金融管理基礎(chǔ)英文版第16版人大版MGH版簡答題附答案BHD-16e-SM-Chapter-21

1、 Chapter 21: International Financial ManagementChapter 21International Financial ManagementDiscussion Questions21-1.What risks does a foreign affiliate of a multinational firm face in todaysbusiness world?In addition to the normal risks that a domestic firm faces (such as the riskassociated with mai

2、ntaining sales and market share, the financial risk oftoo much leverage, and so on), the foreign affiliate of a multinational firm isexposed to foreign exchange risk and political risk.21-2.What allegations are sometimes made against foreign affiliates of multinationalfirms and against the multinati

3、onal firms themselves?Some countries have charged that foreign affiliates subverted their governmentsand caused instability for their currencies in international money and foreignexchange markets. The less developed countries (LDCs) have, at times, allegedthat foreign business firms exploit their la

4、bor with low wages. The multinationalcompanies are also under constant criticism in their home countries. The homecountrys labor unions chargethe MNCs with exporting jobs, capital, andtechnology to foreign nations, while avoiding their fair share of taxes. In spite of allthese criticisms, the multin

5、ational companies have managed to survive and prosper.21-3.List the factors that affect the value of a currency in foreign exchange markets.Factors affecting the value of a currency are inflation, interest rates, balanceof payments, and government policies. Other factors that have an influenceinclud

6、e the stock market, gold prices, demand for oil, political turmoil, andlabor strikes. All of the above factors will not affect each currency in the sameway at any given point in time. Chapter 21: International Financial Management21-4.Explain how exports and imports tend to influence the value of a

7、currency.When a country sells (exports) more goods and services to foreign countriesthan it purchases (imports), it will have a surplus in its balance of trade.Since foreigners are expected to pay their bills for the exporters goods in theexporters currency, the demand for that currency and its valu

8、e will go up.On the other hand, continuous deficits in balance of payments are expected todepress the value of the currency of a country because such deficits wouldincrease the supply of that currency relative to the demand. Of course, a numberof other factors may also influence these patterns such

9、as the economic andpolitical stability of the country.21-5.21-6.Differentiate between the spot exchange rate and the forward exchange rate.The spot rate for a currency is the exchange rate at which the currency is tradedfor immediate delivery. An exchange rate established for a future delivery datei

10、s a forward rate.What is meant by translation exposure in terms of foreign exchange risk?The foreign-located assets and liabilities of a multinational corporation aredenominated in their respective foreign currencies and need to be translatedback to their local currency. This is called accounting or

11、 translation exposure.The amount of loss or gain resulting from this currency exposure and thetreatment of it in the parent companys books depends upon the accountingrules established by the parent companys government.21-7.What factors influence a U.S. business firm to go overseas?Factors that influ

12、ence a U.S. business firm to go overseas are avoidanceof tariffs; lower production and labor costs; usage of superior Americantechnology abroad in such areas as oil exploration, mining, and manufacturing;tax advantages such as postponement of U.S. taxes until foreign income isrepatriated, lower fore

13、ign taxes, and special tax incentives; defensive measuresto keep up with competitors going overseas; and the achievement ofinternational diversification. There also is the potential for higher returns thanon purely domestic investments. Chapter 21: International Financial Management21-8.What procedu

14、re(s) would you recommend for a multinational company instudying exposure to political risk? What actual strategies can be used to guardagainst such risk?In studying exposure to political risk, a company may hire outside consultantsor form their own advisory committee consisting of top-level manager

15、s fromheadquarters and foreign subsidiaries.Strategic steps to guard against such risks include:a. Establish a joint venture with a local entrepreneur.b. Enter into a joint venture with firms from other countries.c. Purchase insurance.21-9.What factors beyond the normal domestic analysis go into a f

16、inancial feasibilitystudy for a multinational firm?An international financial feasibility study must go beyond domestic factors toalso consider the treatment of foreign tax credits, foreign exchange risk, andremittance of cash flows.21-10.What is a letter of credit?A letter of credit is normally iss

