EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 25, Problem 1PS
Summary Introduction
To determine:
Whether U.S. companies with global operations can give international diversification.
Introduction:
International diversification means investing in various countries rather than one country to diversify the risk.
Expert Solution & Answer
Explanation of Solution
U.S. based companies which have a multinational business and doing work globally is not considered as an international diversification. A US multinational companies are owned by US investors so it is considered as a US Company only. For international diversifications, US investor should invest in a foreign company. Then that is called as an international diversification.
In the light of above, though the US company's capitalization and other foreign companies' diversification is 40:60. The US investor for international diversification should invest 40% of total investment to the foreign companies and other 60% should invest in US companies.
Conclusion
Therefore, the claim that US companies with global operations can give international diversification is not correct.
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
Do 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.
Explain how multinational companies can reduce the foreign currency risk by hedging.
What do you know about arbitrage opportunity? Discuss with examples. Also, present a scenario of any type of international arbitrage if possible. If so, how would it be executed and how would market forces be affected? Does arbitrage opportunity destabilize foreign exchange markets?
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
- A global manufacturing firm is exposed to foreign exchange risks due to its international operations. Fluctuations in currency exchange rates can significantly impact the firm's revenue and profitability. The firm is considering implementing a hedging strategy using financial instruments like forward contracts or options to mitigate this risk. However, hedging involves costs, and there's always a risk that the hedging strategy may not perfectly align with actual market movements. The firm must decide whether to hedge all or part of its exposure and which financial instruments best suit its needs. Moreover, the company should assess how macroeconomic factors could influence currency trends. Should the firm hedge its foreign currency risk or focus on operational strategies to reduce exposure? Effective risk management will balance costs with financial stability.arrow_forwardWhat are the measures that can be set in place by Fast Moving Consumer Goods Companies to manage foreignexchange rate risk?arrow_forwardWhich 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 diversificationarrow_forward
- Due to globalization and liberalization, many global corporates or multi- national companies wish to pursue business in more than one nation by producing, investing and operating across the globe through engaging various business activities. Thus, they confront a high degree of exchange rate risk in their commercial transactions. To minimize their risk those companies try toemploy diversified techniques. Identify any technique available in Omani FOREX market to support those companies in hedging the exchange rate risk and explain its operating approach.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_forwardIn international finance, can you explain the risk involve for both importer and exporter and provide one example how these two parties experience the pros and cons.arrow_forward
- Foreign exchange risk is a major risk for businesses which are involved in international business. What are the various tools and methods which you know which can be used to hedge and deal with foreign exchangerisk. Discuss with detailsarrow_forwardHow can the Greater Liberalizations and removal of barrier to trade can stimulate FDI that can incentivise firms to invest overseasarrow_forwardForeign exchange risk may be best defined as:a. the chance of value change in foreign exchange ratesb. the chance that the demand for your currency will dropc. the chance that exchange rates will be fixedd. the political risk posed by foreign governmentsarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT