10-18. Ethical Dilemma:
Suppose you are president of West Turner Bank (WTB). WTB made loans for
major construction projects in countries in Eastern Europe and North Africa.
However, WTB’s fortunes declined in recent years and the bank now faces
financial ruin. WTB senior management decided to call in loans made to these
countries, to strengthen the bank’s deteriorating finances. That is, management
decided to force borrowers in the construction projects to repay their loans
immediately. You know that calling the loans will cause thousands of workers in
the affected countries to lose their jobs. What should you do? Use the Ethical
Framework in Chapter 4 to analyze this situation. Can you find any “creative”
solutions to the dilemma?
(LO 10.1; LO 10.2; AACSB: Reflective thinking)
Ethical Framework
1. Identify the problem
2. Examine the facts
3. Create alternatives
Evaluate each proposed action to assess its consistency with accepted ethical
standards, using the approaches described earlier:
4. Implement course of action
5. Evaluate results
1. Identify the problem
■ Managers must learn to recognize and manage ethical problems – proactively
anticipate, confront and scan for ethical challenges.
This Dilemma:
In the wake of the recent global financial crisis, West Turner Bank (WTB), a major
financial institution, is facing financial ruin. The executive committee has decided
2. Examine the facts
■ Managers must systematically explore the ethical aspects of each decision the firm
may make, regarding its current and potential activities. Determine the nature and
This Dilemma:
On the brink of financial ruin, West Turner Bank (WTB) is forced to call in
construction loans it made in Eastern Europe and North Africa. Which
stakeholder group, if any, should be given particular attention? Are shareholders,
employees or customers disproportionately disadvantaged?
3. Create alternatives
This Dilemma:
What factors should the WTB executive committee consider in deciding whether
to call in the loans?
Utilitarian – which action results in the most good and least harm?
◘ WTB Calls In The Loans– Most good for capital market stakeholders- shareholders
and employees- survival; profits increase
Rights – which action respects the rights of everyone involved?
Fairness – which action treats people most fairly?
Common Good – which action contributes most to the overall quality of life of
the people affected?
Virtue – which action embodies the character strengths that you value?
■ The goal is to arrive at the best decision or most appropriate course of action. Assess
4. Implement course of action
■ Implement your decision.
5. Evaluate results
■ Then evaluate your decision to see how effective it was. How did it turn out? If you
had it to do again, would you do anything differently?
This Dilemma: Students may use the above-mentioned points as a springboard
for further discussion of whether WTB should call in major construction loans in
Eastern Europe and North Africa.
■ Students should be encouraged to discover creative solutions on their own.
Here are three possibilities:
Microfinancing
■ Is microfinancing an option? It appears at this writing that the industry may be
in trouble due to usurious interest rates charged to a captive target of already
poor borrowers. Perhaps assign an extra credit assignment to research this
industry and report on its sustainability in Bangladesh, India and elsewhere.
World Bank
Refinance
■ As a result of the recent global financial crisis, interest rates have plummeted.
● GlobalEDGE™ INTERNET EXERCISES http://globaledge.msu.edu
10-19. The World Federation of Exchanges is the organization that represents
major stock exchanges worldwide. Visit the online portal at
www.world-exchanges.org and use the annual report of the Federation as well as
detailed statistics available on individual exchanges to answer the following
questions:
(LO 10.5; AACSB: Application of knowledge)
a. What percentage of the world market capitalization is represented by the top 10
exchanges?
b. For the most recent year, what exchanges accounted for the largest increases
in market capitalization?
Decreases in market capitalization? (2008-2009)
NYSE Euronext US -25.7%
http://www.world-exchanges.org/files/statistics/pdf/WFE2010AR%20final.pdf
pg. 41
Accessed November 12, 2012
c. Which exchanges have seen the greatest increase recently in the number of
firms listed?
Newly Listed Companies follows:
Shenzhen SE ● 321
Korea Exchange ● 107
Hong Kong Exchanges ● 113
London SE Group ● 188
http://www.world-exchanges.org/files/statistics/pdf/WFE2010AR%20final.pdf
pg. 77
Accessed November 12, 2012
d. Worldwide consolidation trends have also affected the stock exchanges. A
good example is the merger of Paris-based Euronext with the NYSE. What are the
underlying causes of these cross-border mergers?
Advancements in information technology, as well as, globalization of economies and the
10-20. Suppose your job is to ensure your firm has enough foreign exchange on
hand to pay outstanding accounts payable. Assume your firm owes 1 million yen
to a Japanese supplier, which is due exactly 60 days from now. Your task is to
exchange dollars for the right amount of yen. To do this, you can enter a contract
with a bank today to buy 1 million yen 60 days forward, or wait 60 days and buy 1
million yen at the then-prevailing spot exchange rate. Which alternative do you
prefer, and why? If you expect the spot rate 60 days from now will be the same as
it is today, what is the expected dollar cost of buying 1 million yen in the spot
market 60 days from now? How many dollars will it cost you to obtain 1 million
yen if you entered the forward contract? To obtain the spot exchange rates, go to
www.ft.com and click on Markets, then choose Currencies; or go to
globalEDGE™ and enter “exchange rates” in the search engine.
(LO 10.5; AACSB: Analytical Thinking)
■ In general, my firm prefers to buy 1,000,000 yen 60 days forward because this
approach offers some control in helping to ensure that the firm will not lose money in
10-21. Many corporate Web sites provide financial information, including financial
statements, as well as other information about companies’ status and progress.
As an institutional investor, you are thinking of investing in one of the following
firms: Diageo (www.diageo.com), the premium drinks firm; Vivendi
(www.vivendi.com), a French telecom; Grupo Carso (www.gcarso.com.mx), a
major Mexican retailing conglomerate; and SK Telecom (www.sktelecom.com),
the largest wireless communication services provider in South Korea. Look up
each firm’s corporate Web site. Based on the information provided, answer the
following questions:
(LO 10.6; AACSB: Analytical Thinking)
a. How would you rate the transparency of each firm?
■ Based on the information provided at the websites, these firms appear to be pretty
transparent. Student must justify this claim, based on examining the websites.
b. How inclined are you to invest in each firm, based on the information
provided? Justify your answer.
■ Diageo’s website is slightly more transparent than those for the other firms. As
indicated below, very substantial information is provided for this firm. The high
c. In terms of transparency and investor-oriented information, which site is best?
■ Diageo has the most user-friendly website, including a Financial Calculator, Financial
Calendar, Shareprice History from 1995, Financial Results and Financial Reports for
d. Based on the best site, what recommendations would you make to the firm that
owns the weakest site to improve its transparency and attract investors?
■ The site needs to provide more information, and present it in a clearer way. Diageo is
a good example. Potential investors want to be able to access substantial information
CAREER TOOLBOX EXERCISE
FINDING THE BEST LOCATION FOR A BANK BRANCH ABROAD
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10-22. What are the major tasks in international financial management?
10-23. Summarize the various markets and sources from which MNE financial
managers can raise funds for the firm.
10-24. MyManagementLab Only– comprehensive writing assignment for this
chapter.
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