Fundamentals of Multinational Finance 6th Edition

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 1 Multinational Financial Management: Opportunities and Challenges Learning Objectives 1. Understand how financial globalization alters the risks of multinational business 2. Explore the structures of the global financial marketplace 3. Consider how the

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 2 The International Monetary System Learning Objectives 1. Explore how the international monetary system has evolved from the days of the gold standard to todays eclectic currency arrangement 2. Examine how the choice

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 3 The Balance of Payments Learning Objectives 1. Explore the fundamentals of balance of payments accounting, how nations measure their own levels of international economic activity and cross-border payments 2. Examine the two

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 4 Financial Goals and Corporate Governance Learning Objectives 1. Examine the different ownership structures for businesses globally, and how this impacts the separation between ownership and managementthe agency problem 2. Explore how financial

2018 Pearson Education, Inc 2018 Pearson Education, Inc 2018 Pearson Education, Inc Chapter 5 The Foreign Exchange Market Learning Objectives 1. Explore the multitude of functions of the foreign exchange market 2. Detail how the structure of the global foreign exchange market has evolved 3. Describe

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 6 International Parity Conditions Learning Objectives 1. Examine how price levels and price level changes (inflation) in countries determine the exchange rate at which their currencies are traded 2. Show how interest rates

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 7 Foreign Currency Derivatives: Futures and Options Learning Objectives 1. Explain how foreign currency futures are quoted, valued, and used for speculation purposes 2. Explore the buying and writing of foreign currency options

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 8 Interest Rate Risk and Swaps Learning Objectives 1. Explain interest rate fundamentals, including basic floating rates of interest and fixed rates of interest 2. Define corporate interest rate risk and examine a

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 9 Foreign Exchange Rate Determination and Intervention Learning Objectives 1. Explore how the three major approaches to exchange rate determination 2. Detail how and why direct and indirect foreign exchange market intervention is

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 10 Transaction Exposure Learning Objectives 1. Examine the three major foreign exchange exposures experienced by firms 2. Explore why firms hedge foreign exchange exposure 3. Detail how transaction exposure is defined and measured

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 11 Translation Exposure Learning Objectives 1. Describe how the consolidation of a multinational firms foreign entities creates translation exposure 2. Examine the two major methods of translation, including their theoretical and practical differences

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 12 Operating Exposure Learning Objectives 1. Examine how operating exposure arises in a multinational firm through unexpected changes in corporate cash flows 2. Analyze how to measure operating exposures impact on a business

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 13 Global Cost and Availability of Capital Learning Objectives 1. Explore the evolution of how corporate strategy and financial globalization may align 2. Examine how international portfolio theory and diversification alter the global

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 14 Funding the Multinational Firm Learning Objectives 1. Design a strategy to source capital equity globally 2. Examine the differences in the optimal financial structure of the multinational firm compared to that of

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 15 Multinational Tax Management Learning Objectives 1. Explore the tax principals and practice employed by governments around the globe 2. Examine how multinational firms manage their global tax liabilities 3. Analyze how Google

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 16 International Trade Finance Learning Objectives 1. Discover the key elements of an import or export business transaction that define the trade relationship 2. Explore how the three key documents in import/export combine

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 17 Foreign Direct Investment and Political Risk Learning Objectives 1. Demonstrate how key competitive advantages support a strategy to sustain direct foreign investment 2. Explore the decision process of the multinational in its

2018 Pearson Education, Inc. 2018 Pearson Education, Inc. 2018 Pearson Education, Inc. Chapter 18 Multinational Capital Budgeting and Cross-Border Acquisitions Learning Objectives 1. Explore the complexities of budgeting for a foreign project 2. Illustrate multinational capital budgeting with the case of Cemex entering Indonesia 3. Describe