17、ued by the importer, swhbearnekthe bankpromises to pay money for the merchandise when delivered. Chapter 21: International Financial Management21-11.Explain the functions of the following agencies.Overseas Private Investment Corporation (OPIC)Export-Import Bank (Eximbank)Foreign Credit Insurance Ass

18、ociation (FCIA)International Finance Corporation (IFC)Overseas Private Investment Corporation (OPIC)A government agency thatsells insurance policies to qualified firms. This agency insures against lossesdue to inconvertibility into dollars of amounts invested in a foreign country.Policies are also a

19、vailable from OPIC to insure against expropriation andagainst losses due to war or revolution.Export-Import Bank (Eximbank)An agency of the U.S. government thatfacilitates the financing of U.S. exports through its miscellaneous programs.In its direct loan program, the Eximbank lends money to foreign

20、 purchasers ofU.S. goods such as aircraft, electrical, equipment, heavy machinery, computers,and the like. The Eximbank also purchases medium-term obligations of foreignbuyers of U.S. goods at a discount from face value. In these discount programs,private banks and other lenders are able to rediscou

21、nt (sell at a lower price)promissory notes and drafts acquired from foreign customers of U.S. firms.Foreign Credit Insurance Association (FCIA)An agency established by agroup of 60 U.S. insurance companies. It sells credit export insurance tointerested exporters. The FCIA promises to pay for the exp

22、orted merchandisesif the foreign importer defaults on payment.International Finance Corporation (IFC)An affiliate of the World Bankestablished with the sole purpose of providing partial seed capital for privateventures around the world. Whenever a multinational company has difficultyraising equity c

23、apital due to lack of adequate private capital, the firm mayexplore the opportunity of selling equity or debt (totaling up to 25 percent)to the International Finance Corporation.21-12.What are the differences between a parallel loan and a fronting loan?In a parallel loan, the exchange rate markets a

24、re avoided entirely that is, thefunds do not enter the foreign exchange market at all. Also, no financial institutionis involved. In contrast, a fronting loan involves funds moving into foreignmarkets and the involvement of a financial institution to front for the loan. Chapter 21: International Fin

25、ancial Management21-13.What is LIBOR? How does it compare to the U.S. prime rate?LIBOR (London Interbank Offered Rate) is an interbank rate applicable forlarge deposits in the Eurodollar market. It is a benchmark rate just like theprime rate in the United States. Interest rates on Eurodollar loans a

26、redetermined by adding premiums to this basic rate. Generally, LIBOR is lowerthan the U.S. prime rate.21-14.21-15.21-16.What is the danger or concern in floating a Eurobond issue?When a multinational firm borrows money through the Eurobond market(foreign currency denominated debt), it creates transa

27、ction exposure, a kindof foreign exchange risk. If the foreign currency appreciates in value duringthe bonds life, the cost of servicing the debt could be quite high.What are ADRs?ADRs (American Depository Receipts) represent the ownership interest in aforeign companys common stock. The shares of th

28、e foreign company are put intrust in a New York bank. The bank, in turn, issues its depository receipts of theforeign firm to the American stockholders.Comment on any dilemmas that multinational firms and their foreign affiliatesmay face in regard to debt ratio limits and dividend payouts.Debt ratio

29、s in many countries are higher than those in the United States.A foreign affiliate faces a dilemma in its financing decision. Should it followthe parent firms norm or that of the host country? Furthermore, should this bedecided at corporate headquarters or by the foreign affiliate? Dividend policyma

30、y represent another difficult question. Should the parent company dictatethe dividends that the foreign affiliate must distribute or should it be left to thediscretion of the foreign affiliate? Chapter 21: International Financial ManagementChapter 21Problems1. Spot and forward rates (LO21-2) The Wal

31、l Street Journal reported the following spot andforward rates for the Swiss franc ($/SF):Spot. $0.820230-day forward . $0.824490-day forward . $0.8295180-day forward . $0.8343a. Was the Swiss franc selling at a discount or premium in the forward market?b. What was the 30-day forward premium (or disc

