International Financial Management 8th Edition

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution

Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. CHAPTER 9 MANAGEMENT OF ECONOMIC EXPOSURE ANSWERS & SOLUTIONS TO END OF CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. How would you define economic exposure to exchange risk? Answer:

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 1 Globalization and the Multinational Firm Chapter 1 Globalization and the Multinational Firm Chapter 1 Globalization and the Multinational Firm 1) What major dimension sets apart international finance from domestic finance?

20 Copyright 2018 McGraw-Hill Answer: B Explanation: To produce one additional pound of food, it costs Country A 2 yards of textiles (1200/600). Given it only costs Country B 1 yard of textiles (500/500), then Country B has a relative advantage in producing food because 1 < 2. However, to

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 10 Management of Translation Exposure Chapter 10 Management of Translation Exposure Chapter 10 Management of Translation Exposure 1) Under the monetary/nonmonetary method, revenue and expense items associated with nonmonetary accounts, such

15 Copyright 2018 McGraw-Hill 15 Copyright 2018 McGraw-Hill 15 Copyright 2018 McGraw-Hill 47) Financial Accounting Standards Board (FASB) Statements 8 and 52 relate to the translation methods. The following outlines the objectives and descriptions of the two statements. (i) Measure in dollars an enterprise's assets, liabilities, revenues, or expenses

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 11 International Banking and Money Market Chapter 11 International Banking and Money Market Chapter 11 International Banking and Money Market 1) Edge Act banks are not prohibited from owning equity in

16 Copyright 2018 McGraw-Hill 16 Copyright 2018 McGraw-Hill 16 Copyright 2018 McGraw-Hill 54) In reference to capital requirements, A) bank capital adequacy refers to the amount of equity capital a bank holds as reserves against impaired loans. B) bank capital adequacy refers to the amount of debt capital a bank

International Financial Management, 8e (Eun) Chapter 12 International Bond Market Chapter 12 International Bond Market Chapter 12 International Bond Market 1) Eurobonds sold in the United States may not be sold to U.S. citizens. Answer: TRUE Topic: National Security Regulation Accessibility: Keyboard Navigation Answer: TRUE Topic: National Security

54) The floor value of a convertible bond A) is the "straight bond" value. B) is the conversion value. C) is the minimum of the "straight bond" value and the conversion value. D) is the maximum of the "straight bond" value and the conversion value. Answer: D Topic:

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 13 International Equity Markets Chapter 13 International Equity Markets Chapter 13 International Equity Markets 1) In a dealer market, the broker takes the trade through the dealer, who participates in trades

15 Copyright 2018 McGraw-Hill 15 Copyright 2018 McGraw-Hill 15 Copyright 2018 McGraw-Hill 57) A type of non-continuous exchange trading system is crowd trading. A) Unlike a call market in which there is a common price for all trades, several bilateral trades may take place at different prices in crowd trading.

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 14 Interest Rate and Currency Swaps Chapter 14 Interest Rate and Currency Swaps Chapter 14 Interest Rate and Currency Swaps 1) The term interest rate swap A) refers to a "single-currency

21 Copyright 2018 McGraw-Hill 21 Copyright 2018 McGraw-Hill 21 Copyright 2018 McGraw-Hill 32) Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow 5,000,000 fixed for 5 years. The exchange rate is $2 = 1 and is not expected to change over the next 5

41 Copyright 2018 McGraw-Hill 41 Copyright 2018 McGraw-Hill 41 Copyright 2018 McGraw-Hill 76) Consider the situation of firm A and firm B. The current exchange rate is $1.50/. Firm A is a U.S. MNC and wants to borrow 40 million for 2 years. Firm B is a French MNC and

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 15 International Portfolio Investment Chapter 15 International Portfolio Investment Chapter 15 International Portfolio Investment 1) Under the investment dollar premium system, A) U.K. residents received a premium over the prevailing commercial

19 Copyright 2018 McGraw-Hill 19 Copyright 2018 McGraw-Hill 19 Copyright 2018 McGraw-Hill 60) Hedge fund advisors typically receive a "2-plus-twenty" management fee A) meaning 2 percent per year of the assets under management, plus performance fee 20 percent of any capital appreciation. B) meaning 2 percent per year of the

1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 16 Foreign Direct Investment and Cross-Border Acquisitions 1) In the early 1980s, Honda, the Japanese automobile company, built an assembly plant in Marysville, Ohio, and began to produce cars for the North American market. As the production capacity

