eiteman multinational business finance 13e (1)

8/16/2019 Eiteman Multinational Business Finance 13e (1)

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Multinational Business Finance, 13e (Eiteman/Stonehill/Moffett)

Chapter 1 Current Multinational Challenges and the Global Economy

1.1 Financial Globalization and Risk

True/False

1) BRICs is a term used in international finance to represent assets that are considered to be

inexpensive and sturd! but fundamentall unsound and and incapable of copin" #ith theupheavals no# apparent in international financial markets.

$ns#er% F$&'(

iff% 1

*opic% 1.1 Financial Globalization and Risk 'kill% Reco"nition

+) ,ultinational enterprises -,(s) are firms! both for profit companies and not/for/profit

or"anizations! that have operations in more than one countr! and conduct their business throu"hforei"n subsidiaries!

branches! or 0oint ventures #ith host countr firms.$ns#er% *R(

iff% 1

*opic% 1.1 Financial Globalization and Risk 'kill% Reco"nition

2) 3#nership! control! and "overnance chan"es radicall across the #orld. *he publicl traded

compan is not the dominant "lobal business or"anization4the privatel held or famil/o#ned business is the prevalent structure4and their "oals and measures of performance differ

dramaticall.$ns#er% *R(iff% +

*opic% 1.1 Financial Globalization and Risk

'kill% Reco"nition

1.+ *he Global Financial ,arketplace

Multiple Choice

1) $ #ell/established! lar"e .'./based ,( #ill probabl 3* be able to overcome #hich of

the follo#in" obstacles to maximizin" firm value5$) an open market place

B) hi"h 6ualit strate"ic mana"ement

C) access to capital) none of the above

$ns#er%

iff% +

*opic% 1.+ *he Global Financial ,arketplace'kill% Reco"nition

1



+) $ #ell/established! lar"e China/based ,( #ill probabl be most adversel affected b

#hich of the follo#in" elements of firm value5

$) an open marketplaceB) hi"h/6ualit strate"ic mana"ement

C) access to capital

) access to 6ualified labor pool$ns#er% $

iff% +

*opic% 1.+ *he Global Financial ,arketplace'kill% Conceptual

2) $ #ell/established! lar"e! Brazil/based ,( #ill probabl be most adversel affected b

#hich of the follo#in" elements of firm value5$) an open marketplace

B) hi"h/6ualit strate"ic mana"ement

C) access to capital

) access to 6ualified labor pool$ns#er% C

iff% +*opic% 1.+ *he Global Financial ,arketplace

'kill% Conceptual

True/False

1) Comparative advanta"e is one of the underlin" principles drivin" the "ro#th of "lobal

business.$ns#er% *R(

iff% 1


+) 7our authors su""est that one #a to characterize the "lobal financial marketplace is throu"hits assets! institutions! and linka"es.

$ns#er% *R(

iff% 1


2) (urocurrencies are domestic currencies of one countr on deposit in a second countr.$ns#er% *R(

iff% 1


+



8) $ eurodollar deposit is a demand deposit.

$ns#er% F$&'(

iff% 1*opic% 1.+ *he Global Financial ,arketplace

'kill% Reco"nition

9) (urocurrenc markets serve t#o valuable purposes% 1) (urocurrenc deposits are an efficient

and convenient mone market device for holdin" excess corporate li6uidit: and +) the(urocurrenc market is a ma0or source of short/term bank loans to finance corporate #orkin"

capital needs! includin" the financin" of imports and exports.

$ns#er% *R(

iff% +*opic% 1.+ *he Global Financial ,arketplace

'kill% Conceptual

;) *he ke factor attractin" both depositors and borro#ers to the (urocurrenc loan market is the

narro# interest rate spread #ithin that market.

$ns#er% *R(iff% 1

*opic% 1.+ *he Global Financial ,arketplace

'kill% Conceptual

<) *he (urocurrenc market continues to thrive because it is a lar"e international mone market

relativel free from "overnmental re"ulation and interference. Recent events ma lead to "reater

re"ulation.$ns#er% *R(

iff% 1


Essay

1) &ist and explain three strate"ic motives #h firms become multinationals and "ive an example

of each.

