(6)(a)Identify the revenue and cost related motives for direct foreign investment. (b)Suppose a U.S. based MNC plans to invest in a new plant either in the U.S or in Zambia. The MNC intends to invest 30% of its investment spending in this new plant while the remainder is devoted to the firm's existing structure in the U.S. The characteristics of the proposed new project are given below: If located in U.S If located in Zambia Mean expected annual returns on investment 25% 25% Standard deviation of expected annual returns on investment 0.09 0.11 Correlation of expected annual returns on investment with returns on prevailing U.S business 0.80 -0.05 Determine, with robust quantitative explanation, which location will best provide the firm with a more stable flow of revenue.

(6)(a)Identify the revenue and cost related motives for direct foreign investment. (b)Suppose a U.S. based MNC plans to invest in a new plant either in the U.S or in Zambia. The MNC intends to invest 30% of its investment spending in this new plant while the remainder is devoted to the firm's existing structure in the U.S. The characteristics of the proposed new project are given below: If located in U.S If located in Zambia Mean expected annual returns on investment 25% 25% Standard deviation of expected annual returns on investment 0.09 0.11 Correlation of expected annual returns on investment with returns on prevailing U.S business 0.80 -0.05 Determine, with robust quantitative explanation, which location will best provide the firm with a more stable flow of revenue.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Assume that as a result of international negotiations, the foreign sector credit constraint is removed immediately, i.e. from period t=0 onward. Describe the effects of these negotiations on consumption, assets, trade balance and current account and provide economic interpretation. [max 650 words]
Which one of the following is likely discouraging foreign direct investmen (FDI) in one country? A. The foreign firm would produce a good which is currently not available in the host country. B. The foreign firm intends to partner with the local firms of the host country. C. The foreign firm's products are similar with the local firms of the host country. D. The foreign firm is able to compete in the market of the host country. Clear my choice
Please help with question #2. The based country is Trinidad and the countries trading to is Australia, Columbia and Germany. Also explain how can we mitigate foreign exchange risk in these countries. You are asked to simulate your own multinational corporation (MNC).You are required to justify the form of their own MNC, based in the Caribbean, which tradeswith three countries outside of the North America region. Students will then examine issues relatedto foreign exchange management within their multinational corporation.This group assignment should address the following:1. The type of MNC, whether franchising, licensing, the exportation of a product soldthrough a distributor, etc. The rationale behind using this form of MNC should also begiven.2. The main foreign currencies that will be used in the business.3. The foreign exchange exposure of the company and how the company plans to managethis exposure.4. Any current financial issues that affect the operating environment of the MNC…
You are the manager of a U.S. company situated in Los Angeles and manages the import/export division of the company. The company distributes (resells) a variety of consumer products imported to the U.S.A from Europe and also exports goods manufactured in the U.S.A. to Canada. Therefore, your company is very much dependent an the impact of current and future exchange rates on the performance of the company. Scenario 1: You have to estimate the expected exchange rates between your home currency and the other currencies of the major other countries that you deal with in terms of bath imports and exparts. The reason is that increases in the values of other currencies compared to the U.S. Dollar may impact your imports negatively, whilst it may on the other hand, be good for exports. To do this estimate, you obtain the following spot exchange rate information: €/S CADS/S 0.87616 1.30779 You also obtain the following annual risk free rates applying in the countries: U.S.A. 2.660% France…
A. What is a multinational corporation? Why do firms expand into other countries? B. Discuss at least six major factors which distinguish multinational financial management from financial management as practiced by a purely domestic firm. (Please consider doing additional research on this question and document your findings). C. Discuss exchange rate risk as they relate to multinational corporations. D. Describe the current International Monetary System. How does the current system differ from the system that was in place prior to August 1971? (Please consider doing additional research on this question and document your findings). E. What is the difference between spot rates and forward rates? When is the forward rate at a premium to the spot rate? At a discount? (Please consider doing additional research on this question and document your findings). F. From a managerial point of view, disc
Please help with question #2. The based country is Trinidad and the countries trading to is Australia, Columbia and Germany. Explain how can we mitigate foreign exchange risk in these countries and how exchange rate will be useful. You are asked to simulate your own multinational corporation (MNC).You are required to justify the form of their own MNC, based in the Caribbean, which tradeswith three countries outside of the North America region. Students will then examine issues relatedto foreign exchange management within their multinational corporation.This group assignment should address the following:1. The type of MNC, whether franchising, licensing, the exportation of a product soldthrough a distributor, etc. The rationale behind using this form of MNC should also begiven.2. The main foreign currencies that will be used in the business.3. The foreign exchange exposure of the company and how the company plans to managethis exposure.4. Any current financial issues that affect the…
Simulate your own franchising multinational corporation (MNC) in the hotel industry.Justify the form of your own MNC, based in the Caribbean, which trades with three countries outside of the North America region. Then examine issues related to foreign exchange management within the multinational corporation. Address the following: 1. The type of MNC, whether franchising, licensing, the exportation of a product sold through a distributor, etc. The rationale behind using this form of MNC should also be given. 3. The foreign exchange exposure of the company and how the company plans to manage this exposure.
A U.S.-based multinational company has two subsidiaries, one in Mexico (local currency, Mexicanpeso, MP) and one in Japan (local currency, yen, ¥). Forecasts of business operations indicate the following short-term financing position for each subsidiary (in equivalent U.S. dollars): Mexico:$80 million excess cash to be invested (lent) Japan: $60 million funds to be raised (borrowed) Currency Item US $ MP ¥ Spot exchange rates MP11.60/US$ ¥108.25/US$ Forecast percentage change −3.00% +1.50% Interest rates Nominal Euromarket 4.00% 6.20% 2.00% Domestic 3.75% 5.90% 2.15% Effective Euromarket Domestic Euromarket and the domestic market; then indicate where the funds should be invested and raised.…
Which of the following is an example of managing economic exposure by flexible sourcing policy? An American company sells its products in Brazil and Portugal. Reduced sales in Brazil due to the dollar appreciation against the “real” can be compensated by increased sales in Portugal due to the dollar depreciation against the euro. If yen is strong, it is preferable for a Japanese company to open a manufacturing subsidiary in the U.S. to produce and sell its products there. An American IT company hires software developers in Ukraine because of the weak position of grivna against dollar. A Canadian company spends a lot of money for research & development activities to improve its reputation and gain more customers.
A U.S. parent firm has a subsidiary using euro. The manager of the parent firm should understand that ___________ is economically beneficial to the parent firm. A. weakening euro B. stable euro currency C. stable US dollar D. strengthening euro

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS