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Chapter 12 ‒ The Global Capital Market
12-8
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
Chapter 12 ‒ The Global Capital Market
12-9
Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
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
Chapter 12 ‒ The Global Capital Market
12-10
Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
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
Chapter 12 ‒ The Global Capital Market
12-11
Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
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
Chapter 12 ‒ The Global Capital Market
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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?
Chapter 12 ‒ The Global Capital Market
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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