15 Copyright 2018 McGraw-Hill 15 Copyright 2018 McGraw-Hill 15 Copyright 2018 McGraw-Hill 57) Which of the following statements is true about product life cycle theory? A) In the early stages of the product life cycle, the demand for the new product is relatively insensitive to the price and thus

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 17 International Capital Structure and the Cost of Capital 1) The cost of capital is A) the minimum rate of return an investment project must generate in order to pay its

17 Copyright 2018 McGraw-Hill 17 Copyright 2018 McGraw-Hill 17 Copyright 2018 McGraw-Hill 56) Compute the debt-to-equity ratio for a firm that has a debt-to-value ratio of 60 percent. A) 1/3 B) 2/5 C) 3/2 D) none of the options Answer: C Explanation: Solve for equity = 3/(3 + X)

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 18 International Capital Budgeting Chapter 18 International Capital Budgeting Chapter 18 International Capital Budgeting 1) The financial manager's responsibility involves A) increasing the per share price of the company's stock at

21 Copyright 2018 McGraw-Hill 21 Copyright 2018 McGraw-Hill 21 Copyright 2018 McGraw-Hill 33) Consider a project of the Cornell Haul Moving Company, the timing and size of the incremental after-tax cash flows (for an all-equity firm) are shown below in millions: The firm's tax rate is 34

41 Copyright 2018 McGraw-Hill 41 Copyright 2018 McGraw-Hill 41 Copyright 2018 McGraw-Hill 69) Consider the following international investment opportunity. It involves a gold mine that can be opened at a cost, then produces a positive cash flow, but then requires environmental clean-up. The current exchange rate is

56 Copyright 2018 McGraw-Hill 56 Copyright 2018 McGraw-Hill 56 Copyright 2018 McGraw-Hill 83) A French firm is considering a one-year investment in the United Kingdom with a pound-denominated rate of return of i = 15%. The firm's local cost of capital is i = 10%. The project costs 1,000 and

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 19 Multinational Cash Management Chapter 19 Multinational Cash Management Chapter 19 Multinational Cash Management 1) Many of the skills necessary for effective cash management are the same regardless of whether the

21 Copyright 2018 McGraw-Hill Copyright 2018 McGraw-Hill Copyright 2018 McGraw-Hill 37) For a recent month, the following payments matrix of inter-affiliate cash flows was forecasted: Disbursement From: Receipts by: France Britain U.S. France 500 800 Britain 300

32 Copyright 2018 McGraw-Hill 32 Copyright 2018 McGraw-Hill 32 Copyright 2018 McGraw-Hill 60) When engaged in bilateral netting A) total inter-affiliate receipts will always equal total inter-affiliate disbursements. B) we can reduce the number of foreign exchange transactions among an MNC with N affiliates to or less. C) each

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 2 International Monetary System Chapter 2 International Monetary System Chapter 2 International Monetary System 1) The international monetary system can be defined as the institutional framework within which A) international payments

16 Copyright 2018 McGraw-Hill 53) Gold was officially abandoned as an international reserve asset A) in the January 1976 Jamaica Agreement. B) in the 1971 Smithsonian Agreement. C) in the 1944 Bretton Woods Agreement. D) none of the options Answer: A Topic: The Flexible Exchange Rate System Accessibility: Keyboard

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 20 International Trade Finance Chapter 20 International Trade Finance Chapter 20 International Trade Finance 1) Forfaiting (forfeiting) meets Islamic finance practices. Answer: TRUE Topic: International Finance in Practice: First Islamic

18 Copyright 2018 McGraw-Hill 18 Copyright 2018 McGraw-Hill 18 Copyright 2018 McGraw-Hill 63) The time from acceptance to maturity on a $2,000,000 banker's acceptance is 90 days. The importing bank's acceptance commission is 1.25 percent and the market rate for 90-day B/As is 6 percent. Determine the bond equivalent

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 21 International Tax Environment and Transfer Pricing Chapter 21 International Tax Environment and Transfer Pricing Chapter 21 International Tax Environment and Transfer Pricing 1) An income tax is a direct tax.

