International Financial Management 9th Edition

CHAPTER 1 GLOBALIZATION AND THE MULTINATIONAL FIRM ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Why is it important to study international financial management? Answer: We are now living in a world where all the major economic functions, such as consumption, production, investment, and financing, are highly globalized. It is thus essential for financial managers

CHAPTER 10 MANAGEMENT OF TRANSLATION EXPOSURE SUGGESTED ANSWERS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Explain the difference in the translation process between the monetary/nonmonetary method and the temporal method. Answer: Under the monetary/nonmonetary method, all monetary balance sheet accounts of a foreign subsidiary are translated at the current exchange rate. Other balance sheet accounts are translated

CHAPTER 11 INTERNATIONAL BANKING AND MONEY MARKET ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Briefly discuss some of the services that international banks provide their customers and the market place. Answer: International banks can be characterized by the types of services they provide that distinguish them from domestic banks. Foremost, international banks facilitate

CHAPTER 12 INTERNATIONAL BOND MARKETS ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Describe the differences between foreign bonds and Eurobonds. Also discuss why Eurobonds make up the lion’s share of the international bond market. Answer: The two segments of the international bond market are: foreign bonds and Eurobonds. A foreign bond issue is one offered

CHAPTER 13 INTERNATIONAL EQUITY MARKETS ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Exhibit 13.8 presents a listing of major national stock market indexes as displayed daily in the print edition of the Financial Times. At www.ft.com you can find an online tracking of these national stock market indexes that shows performance over

CHAPTER 14 INTEREST RATE AND CURRENCY SWAPS ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Describe the difference between a swap broker and a swap dealer. Answer: A swap broker arranges a swap between two counterparties for a fee without taking a risk position in the swap. A swap dealer is a market

CHAPTER 15 INTERNATIONAL PORTFOLIO INVESTMENT ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. What factors are responsible for the recent surge in international portfolio investment (IPI)? Answer: The recent surge in international portfolio investments reflects the globalization of financial markets. Specifically, many countries have liberalized and deregulated their capital and foreign exchange markets in

CHAPTER 16 FOREIGN DIRECT INVESTMENT AND CROSS-BORDER ACQUISITIONS ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Recently, many foreign firms from both developed and developing countries acquired hightech U.S. firms. What might have motivated these firms to acquire U.S. firms? Answer: Many foreign firms might have been motivated to gain access to

CHAPTER 17 INTERNATIONAL CAPITAL STRUCTURE AND THE COST OF CAPITAL ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Suppose that your firm is operating in a segmented capital market. What actions would you recommend to mitigate the negative effects? Answer: The best solution for this problem is to cross-list your firm’s stock in

CHAPTER 18 INTERNATIONAL CAPITAL BUDGETING ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Why is capital budgeting analysis so important to the firm? Answer: The fundamental goal of the financial manager is to maximize shareholder wealth. Capital investments with positive NPV or APV contribute to shareholder wealth. Additionally, capital investments generally represent large expenditures

CHAPTER 19 MULTINATIONAL CASH MANAGEMENT ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Describe the key factors contributing to effective cash management within a firm. Why is the cash management process more difficult in a MNC? Answer: An effective cash management system should be based on a cash budget that projects expected cash inflows and

CHAPTER 2 INTERNATIONAL MONETARY SYSTEM ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Explain Gresham’s Law. Answer: Gresham’s law refers to the phenomenon that bad (abundant) money drives good (scarce) money out of circulation. This kind of phenomenon was often observed under the bimetallic standard under which both gold and silver were used as

CHAPTER 20 INTERNATIONAL TRADE FINANCE ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Discuss some of the reasons why international trade is more difficult and risky from the exporter’s perspective than is domestic trade. Answer: International trade is more difficult and risky for a firm than is domestic trade. In foreign trade, the exporter

International Financial Management CHAPTER 21 INTERNATIONAL TAX ENVIRONMENT AND TRANSFER PRICING ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Discuss the twin objectives of taxation. Be sure to define the key words. Answer: There are two basic objectives of taxation that are necessary to discuss to help frame our thinking about the international tax

CHAPTER 3 BALANCE OF PAYMENTS ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Define balance of payments. Answer: The balance of payments (BOP) can be defined as the statistical record of a country’s international transactions over a certain period of time presented in the form of double-entry bookkeeping. 2. Why would it be useful to

CHAPTER 4 CORPORATE GOVERNANCE AROUND THE WORLD SUGGESTED ANSWERS TO END-OF-CHAPTERQUESTIONS AND PROBLEMS Questions 1. The majority of major corporations are franchised as public corporations. Discuss the key strength and weakness of the ‘public corporation’. When do you think the public corporation as an organizational form is unsuitable? Answer: The key strength of the public corporation

CHAPTER 5 THE MARKET FOR FOREIGN EXCHANGE ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Give a full definition of the market for foreign exchange. Answer: Broadly defined, the foreign exchange (FX) market encompasses the conversion of purchasing power from one currency into another, bank deposits of foreign currency, the extension of credit denominated in

CHAPTER 6 INTERNATIONAL PARITY RELATIONSHIPS AND FORECASTING FOREIGN EXCHANGE RATES ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Give a full definition of arbitrage. Answer: Arbitrage can be defined as the act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making certain, guaranteed profits. 2. Discuss the

CHAPTER 7 FUTURES AND OPTIONS ON FOREIGN EXCHANGE ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Explain the basic differences between the operation of a currency forward market and a futures market. Answer: The forward market is an OTC market where the forward contract for purchase or sale of foreign currency is tailor-made between

CHAPTER 8 MANAGEMENT OF TRANSACTION EXPOSURE ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. How would you define transaction exposure? How is it different from economic exposure? Answer: Transaction exposure is the sensitivity of realized domestic currency values of the firm’s contractual cash flows denominated in foreign currencies to unexpected changes in exchange rates.

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