Assumptions Value US dollar funds for expenses in Rio de Janeiro $15,000.00 Average exchange rate for the month (BRL = 1.00 USD): January BRL 4.0553 February BRL 3.9651 March BRL 3.6984 April BRL 3.5639 May BRL 3.5416 June BRL 3.4236 July BRL 3.2785 August 8 in Airport BRL 3.1805 Answers Toys Brazilian real proceeds

Vitro's U.S. Sales Percent Annual Avg Rate Vitro's U.S. Sales Percent Year (millions of USD) Change MXN = 1 USD (millions of MXN) Change 2011 USD 820 MXN 12.80 MXN 10,496 2012 USD 842 2.7% MXN 13.30 MXN 11,199 6.7% 2013 USD 845 0.4% MXN 12.70 MXN 10,732 -4.2% 2014 USD 860 1.8% MXN 13.40

Assumptions Values Buy a US dollar in Bologna for (/$) 0.9000 Which is equivalent, the reciprocal ($/) $1.1111 Buy a euro in Chicago for ($/) $1.1000 Which is equivalent, the reciprocal (/$) 0.9091 There is an obvious minor difference between the two currency quotes. Problem 2.1 Alexis Salas in Bologna Alexis Salas lives

Australia's Current Account Australia's Current Account Use the following data from the International Monetary Fund to answer questions 3.1 through 3.4. Assumptions (million US$) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 3.1 What is Australia's balance on goods? 3.2 What is Australia's balance on services? Goods, credit (exports) 107,011 124,913 142,421

Assumptions Value Share price, P1 12.00$ Share price, P2 15.00$ Dividend paid, D2 -$ a. If the company paid no dividend (plugging zero in for the dividend): Return = ( D2 / P1 ) + ( P2 - P1 ) / P1 25.000% b. And if the company paid a $1.00 dividend: Assumptions

Assumptions Values Singapore dollars to be exchanged SGD 1,000.00 Spot rate (SGD = 1.00 USD) 1.3400 Spot rate (USD = 1.00 AUD) 0.7640 a. What is the SGD per AUD cross rate? 1.0238 SGD per AUD = SGD/USD x USD/SGD b. How many Australian dollars will Anne get? AUD 1,024 Converting SGD to AUD at the calculated

a. How many dollars might Theresa expect to need one year hence to pay for her 30-day vacation? b. By what percent has the dollar cost gone up? Why? Assumptions Value Charge for suite plus meals in Malaysian ringgit (RM) 1,045.00 Spot exchange rate (RM/$) 3.1350 US$ cost today for a 30 day

Value SFr. Equivalent Arbitrage funds available $1,000,000 SFr. 1,339,200 Spot exchange rate (SFr./$) 1.3392 3-month forward rate (SFr./$) 1.3286 U.S. dollar 3-month interest rate 4.750% Swiss franc3-month interest rate 3.625% Difference in interest rates ( i SFr. - i $) -1.125% Forward premium on the Swiss france 3.191% CIA profit 2.066% U.S. dollar interest rate (3-month) START 4.750%

British Pound Futures, US$/pound (CME) Contract = 62,500 pounds Open Maturity Open High Low Settle Change High Interest March 1.4246 1.4268 1.4214 1.4228 0.0032 1.4700 25,605 June 1.4164 1.4188 1.4146 1.4162 0.0030 1.4550 809 a. If Tony buys 5 June pound futures, and the spot rate at maturity is $1.3980/, what is the

Assumptions 3-Month T-Bill 6-Month T-Bill Treasury bill, face value $10,000.00 $10,000.00 Price at sale $9,993.93 $9,976.74 a. Discount on sale $6.07 $23.26 b. Simple yield 0.0607% 0.2331% c. Annualized yield 0.2432% 0.4668% The interest yields on U.S. Treasury securities in early 2009 fell to very low levels as a result of the combined events surrounding the

Assumptions Rate Values Initial spot rate, 1999 (Sucre/$) S1 5,000 Ending spot rate, 1999 (Sucre/$) S2 25,000 Calculation of percentage change: Percentage change in the sucre versus the dollar -80.00% Percent change = ( S1 - S2 ) ( S2 ) Problem 9.1 Ecuadorian Hyper-Inflation The Ecuadorian sucre (S) suffered from hyper-inflationary forces throughout 1999.