$ns#er% *he authors provide 9 strate"ic motives for firms to become multinationals% marketseekers! ra# materials seekers! production efficienc seekers! kno#led"e seekers! and political

safet seekers. ,arket seekers are lookin" for more consumers for their products such as

automobiles or steel. =no#led"e seekers ma be lookin" for an educated #ork force similar tothe #a firms seekin" R and set up shop in universit to#ns. Ra# materials seekers ma be

after commodities such as oil or copper. >roduction efficiencies ma occur in countries like

,exico that have capable #orkers and lo#er #a"es. >olitical safet seekers are lookin" forcountries that #ill not expropriate their assets! so the ma sta a#a from countries that in the

post have en"a"ed in such activities.

iff% 2

*opic% 1.+ *he Global Financial ,arketplace'kill% Conceptual

2



1.2 *he *heor of Comparative $dvanta"e

Multiple Choice

1) *he theor that su""ests specialization b countr can increase #orld#ide production is%

$) the theor of comparative advanta"e.B) the theor of forei"n direct investment.

C) the international Fisher effect.

) the theor of #orkin" capital mana"ement.$ns#er% $

iff% +

*opic% 1.2 *he *heor of Comparative $dvanta"e

'kill% Reco"nition

+) ?hich of the follo#in" is 3* a reason "overnments interfere #ith comparative advanta"e5

$) Governments attempt to achieve full emploment.

B) Governments promote economic development.C) national self/sufficienc in defense/related industries

) $ll are reasons "overnments interfere #ith comparative advanta"e.$ns#er%

iff% +

*opic% 1.2 *he *heor of Comparative $dvanta"e'kill% Reco"nition

2) ?hich of the follo#in" factors of production 3 3* flo# freel bet#een countries5

$) ra# materialsB) financial capital

C) -non/militar) technolo"

) $ll of the above factors of production flo# freel amon" countries.$ns#er% $

iff% 1


8) ?hich of the follo#in" #ould 3* be a #a to implement comparative advanta"e5

$) IB, exports computers to ("pt.B) Computer hard#are is desi"ned in the nited 'tates but manufactured and assembled in

=orea.

C) ?ater of the "reatest purit is obtained from #ells in 3re"on! bottled! and exported#orld#ide.

) $ll of the above are examples of #as to implement comparative advanta"e.

$ns#er% iff% +


'kill% Conceptual

8



9) 3f the follo#in"! #hich #ould 3* be considered a #a that "overnment interferes #ith

comparative advanta"e5

$) tariffsB) mana"erial skills

C) 6uotas

) other non/tariff restrictions$ns#er% B

iff% +


True/False

1) *he theor of comparative advanta"e o#es it ori"ins to Ben Bernanke as described in his book

The Wealth of Bankers.

$ns#er% F$&'(

Comment% *he theor of comparative advanta"e o#es it ori"ins to $dam 'mith as described inhis book *he ?ealth of ations.

iff% 1*opic% 1.2 *he *heor of Comparative $dvanta"e

'kill% Reco"nition

+) International trade mi"ht have approached the comparative advanta"e model in the 1@th

centur! and it does so even more toda.

$ns#er% F$&'(

Comment% International trade mi"ht have approached the comparative advanta"e model in the1@th centur! but it certainl does not toda.

iff% +

*opic% 1.2 *he *heor of Comparative $dvanta"e'kill% Conceptual

2) Comparative advanta"e shifts over time as less developed countries become more developedand realize their latent opportunities.

$ns#er% *R(

iff% +


8) Comparative advanta"e in the +1st centur is based more on services and their cross borderfacilitation b telecommunications and the Internet.

$ns#er% *R(

iff% 1*opic% 1.2 *he *heor of Comparative $dvanta"e

'kill% Reco"nition

9



9) Comparative advanta"e #as once the cornerstone of international trade theor! but toda it is

archaic! simplistic! and irrelevant for explainin" investment choices made b ,(s.

$ns#er% F$&'(Comment% Comparative advanta"e is still a relevant model in todaAs international marketplace.

iff% +


;) ?hen discussin" comparative advanta"e! it is apparent that toda at least t#o of the factors of

production! capital and technolo"! no# flo# directl and easil bet#een countries! rather than

onl indirectl throu"h traded "oods and services.

