Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
OPENING CASE: Alibaba’s Record-Setting IPO
Summary
The opening case explores the $231 billion initial public offering of Chinese e-commerce
company Alibaba. Initially, Alibaba considered making an IPO in Hong Kong, but concerns over
a rule that would cause founder Jack Ma and his colleagues to lose ownership control of the
company caused them to turn to the New York Stock Exchange. The decision proved to be
beneficial for Alibaba, and the IPO drew enormous interest from investors. When it launched on
September 18, 2014, Alibaba’s IPO was the largest in history. Discussion of the case can revolve
around the following questions:
QUESTION 1: Why did Alibaba’s owners decide to take the company public? What benefits did
the decision offer the company?
QUESTION 2: Why did Jack Ma decide to list his company on the New York Stock Exchange
rather than in Hong Kong? Was it a good decision for his company?
QUESTION 3: Why did Alibaba attract so much interest from investors? Should investors expect
to earn significant profits from shares in Alibaba?
Another Perspective: For more information on Alibaba’s historic IPO, go to
{https://www.nyse.com/network/article/Alibaba-Lists-on-the-NYSE}.
CRITICAL THINKING AND DISCUSSION QUESTIONS
QUESTION 1: Why has the global capital market grown so rapidly in recent decades? Do you
think this growth will continue throughout the next decade? Why?
QUESTION 2: In 2008-2009, the world economy retrenched in the wake of a global financial
crisis. Did the globalization of capital markets contribute to this crisis? If so, what can be done
to stop global financial contagion in the future?
Another Perspective: To learn more about G20 efforts to prevent future financial crises consider
{http://seoul.usembassy.gov/p_econ_apec_111210.html}.
QUESTION 3: A firm based in Mexico has found that its growth is restricted by the limited
liquidity of the Mexican capital market. List the firm’s options for raising money on the global
capital market. Discuss the pros and cons of each option, and make a recommendation. How
might your recommended options be affected if the Mexican peso depreciates significantly on
the foreign exchange markets over the next two years?
QUESTION 4: Happy Company wants to raise $2 million with debt financing. The funds are
needed to finance working capital, and the firm will repay them with interest in one year. Happy
Company’s treasurer is considering three options:
a. Borrowing U.S. dollars from Security Pacific Bank at 8 percent.
b. Borrowing British pounds from Midland Bank at 14 percent.
c. Borrowing Japanese yen from Sanwa Bank at 5 percent.
If Happy borrows foreign currency, it will not cover it; that is, it will simply change foreign
currency for dollars at today’s spot rate and buy the same foreign currency a year later at the spot
rate that is in effect. Happy Company estimates the pound will depreciate by 5 percent relative to
the dollar and the yen will appreciate 3 percent relative to the dollar in the next year. From
which bank should Happy Company borrow?
CLOSING CASE: Declining Cross-Border Capital Flows: Retreat or Reset?
Summary
The closing case explores the factors contributing to the decline of cross-border capital flows
after 2007 and the associated financial crisis. After the U.S. government chose not to save
Lehman Brothers, a major financial institution, capital markets plunged into crisis. Several
national governments worked in a coordinated fashion to return stability to markets. Five years
after the crisis hit, the global capital market had not fully recovered from its 2007 peak.
Discussion of the case can revolve around the following questions:
QUESTION 1: Do you think that something like the financial crisis that occurred in 2007–2008
could happen again? If it did, what would the impact be on the ability of firms to raise capital to
fund investments, and on the global economy?
QUESTION 2: In retrospect, were central banks justified in stepping in as aggressively as they
did to shore up the global financial system? If they had not done so, and instead let more large
financial institutions fail, what would have been the consequence?
QUESTION 3: How can the risk of occurrence of crises such as the 2007–2008 global financial
crisis be mitigated in the future?
QUESTION 4: Why do you think that global capital flows were still significantly below their
2007 peak five years after the crisis hit? What are the implications of this for the ability of
multinational firms to finance their investments by raising outside capital?