Spot rate, /$ 111.40/$ 30-day forward rate, /$ 111.00/$ 90-day forward rate, /$ 110.40/$ 180-day forward rate, /$ 109.20/$ Numata's WACC 8.850% BioTron Medical's WACC 9.200% Assumptions Values BioTron's 30-day account receivable, Japanese yen 12,500,000 Spot rate, /$ 111.40 30-day forward rate, /$ 111.00 90-day forward rate, /$ 110.40 180-day forward rate, /$ 109.20 Numata's WACC 8.850% BioTron

Current spot rate ($/) $1.4158 Credit Suisse 90-day forward rate ($/) $1.4172 Barclays 90-day forward rate ($/) $1.4195 Mattel Toys WACC ($) 9.600% 90-day eurodollar interest rate 4.000% 90-day euro interest rate 3.885% 90-day eurodollar borrowing rate 5.000% 90-day euro borrowing rate 5.000% Assumptions Values 90-day A/R () 30,000,000.00 Current spot rate ($/) $1.4158 Credit Suisse 90-day forward rate ($/) $1.4172 Barclays

Translated Translated Euros Exchange Rate Accounts Exchange Rate Accounts Assets Statement (US$/euro) US dollars (US$/euro) US dollars Cash 1,600,000 1.2000 1,920,000$ 0.9000 1,440,000$ Accounts receivable 3,200,000 1.2000 3,840,000 0.9000 2,880,000 Inventory 2,400,000 1.2000 2,880,000 0.9000 2,160,000 Net plant & equipment 4,800,000 1.2000 5,760,000 0.9000 4,320,000 Total 12,000,000 14,400,000$ 10,800,000$ Liabilities & Net

a. How much should Mauna Loa borrow in yen? Mauna Loa receives cash collections of one hundred million yen per month. This is the source of repayment of any balance sheet hedge. If Mauna Loa wants to be covered for one year at a time, it would need to borrow one year's cash

a. What is Electrolux's cost of debt, after-tax, in SEK? b. What is Electrolux's cost of equity in SEK? c. What is the Electrolux's market capitalization? d. What is Electrolux's total value of equity outstanding? e. What proportion of Electrolux's capital structure is debt? f. What proportion of Electrolux's capital structure is equity? g. What is

a. What is the dollar cost of this debt if the pound depreciates from $2.0260/ to $1.9460/ over the year? b. What is the dollar cost of this debt if the pound appreciates from $2.0260/ to $2.1640/ over the year? Assumptions a) Depreciating b) Appreciating Principal borrowed (British pounds) 5,000,000 5,000,000 Pound interest

Baseline Values Case 1 Case 2 a Foreign corporate income tax rate 28% 45% b U.S. corporate income tax rate 35% 35% c Foreign dividend witholding tax rate 15% 0% d U.S. ownership in foreign firm 100% 100% e Dividend payout rate of foreign firm 100% 100% Foreign Subsidiary Tax Computation1 Taxable income of foreign subsidiary

Assumptions Values Face amount of sale 700,000 Maturity, days 90 Trade acceptance fee, per annum 1.000% Discount rate on sale of acceptance, per annum 4.000% All-in-Cost of Trade Acceptance Face amount of the receivable 700,000 Less trade acceptance fee (1,750) (amount financed x acceptance fee x (days/360) ) Less discount on the sale of acceptance (7,000)

Assumptions Values Expected free cash flow in 2003 13,000,000 Expected growth rate in free cash flow 8.00% Assumed sale multiple of FCF in year 3 10 Spot exchange rate, Lempiras/$ (2002) 14.80 US dollar inflation rate 2.0% Honduran lempira inflation rate 16.0% Slinger Wayne required return (annual rate) 20.0% 0 1 2 3 a) Carambola's value