32、ount)?c. What was the 90-day forward premium (or discount)?d. Suppose you executed a 90-day forward contract to exchange 100,000 Swiss francs intoU.S. dollars. How many dollars would you get 90 days hence?e. Assume a Swiss bank entered into a 180-day forward contract with Bankers Trust tobuy $100,00

33、0. How many francs will the Swiss bank deliver in six months to get theU.S. dollars?21-1. Solution:a. The Swiss franc was selling at a premium above the spot rate.b. Chapter 21: International Financial Management21-1. (Continued)c.d. 90-day forward rate = $.8295Dollar value of 100,000 Swiss francs$.

34、8295 100,000 = $82,950e. 180-day forward rate = $.83432. Cross rates (LO21-2) Suppose a Polish zloty is selling for $0.3414 and a British pound isselling for 1.4973. What is the exchange rate (cross rate) of the Polish zloty to the Britishpound? That is, how many Polish zlotys are equal to a British

35、 pound?21-2. Solution:One dollar is worth 2.929 Polish zloty ($1/0.3414) and oneBritish pound is worth 1.4973 dollars.Thus, 2.929 Polish zlotys per dollar times 1.4973 dollars perBritish pound equals 4.39 Polish zlotys per British pound. Theanswer is 4.39. Chapter 21: International Financial Managem

36、ent3. Purchasing power theory (LO21-2) From the base price level of 100 in 1979, SaudiArabian and U.S. price levels in 2008 stood at 200 and 410, respectively. If the 1979 $/riyalexchange rate was $0.26/riyal, what should the exchange rate be in 2008? Suggestion:Using purchasing power parity, adjust

37、 the exchange rate to compensate for inflation. Thatis, determine the relative rate of inflation between the United States and Saudi Arabia andmultiply this times $/riyal of 0.26.21-3. Solution:$/riyal = $.26 in 1979The value of the Saudi Arabian riyal to the dollar will rise inproportion to the rat

38、e of inflation in the United States comparedto the rate of inflation in Saudi Arabia.$/riyal (2008) = $.26/riyal 2.05 = .53304. Continuation of Purchasing power theory (LO21-2) From the base price level of 100 in1981, Saudi Arabian and U.S. price levels in 2010 stood at 250 and 100, respectively.Ass

39、ume the 1981 $/riyal exchange rate was $.46/riyal. Suggestion: Using the purchasingpower parity, adjust the exchange rate to compensate for inflation. That is, determine therelative rate of inflation between the United States and Saudi Arabia and multiply thistimes $/riyal of .46. What should the ex

40、change rate be in 2010?21-4. Solution:$/riyal = $.46 in 1981United States 100Comparative rate of inflation 0.4Saudi Arabia 250This is what the riyal should be if the purchasing power paritytheory holds. Chapter 21: International Financial Management$/riyal (2010) = $.46/riyal 0.4 = .185. Adjusting r

41、eturns for exchange rates (LO21-2) An investor in the United States bought aone-year Brazilian security valued at 195,000 Brazilian reals. The U.S. dollar equivalentwas 100,000. The Brazilian security earned 16 percent during the year, but the Brazilianreal depreciated 5 cents against the U.S. dolla

42、r during the time period ($0.51 to $0.46).After transferring the funds back to the United States, what was the investors return on her$100,000? Determine the total ending value of the Brazilian investment in Brazilian realsand then translate this Brazilian value to U.S. dollars. Afterward, compute t

43、he return on the$100,000.21-5. Solution:Initial value (1 + Interest rate)195,000 1.16 = 226,200 Brazilian reals .46 = U.S. dollars equivalent .46 = 104,052 U.S. dollars equivalent= 4.052% rate of returnBrazilian reals226,2004,052*/$100,000*$104,052 $100,000= $4,052 change6.Adjusting returns for exch