QUESTION 5: What actions do you think a multinational firm can take to limit the impact of
future crises in the global financial system on the ability of the enterprise to raise capital to pay
its short-term bills and fund long-term investments?
MHE INTERNATIONAL BUSINESS VIDEO LIBRARY
Please click here to visit our International Business Video Library on Pinterest, which is updated
on a monthly basis. While there, be sure to "like" the clips that work well for you, and add notes
that might be helpful to your colleagues.
INCORPORATING globalEDGE™ EXERCISES
Use the globalEDGE™ site {globaledge.msu.edu/} to complete the following exercises:
Exercise 1
The top management team of your not-for-profit organization would like to find out more about
investing in environmentally responsible companies in Europe. FTSE develops various indexes
for the global financial markets. A series of indexes, called ESG, cover social, environmental,
and good governance standards. One of these is the Environmental Europe 40 Index. Download
the index’s factsheet for your analysis. Evaluate the top 10 companies, countries, and industries
represented in this index. What patterns do you see?
Additional Info:
FTSE publishes and tracks numerous indices. One of these is the FTSE4Good Environmental
Leaders Europe 40 index, tracking European companies with leading environmental practices.
Exercise 2
The Bureau of Economic Analysis is an agency of the U.S. Department of Commerce. It lists data
about the U.S. economic accounts, including current investment positions and the amount of
direct investment by multinational corporations in the United States and abroad. Prepare a brief
report regarding the direct investments of other countries in the U.S. Include in your report the
leading countries in foreign direct investment.
Exercise 2 Answer
End of Part Case Notes
Part Four
The South Korean Currency Crisis
1. What role did the Korean government play in creating the 1997 crisis?
Answer: The Korean government played multiple roles in the 1997 crisis beginning with the
1993 decision of the then newly elected president Kim-Young Sam’s decision to urge businesses
to invest in export-oriented industries as a means of pulling the country out of its mild recession.
2. What role did Korean enterprises play in creating the 1997 crisis?
Answer: Korean companies contributed to the country’s 1997 financial crisis by making large,
3. Why was the Korean central bank unable to stop the decline in the value of the won?
Answer: The central bank began to implement policies designed to prop up the ailing won in
mid-1997. Many troubled companies were filing for bankruptcy pushing the value of the
4. In late 1997, the IMF stepped in with a rescue package that included $55 billion in emergency
loans to support the currency. These loans had the effect of stabilizing the won and over the next
few years South Korea enjoyed a strong recovery. If the IMF had not stepped in, what might
have occurred?
Answer: Many students will probably agree that without the assistance of the IMF the situation
The Russian Ruble Crisis and Its Aftermath
1. What were the causes of the surge in inflation in Russia during the early 1990s? Could this
have been avoided? How?
Answer: Inflation in Russia surged in the 1990s following the removal of traditional price
controls. During the Communist regime, ongoing shortages of many goods in the market led to
2. What does the decline in the value of the ruble against the dollar between 1992 and 1998 teach
you about the relationship between inflation rates and currency values?
Answer: The decline in the value of the ruble against the dollar between 1992 and 1998
3. During the mid 1990s, the IMF wanted Russia to raise tax rates, close loopholes in the tax
system, and cut public spending. Russia was unable to do this. Why?
4. In the early 2000s Russia cut tax rates for individuals and corporations, and government tax
revenues surged. Why? Does this result suggest that the IMF policy prescriptions were wrong?
Caterpillar: Competing in a World of Fluctuating Currencies
1. In the 1980s a stronger dollar hurt Caterpillar’s competitive position, but in 2008 a stronger
dollar did not seem to have the same effect. What had changed?
2. How did Caterpillar use strategy as a “real hedge” to reduce its exposure to foreign exchange
risk? What is the downside of its approach?
3. Explain the difference between transaction exposure and translation exposure using the
material in the Caterpillar case to illustrate your answer.
