FOUND.OF FINANCIAL MANAGEMENT-ACCESS
17th Edition
ISBN: 9781260519969
Author: BLOCK
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 21, Problem 1DQ
Summary Introduction
To explain: The risks faced by a foreign affiliate of an MNC in today’s business world.
Introduction:
Multinational firm:
It is a business organization that operates in at least more than one country other than the one in which it has been incorporated.
Expert Solution & Answer
Answer to Problem 1DQ
The common risks being faced by multinational corporation’s foreign affiliates are risks of finance as well as those associated with generating sales and maintaining market share. Apart from these risks, political and foreign exchange risks are also faced.
Explanation of Solution
A foreign affiliate of multinational corporations has to face several risks, such as that associated with sales generation, which refers to generating revenue at par with its competitors in the domestic market. The other common risk faced by foreign affiliates is to maintain market share, which refers to capturing a share in the targeted market through various marketing campaigns. The financial risk of raising funds for its operations is also faced by such affiliates. These are some risks that are also faced by a domestic firm as well.
In addition to these common risks, certain specific risks, such as the political instability of a country and frequently-renewed foreign policies, are also faced by such affiliates. Also, foreign affiliates are exposed to the risk of unstable and highly-volatile foreign exchange risks.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
A4)
Finance
When companies decide to establish themselves in a specific market, they can experience a variety of barriers to entry, Assess the various types of trade restrictions that may affect the international business?
QUESTION 24
Due to the political and country risks involved in international business, firms should:
O A. do business only in countries where they can guarantee their shareholders profit on every project.
OB. attempt to assess, measure, and manage risks before investing abroad.
OC. do business only in developed countries.
O D. All of the above
O E. None of the above
1. What impact would harmonization of national accounting standards have on international businesses?
2. Are U.S. firms at a competitive disadvantage because they cannot use accounting reserves as German firms do?
Chapter 21 Solutions
FOUND.OF FINANCIAL MANAGEMENT-ACCESS
Ch. 21 - Prob. 1DQCh. 21 - Prob. 2DQCh. 21 - List the factors that affect the value of a...Ch. 21 - Prob. 4DQCh. 21 - Differentiate between the spot exchange rate and...Ch. 21 - What is meant by translation exposure in terms of...Ch. 21 - Prob. 7DQCh. 21 - Prob. 8DQCh. 21 - Prob. 9DQCh. 21 - Prob. 10DQ
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- q7. Square Group is currently expanding its international business in Kenya. How taxation and repatriation of profit risk can affect their business in Kenya. Provide a detailed explanation. You should provide a detailed explanation for this question.arrow_forward3. which of the following is an example of idiosyncratic risk? Covid 2008 financial crisis 2019 US-China trade war Tesla recalling 1,200 Model S due to potential power issuesarrow_forward1. Should international companies invest in countries with totalitarian regimes? Why?arrow_forward
- Question #1 – What is the ‘expectations gap’? Is there even anything the accounting profession can do to close this ‘Expectations Gap’? Question #2 – To converge or not to converge, that is the question. The adoption of IFRS by U.S. companies would it easier to compare U.S. and foreign companies, as well as for U.S. companies to raise capital in foreign markets.arrow_forwardQ1. These statements true or false? explain in detail 1.To protect an industry, it is best when the Effective Rate of Protection is higher than the Normal Rate of Protection. 2. Immiserizing growth takes place when there is an increase in growth and trade of a country. 3. The formation of Free Trade Areas and Custom Unions leads to free trade between all countries.arrow_forwardow i5 international financial management different from domestic financia management?arrow_forward
- QUESTION B Which of the following is NOT a factor direct investors look at when judging whether they will be able to operate in a foreign country? CA Trade policy and privatization policy. OB CC The functioning and efficiency of local markets. The quality of domestic accountability systems. Standards of treatment of foreign affiliates. OD.arrow_forwardInvestors and MNCs exporting or importing goods and services or making foreign investments throughout the global economy are faced with an exchange rate risk,which can have severe financial consequences on firms profitability,cash flows,and their market value,if not managed appropriately. MNC's use a number of external techniques of risk(exposure)management and resort to contractual relationships outside thier companies in order to reduce (or redistribute)the risk of foreign exchange losses.What are the determinants of hedging currency risk or foreign exchange exposures which pose risks to MNC's cashflows,competitiveness,marker value and financial reporting.arrow_forward5. Annual report disclosures in emerging-market countries is generally less extensive and less credible than disclosures of companies from developed countriesSelect one:TrueFalsearrow_forward
- A key issue facing financial executives of multinational firms is exposure to exchange rate changes.a. Define exposure, differentiating between accounting and economic exposure. What role does inflation play?b. Describe at least three circumstances under which economic exposure is likely to exist? c. Of what relevance are the international Fisher effect and purchasing power parity to your answers to parts a and b? d. What is exchange risk, as distinct from exposurearrow_forward!arrow_forwardDo you agree with the following claim? “U.S. companies with global operations can give you international diversification.” Think about both business risk and foreign exchange risk.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
- Business/Professional Ethics Directors/Executives...AccountingISBN:9781337485913Author:BROOKSPublisher:Cengage
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Business/Professional Ethics Directors/Executives...
Accounting
ISBN:9781337485913
Author:BROOKS
Publisher:Cengage