CHAPTER 13
THE MULTINATIONAL CORPORATION IN A GLOBAL SETTING
Questions
1. Forward contracts are usually executed through commercial banks, but sometimes
by currency brokers. The amounts and due dates are set through these contracts.
2. The importer should buy a 30-day forward contract for €500,000. This will
protect the importer against a weakening of the dollar. If the dollar were to
3. If the price of the foreign currency remains below the strike price, the U.S.
4. The complications faced by a multinational corporation include the
following:
Different rates of inflation among countries
5. It is generally accepted that a capital budgeting decision should be based on the
cash flows received by the parent company. It is the parent company that must
6. A multinational corporation could face double taxation. This could occur
when the parent receives payments from its foreign subsidiary. The subsidiary
The Multinational Corporation in a Global Setting 124
7. A multinational corporation can influence its tax liability by charging either high
or low prices on goods or services that are transacted among its units. For
Problems
1. a. Net cash flow, year 1 €442,478
b. Net cash flow, year 1 (€600,000 x 1.15) $508,850
Net cash flow, year 2 (€800,000 x 1.10) 689,169
c. Although the net present value to the subsidiary is a small positive
3. a. Country A Country B
Revenue 100,000 140,000
b. Country A Country B
Revenue 120,000 140,000
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The Multinational Corporation in a Global Setting 125
c. Country A Country B
Revenue 100,000 140,000
Cost of sales 65.000 100,000
d. Country A Country B
Revenue 90,000 140,000
Cost of sales 65.000 90,000
3. a. $1,400,000
4. a. Yes – $0.005
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