacy of financial risk management EXCEPTa. The entity was able to forecast net cash inflows in pesos despite being highly exposed to foreign currency collections.b. The current year’s income is significantly higher this year resulting to payments of bonuses. However, there were net losses in the previous two to three years. This problematic cycle is common for the entity.c. A forward contract was used to hedge the risk of converting foreign currency-denominated receivables at P56:USD1. When the receivables were settled, the exchange rate was at P60. It caused the entity to lose out on the P4 per USD.d. The long-term debt has matured and was settled. It resulted to a 90% equity on the balance sheet. The remaining 10% is trade payables.arrow_forward
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