16 Copyright 2018 McGraw-Hill 16 Copyright 2018 McGraw-Hill 16 Copyright 2018 McGraw-Hill 49) Fundamentally, there are two types of tax jurisdiction. A) The worldwide and the territorial B) The residential and the visiting C) The passive and the active income D) The earned and the unearned Answer: A Topic:

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 3 Balance of Payments Chapter 3 Balance of Payments Chapter 3 Balance of Payments 1) Over half of all dollar bills in circulation are held outside American's borders. Answer: TRUE

16 Copyright 2018 McGraw-Hill 16 Copyright 2018 McGraw-Hill 16 Copyright 2018 McGraw-Hill 58) The central bank of the United States is A) the New York Fed. B) the Federal Reserve System. C) the EXIM bank. D) none of the optionsthe U.S. does not have a central bank. Answer: B

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 4 Corporate Governance Around the World 1) Countries with strong shareholder protection tend to have more valuable stock markets and more companies listed on stock exchanges per capita than countries with

15 Copyright 2018 McGraw-Hill 15 Copyright 2018 McGraw-Hill 15 Copyright 2018 McGraw-Hill 53) Accounting transparency A) can only be achieved when managers commit to serving on their own audit committee. B) occurs when the accounting department has translucent cubicles for their workers. C) promises to reduce the information asymmetry between

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 5 The Market for Foreign Exchange Chapter 5 The Market for Foreign Exchange Chapter 5 The Market for Foreign Exchange 1) The world's largest foreign exchange trading center is A) New

21 Copyright 2018 McGraw-Hill 21 Copyright 2018 McGraw-Hill 21 Copyright 2018 McGraw-Hill 67) Restate the following one-, three-, and six-month outright forward American term bid-ask quotes in forward points: S($/SFr) = 0.8500 0.8505 F1($/SFr) = 0.8505 0.8505 F3($/SFr) = 0.8510 0.8520 F6($/SFr) = 0.8515 0.8530

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 6 International Parity Relationships and Forecasting Foreign Exchange Rates Chapter 6 International Parity Relationships and Forecasting Foreign Exchange Rates Chapter 6 International Parity Relationships and Forecasting Foreign Exchange Rates 1) An

15 Copyright 2018 McGraw-Hill 15 Copyright 2018 McGraw-Hill 15 Copyright 2018 McGraw-Hill 42) Forward parity states that A) any forward premium or discount is equal to the expected change in the exchange rate. B) any forward premium or discount is equal to the actual change in the exchange rate. C)

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 7 Futures and Options on Foreign Exchange Chapter 7 Futures and Options on Foreign Exchange Chapter 7 Futures and Options on Foreign Exchange 1) A put option on $15,000 with a

21 Copyright 2018 McGraw-Hill 21 Copyright 2018 McGraw-Hill 21 Copyright 2018 McGraw-Hill 56) Find the hedge ratio for a call option on 10,000 with a strike price of 12,500. The current exchange rate is 1.50/1.00 and in the next period the exchange rate can increase to 2.40/ or decrease to

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 8 Management of Transaction Exposure 1) Transaction exposure is defined as A) the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected

21 Copyright 2018 McGraw-Hill Answer: C Explanation: 100 contracts = 1,000,000 / 10,000; $2,000,000 = 1,000,000 $2; Solve the proportion for X: ($2,000,000 / X) = ($1.60 / 1), where X = 1,250,000. Next, 1,250,000 / 10,000 = 125 contracts. Topic: Forward Market Hedge 22 Copyright 2018 McGraw-Hill

41 Copyright 2018 McGraw-Hill 41 Copyright 2018 McGraw-Hill 41 Copyright 2018 McGraw-Hill 44) Your firm is a Swiss exporter of bicycles. You have sold an order to a British firm for 1,000,000 worth of bicycles. Payment from the British firm (in pounds sterling) is due in 12 months. Use a

1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill 1 Copyright 2018 McGraw-Hill International Financial Management, 8e (Eun) Chapter 9 Management of Economic Exposure Chapter 9 Management of Economic Exposure Chapter 9 Management of Economic Exposure 1) Suppose the U.S. dollar substantially depreciates against the Japanese yen. The change in

21 Copyright 2018 McGraw-Hill 21 Copyright 2018 McGraw-Hill 21 Copyright 2018 McGraw-Hill 46) A U.S. firm holds an asset in Great Britain and faces the following scenario: State 1 State 2 State 3 Probability 25% 50% 25% Spot rate $ 2.50 / $ 2.00 /

33 Copyright 2018 McGraw-Hill 33 Copyright 2018 McGraw-Hill 33 Copyright 2018 McGraw-Hill 62) Consider a U.S.-based MNC with a wholly-owned Italian subsidiary. Following a depreciation of the dollar against the euro, which of the following conclusions are correct? A) The cash flow in euro could be altered due an alteration