1 Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 1 Multinational Financial Management: Opportunities and Challenges 1.1 Financial Globalization and Risk 1) Financial globalization has not resulted in: A) continuing imbalances of

1 Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 10 Transaction Exposure 10.1 Types of Foreign Exchange Exposure 1) ________ exposure deals with cash flows that result from existing contractual obligations. A)

1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 11 Translation Exposure 11.1 Overview of Translation 1) Translation exposure may also be called ________ exposure. A) transaction B) operating C)

1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 12 Operating Exposure 12.1 A Multinationals Operating Exposure 1) Another name for operating exposure is ________ exposure. A) economic B) competitive

1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 13 The Global Cost and Availability of Capital 13.1 Financial Globalization and Strategy 1) If a firm lies within a country

12 Copyright 2018 Pearson Education, Inc. 12 Copyright 2018 Pearson Education, Inc. 12 Copyright 2018 Pearson Education, Inc. 14) Use of the International CAPM (ICAPM) assures that the WACC will be lower than if a purely domestic market portfolio had been used in the estimation of the cost of equity.

1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 14 Raising Equity and Debt Globally 14.1 Designing a Strategy to Source Capital Globally 1) The choice of when and how

15 Copyright 2018 Pearson Education, Inc. 15 Copyright 2018 Pearson Education, Inc. 15 Copyright 2018 Pearson Education, Inc. 5) ADRs that are created at the request of a foreign firm wanting its shares traded in the United States are: A) facilitated. B) unfacilitated. C) sponsored. D) unsponsored. Answer: C Diff:

1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 15 Multinational Tax Management 15.1 Tax Principles 1) The issue of ethics in the reporting of income and the payment of

1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 16 International Trade Finance 16.1 The Trade Relationship 1) The exporter-importer relationship to a corporation of a foreign importer that has

1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 17 Foreign Direct Investment and Political Risk 17.1 The Foreign Direct Investment Decision 1) An example of economies of scale in

1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. 1 Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 18 Multinational Capital Budgeting and Cross-Border Acquisitions 18.1 Complexities of Budgeting for a Foreign Project 1) The traditional financial analysis applied

1 Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 2 The International Monetary System 2.1 History of the International Monetary System 1) Under the gold standard of currency exchange that existed from

1 Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 3 The Balance of Payments 3.1 Fundamentals of BOP Accounting 1) Which of the following is NOT a major subaccount of the Balance

13 Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. 27) The biggest problem that China faces in maintaining a stable value for their currency, the yuan, is their lack of foreign exchange reserves. Answer: FALSE Diff: 1 L.O.: 3.2 The Accounts of the

1 Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 4 Financial Goals and Corporate Governance 4.1 Who Owns the Business? 1) Foreign stock markets are frequently characterized by controlling shareholders for the

1 Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 5 The Foreign Exchange Market 5.1 Functions of the Foreign Exchange Market 1) Which of the following is NOT true regarding the market

1 Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 6 International Parity Conditions 6.1 Prices and Exchange Rates 1) If an identical product can be sold in two different markets, and no

1 Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 7 Foreign Currency Derivatives: Futures and Options 7.1 Foreign Currency Futures 1) Financial derivatives are powerful tools that can be used by management

13 Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. 23) The buyer (long) of a put option: A) has a maximum loss equal to the premium paid. B) has a gain equal to but opposite in sign to the writer of the option.

1 Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 8 Interest Risk and Swaps 8.1 Interest Rate Derivatives 1) ________ is the possibility that the borrower's creditworthiness is reclassified by the lender

1 Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Copyright 2018 Pearson Education, Inc. Fundamentals of Multinational Finance, 6e (Moffett et al.) Chapter 9 Foreign Exchange Rate Determination 9.1 Exchange Rate Determination: The Theoretical Thread 1) An important thing to remember about foreign exchange rate determination