978-1259929441 Chapter 12 Part 2

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Chapter 12 ‒ The Global Capital Market

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from investors. When it launched on September 18, 2014, Alibaba’s IPO was the largest

in history. Discussion of the case can begin with the following questions:

QUESTION 1: Why did Jack Ma decide it was time to take Alibaba public?

ANSWER 1: There were three major reasons that Alibaba went public. First, selling

shares in the company would provide much-needed capital that could be invested in

QUESTION 2: Why do you think the management of Alibaba decided against doing the

IPO in China’s main stock market, Shanghai? Why did they ultimately decide against

Hong Kong?

ANSWER 2: Although Alibaba initially considered listing on the Hong Kong Stock

Exchange, Hong Kong’s “one share one vote” requirement would have resulted in Ma

QUESTION 3: What were the legal, financial, and strategic advantages to Alibaba of

undertaking its IPO in New York?

ANSWER 3: Investors on the NYSE are particularly interested in technology-related

stocks. Because Alibaba has already shown impressive earnings (more than Amazon and

QUESTION 4: Since the IPO was undertaken in New York, does this make Alibaba an

American enterprise?

ANSWER 4: Responses to this question will differ by student. Most will probably argue

that regardless of its IPO, Alibaba is still very much a Chinese company. Students taking

this perspective will probably point out that the company maintains its headquarters in

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China. Other students, however, may suggest that Alibaba, because of the restructuring it

did to undertake its IPO, could potentially be considered to be based in the Cayman

Islands. Some students may claim that Alibaba, by virtue of its ownership since its IPO,

should be considered. Students taking this point of view will likely suggest that many of

the buyers in the IPO were U.S.-based, therefore, making the company also U.S.-based.

Another Perspective: For more information on Alibaba’s historic IPO, go to

{https://www.nyse.com/network/article/Alibaba-Lists-on-the-NYSE} and

{https://www.cnbc.com/2015/09/21/a-look-at-alibaba-one-year-after-its-ipo.html}.

MHE INTERNATIONAL BUSINESS VIDEO LIBRARY

Please click here to visit our International Business Video Library which provides an

ongoing stream of updated video suggestions correlated by key concept and major topic.

Every new clip posted is supported by teaching notes and discussion questions. Please

feel free to leave comments in the library that you feel 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?

Exercise 2

The Bureau of Economic Analysis is an agency of the U.S. Department of Commerce. It

lists data about 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.

Answers to Exercises

Exercise 1 Answer

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globalEDGE™ Category: Finance

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 Answer

End of Part Case Notes

Part Four

The South Korean Currency Crisis

QUESTION 1: What role did the Korean government play in creating the 1997 crisis?

ANSWER 1: 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

QUESTION 2: What role did Korean enterprises play in creating the 1997 crisis?

ANSWER 2: Korean companies contributed to the country’s 1997 financial crisis by

making large, relatively risky investments. During the mid-1990s, at the urging of the

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based on unrealistic demand projects. When the anticipated demand failed to materialize,

the companies were left with excess capacity and falling prices making it difficult for

them to meet their debt obligations. Many were forced into bankruptcy, while others were

taken over by the state.

QUESTION 3: Why was the Korean central bank unable to stop the decline in the value

of the won?

ANSWER 3: 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

QUESTION 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 4: Many students will probably agree that without the assistance of the IMF

the situation in South Korea would have continued to deteriorate. When the central bank

Another Perspective: Students can also explore the value of the South Korean won over

time at {http://www.forecasts.org/won.htm}.

The Russian Ruble Crisis and Its Aftermath

QUESTION 1: What were the causes of the surge in inflation in Russia during the early

1990s? Could this have been avoided? How?

ANSWER 1: 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

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QUESTION 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?

QUESTION 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?

QUESTION 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?

ANSWER 4: After the IMF effectively turned its back on Russia, the government looked

for ways to improve its financial state. In addition to cutting government spending, the

Caterpillar: Competing in a World of Fluctuating Currencies

QUESTION 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?

ANSWER 1: Between the 1980s and 2000s Caterpillar was able to reduce its economic

exposure by completely changing its global strategy. In the 1980s, much of Caterpillar’s

QUESTION 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?

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ANSWER 2: To reduce its economic exposure, Caterpillar established a significant

number of foreign manufacturing facilities. These were important to the company

QUESTION 3: Explain the difference between transaction exposure and translation

exposure using the material in the Caterpillar case to illustrate your answer.

ANSWER 3: Transaction exposure refers to the extent to which the income from

individual transactions is affected by fluctuations in foreign exchange rates while