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- Suppose a U.S. firm builds a factory in China, staffs it with Chinese workers, uses materials supplied by Chinese companies, and finances the entire operation with a loan from a Chinese bank located in the same town as the factory. This firm is most likely trying to greatly reduce, or eliminate, which one of the following? Interest rate disparities Short-run exposure to exchange rate risk Long-run exposure to exchange rate risk Political risk associated with the foreign operations Translation exposure to exchange rate riskWhich 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.Which of the following involves a financial outflow from the U.S. economy? a. returns paid on U.S. investments in France b. returns paid on U.S. investments in France c. Chinese investors buy real estate across the U.S. d. U.S. firms buying logging rights to China's forests
- Compare Sweden's H&M and Spain's Inditex/Zara marketshares of their home country markets. Which company has space to grow in its home markets? In other words, a firm with larger marketshare has less space to grow in its home market whereas a firm with smaller marketshare has more space to grow. O There is insufficient data in the case. O Inditex because its marketshare in Spain is lower than H&Ms marketshare in Sweden O Inditex because its marketshare in Europe is lower than H&Ms marketshare in Europe. O H&M because its marketshare in Swede is lower than Inditexs marketshare in Spain.Because of political instability in North Africa, let’s not disclose specific countries. In addition, we restructured most of our French sales and some of our U.S. sales to occur through our offices in the Cayman Islands.This allows us to avoid paying higher taxes in those countries. The Cayman Islands has a 0% corporate incometax rate. We don’t want to highlight our ability to shift profits to avoid taxes.Required:Do you perceive an ethical dilemma? What would be the likely impact of following the controller’s suggestions?Who would benefit? Who would be injured?A US firm does business in Australia. In attempting to assess its economic exposure, it compiled the following information: Its U.S. sales are somewhat affected by the value of the Australian dollar (AU$), because it faces competition from Australian exporters. It forecasts the U.S. sales based on the following three exchange rate scenarios: Revenue from U.S. Business Exchange Rate of AU$ (in millions) AU$ = $.70 $100 AU$ = $.75 105 AU$ = $.80 110 Its Australian dollar revenues from sales in Australia invoiced in Australia dollars are expected to be AU$600 million Its anticipated cost of materials is estimated at $200 million from the purchase of U.S. materials and AU$100 million from the purchase of Australia materials Fixed operating expenses are estimated at $30 million Variable operating expenses are estimated at 20% of total sales (after including Australian sales, translated to a dollar amount) Interest expense is estimated at $20 million on existing U.S. loans, and the…
- Suppose you work at the FOREX desk of a multinational bank. No particular country is the home country for you as your responsibility is to conduct foreign exchange trade in whichever way is profitable for the bank. Using this as your guideline, consider the following data: S0 = ¥92/US$ S180 = ¥92/US$ IUS = 2% per annum IJapan = 0.09% per annum With a starting amount of US$10 million or its Yen equivalent, can you make a UIA profit? What if a CIA was conducted at F180 of ¥90/US$? What are your observations?Vitro-X in Malaysia has a subsidiary in Japan. Hence, Vitro-X receives Japanese Yen from the subsidiary, but this has negatively affected company value of Vitro-X, probably because of __________. A. appreciation of the Japanese Yen B. lowering of Japanese interest rates C. depreciation of the Japanese Yen D. weaker Japanese economyConsider two fictional economies, one called domestic country and the other the foreign country. Given the transactions listed in (a) through (f), construct the trade balance, current account balance and capital account balance for each country. If necessary, include a statistical discrepancy. A.The domestic country purchased $100 in computer parts from the foreign country. B.Foreign tourists spent $25 in seeing a Broadway show. C.Foreign investors were paid $15 in interest in their holding of domestic bonds. D.Domestic residents remitted $25 to their relatives abroad. E.Domestic businesses borrowed $65 from foreign banks. F.Foreign investors purchased $50 of domestic corporate bonds
- Given the following information, are there geographic arbitrage opportunities available? If so, what level of additional transaction costs in each market will eliminate this opportunity? (All quotes are at time 0). Quotes for the US dollar in South Korea: 1361-1385 Quotes for the South Korean Won in the US: 0.000741 - 0.000762.Which of the following is not a reason for U.S. firms operating in foreign markets? A.Better economic and political environment (in the U.S.) B.Less expensive labor C.Tax incentives D. To achieve international diversificationYour company located in the US imports raw materials from Europe. If the European Central Bank announces to lower the Euro exchange rate, what impact do you expect to see in your business? A. Your company will pay higher US dollar costs to import from Europe. B. Your company will pay lower US dollar costs to import from Europe. C. The Euro exchange rate doesn't have any impact on your company. D. It should reduce your competitiveness in your home market.