$ns#er% *R(iff% +


'kill% Reco"nition

<) It #ould be safe to make the statement that modern telecommunications no# take business

activities to labor rather than movin" labor to the places of business.$ns#er% *R(

iff% +


'kill% Reco"nition

1.8 ?hat Is ifferent $bout International Financial ,ana"ement5

Multiple Choice

1) ?hich of the follo#in" domestic financial instruments have 3* been modified for use ininternational financial mana"ement5

$) currenc options and futures

B) interest rate and currenc s#apsC) letters of credit

) $ll of the above are domestic financial instruments that have also been modified for use in

international financial markets.

$ns#er% iff% +

*opic% 1.8 ?hat Is ifferent about International Financial ,ana"ement5

'kill% Reco"nition

True/False

1) ,(s must modif finance theories like cost of capital and capital bud"etin" because of

forei"n complexities.

$ns#er% *R(

iff% +*opic% 1.8 ?hat Is ifferent about International Financial ,ana"ement5

'kill% Reco"nition

;



+) Relative to ,(s! purel domestic firms tend to have GR($*(R political risk.

$ns#er% F$&'(iff% +


'kill% Reco"nition

2) omestic firms tend to make GR($*(R use of financial derivatives than ,(s because the

can bear the "reater risk presented b these financial instruments.$ns#er% F$&'(

iff% +


'kill% Reco"nition

8) Because countries have different financial re"ulations and customs! it is common for ,(s toappl their domestic rules and re"ulations #hen doin" financial business in a forei"n countr.

$ns#er% F$&'(

iff% +*opic% 1.8 ?hat Is ifferent about International Financial ,ana"ement5

'kill% Conceptual

9) $ number of financial instruments that are used in domestic financial mana"ement have beenmodified for use in international financial mana"ement. (xamples are forei"n currenc options

and futures! interest rate and currenc s#aps! and letters of credit.

$ns#er% *R(iff% +


'kill% Reco"nition

1.9 ,arket Imperfections% $ Rationale for the (xistence of the ,ultinational Firm

Multiple Choice

1) In determinin" #h a firm becomes multinational there are man reasons. 3ne reason is that

the firm is a market seeker. ?hich of the follo#in" is 3* a reason #h market/seekin" firms produce in forei"n countries5

$) satisfaction of local demand in the forei"n countr

B) satisfaction of local demand in the domestic marketsC) political safet and small likelihood of "overnment expropriation of assets

) $ll of the above are market/seekin" activities.

$ns#er% Ciff% +

*opic% 1.9 ,arket Imperfections% $ Rationale for the (xistence of the ,ultinational Firm

'kill% Reco"nition

<



+) investments are desi"ned to promote and enhance the "ro#th and profitabilit of

the firm. investments are desi"ned to den those same opportunities to the firmAs

competitors.$) Conservative: $""ressive

B) efensive: >roactive

C) >roactive: efensive) $""ressive: >roactive

$ns#er% C

iff% +*opic% 1.9 ,arket Imperfections% $ Rationale for the (xistence of the ,ultinational Firm

'kill% Reco"nition

True/False

1) For firms competin" in a #orld characterized b oli"opolistic competition! strate"ic motives

can be subdivided into proactive and defensive investments.

$ns#er% *R(iff% 1

*opic% 1.9 ,arket Imperfections% $ Rationale for the (xistence of the ,ultinational Firm'kill% Reco"nition

+) efensive measures are desi"ned to enhance "ro#th and profitabilit of the firm itself.$ns#er% F$&'(

Comment% >roactive measures are desi"ned to enhance "ro#th and profitabilit of the firm

itself.iff% 1

*opic% 1.9 ,arket Imperfections% $ Rationale for the (xistence of the ,ultinational Firm

'kill% Reco"nition

1.; *he Globalization >rocess

Multiple Choice

1) *he phase of the "lobalization process characterized b imports from forei"n suppliers and

exports to forei"n buers is called the%$) domestic phase.

B) multinational phase.

C) international trade phase.) import/export bankin" phase.

$ns#er% C

iff% +*opic% 1.; *he Globalization >rocess

'kill% Reco"nition



+) *he authors describe the multinational phase of "lobalization for a firm as one characterized

b the%

$) o#nership of assets and enterprises in forei"n countries.B) potential for international competitors or suppliers even thou"h all accounts are #ith domestic

firms and are denominated in dollars.

C) imports from forei"n suppliers and exports to forei"n buers.) re6uirement that all emploees be multilin"ual.

$ns#er% $


'kill% Reco"nition

2) $ firm in the International *rade >hase of Globalization%$) makes all forei"n paments in forei"n currenc units and all forei"n receipts in domestic

currenc units.

B) receives all forei"n receipts in forei"n currenc units and makes all forei"n paments in

domestic currenc units.C) bears direct forei"n exchan"e risk.

) none of the above$ns#er% C

iff% +

*opic% 1.; *he Globalization >rocess'kill% Conceptual

8) 3f the follo#in"! #hich #as 3* mentioned b the authors as an increase in the demands offinancial mana"ement services due to increased "lobalization b the firm5

$) evaluation of the credit 6ualit of forei"n buers and sellers

B) forei"n consumer method of pament preferencesC) credit risk mana"ement

) evaluation of forei"n exchan"e risk

$ns#er% Biff% +

*opic% 1.; *he Globalization >rocess

'kill% Reco"nition

9) 3f the follo#in"! #hich #as 3* mentioned b the authors as an increase in the demands of

financial mana"ement services due to increased "lobalization b the firm5

$) evaluation of the credit 6ualit of forei"n buers and sellersB) forei"n consumer method of pament preferences

C) credit risk mana"ement

) evaluation of forei"n exchan"e risk $ns#er% B

iff% +


'kill% Reco"nition

@



;) *he authors describe the multinational phase of "lobalization for a firm as one characterized

b the%

$) o#nership of assets and enterprises in forei"n countries.B) potential for international competitors or suppliers even thou"h all accounts are #ith domestic

firms and are denominated in dollars.

C) imports from forei"n suppliers and exports to forei"n buers.) re6uirement that all emploees be multilin"ual.

$ns#er% $


'kill% Reco"nition

<) *he t#in a"enc problems limitin" financial "lobalization are caused b these t#o "roupsactin" in their o#n self/interests rather than the interests of the firm.

$) rulers of soverei"n states and unsavor customs officials

B) corporate insiders and attornes

C) corporate insiders and rulers of soverei"n states) attornes and unsavor customs officials

$ns#er% Ciff% +


'kill% Reco"nition

True/False

1) *picall! a firm in its domestic sta"e of "lobalization has all financial transactions in itsdomestic currenc.

$ns#er% *R(

iff% 1*opic% 1.; *he Globalization >rocess

'kill% Conceptual

+) *picall! a D"reenfieldD investment abroad is considered a "reater forei"n investment havin"

a "reater forei"n presence than a 0oint venture #ith a forei"n firm.

$ns#er% *R(iff% 1


'kill% Reco"nition

2) *he authors ar"ue that financial inefficienc caused b influential insiders ma prove to be an

increasin"l troublesome barrier to international finance.$ns#er% *R(

iff% +


'kill% Conceptual

1E



8) *he authors describe a process for development of a ,( that be"ins #ith a purely domestic

phase! follo#ed b the multinational phase! and toppin" out #ith the international trade phase.

$ns#er% F$&'(iff% +


'kill% Reco"nition

9) *oda it is #idel assumed that there are 3 &I,I*' to financial "lobalization.

$ns#er% F$&'(iff% +


'kill% Reco"nition

;) *he "ro#th in the influence and self/enrichment of or"anizational insiders is seen as an

impediment to the "ro#th of financial "lobalization in "eneral.

$ns#er% *R(


'kill% Reco"nition

<) *he actions of corporate insiders and the actions of rulers of soverei"n states are both a"enc

costs that act as an impediment to the "ro#th of "lobalization.$ns#er% F$&'(

iff% +


'kill% Reco"nition

11

eiteman multinational business finance 13e (1)

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