44、ange rates (LO21-2) A Peruvian investor buys 150 shares ofa U.S. stock for $7,500 ($50 per share). Over the course of a year, the stock goes up by $4 pershare.a. If there is a 10 percent gain in the value of the dollar versus the nuevo sol, what will bethe total percentage return to the Peruvian inv

45、estor? First, determine the new dollarvalue of the investment and multiply this figure by 1.10. Divide this answer by $7,500and get a percentage value, and then subtract 100 percent to get the percentage return.b. Instead assume that the stock increases by $7, but that the dollar decreases by 10perc

46、ent versus the nuevo sol. What will be the total percentage return to the Peruvianinvestor? Use 0.90 in place of 1.10 in this case.21-6. Solution: Chapter 21: International Financial Managementa. Initial investmentValue after one year150 $50 = $7,500150 $54 = $8,100Equivalent value to thePeruvian in

47、vestor$8,100 1.10 = 8,9108,9101.1880118.80?7,500b. Initial InvestmentValue after one year150 $50 = $7,500150 $57 = $8,550Equivalent value to thePeruvian investor$8,550 .90 = 7,6957,6951.0260 r 17,500r = 1.0260 1 = 2.60%7. Hedging exchange rate risk (LO21-3) You are the vice president of finance for

48、ExploratoryResources, headquartered in Houston, Texas. In January 20X1, your firms Canadiansubsidiary obtained a six-month loan of 150,000 Canadian dollars from a bank in Houston tofinance the acquisition of a titanium mine in the province of Quebec. The loan will also berepaid in Canadian dollars.

49、At the time of the loan, the spot exchange rate was U.S.$.8995/Canadian dollar and the Canadian currency was selling at a discount in the forwardmarket. The June 20X1 contract (face value = C$150,000 per contract) was quoted at U.S.$0.8930/Canadian dollar.a. Explain how the Houston bank could lose o

50、n this transaction assuming no hedging.b. If the bank does hedge with the forward contract, what is the maximum amount it canlose? Chapter 21: International Financial Management21-7. Solution:a. The Houston bank has extended a loan denominated inCanadian dollars and will be repaid in Canadian dollar

51、s. Ifthe Canadian dollar drops in the future (a possibility impliedby the futures contract price), the Houston bank will be paidback in a currency that is worth less at the time it is repaidthan it was at the time it was borrowed.b. If the bank hedges by buying Canadian dollars now forUS$.8995/CD an

52、d contracting to sell them in the future forUS$.8930/CD, the most it can lose is US$975 on theC$150,000 contract or US$.0065/CD.Problem21A-1. Cash flow analysis with a foreign investment (LO21-2) The Office AutomationCorporation is considering a foreign investment. The initial cash outlay will be$10

53、 million. The current foreign exchange rate is 2 ugans = $1. Thus the investment inforeign currency will be 20 million ugans. The assets have a useful life of five yearsand no expected salvage value. The firm uses a straight-line method of depreciation.Sales are expected to be 20 million ugans and o

54、perating cash expenses 10 million ugansevery year for five years. The foreign income tax rate is 25 percent. The foreignsubsidiary will repatriate all aftertax profits to Office Automation in the form ofdividends. Furthermore, the depreciation cash flows(equal to each years depreciation)will be repa

55、triated during the same year they accrue to the foreign subsidiary. Theapplicable cost of capital that reflects the riskiness of the cash flows is 16 percent. TheU.S. tax rate is 40 percent of foreign earnings before taxes.a. Should the Office Automation Corporation undertake the investment if the f

56、oreignexchange rate is expected to remain constant during the five-year period?b. Should Office Automation undertake the investment if the foreign exchange rate isexpected to be as follows: Chapter 21: International Financial ManagementYear 0. $1 = 2.0 ugansYear 1. $1 = 2.2 ugansYear 2. $1 = 2.4 ugansYear 3. $1 = 2.7 ugansYear 4. $1 = 2.9 ugansYear 5. $1 = 3.2 ugans21A-1. Solution:The Office Automation Corporation(Values in millions of ugans)a.Revenue Operating ex