...CHAPTER 1 SUGGESTED ANSWERS TO CHAPTER 1 QUESTIONS 1.a. What are the various categories of multinational firms? ANSWER. Raw materials seekers, market seekers, and cost minimizers. b. What is the motivation for international expansion of firms within each category? ANSWER. The raw materials seekers go abroad to exploit the raw materials that can be found there. It just happens that nature didn't place all natural resources domestically. Market seekers go overseas to produce and sell in foreign markets. The cost minimizers invest in lower-cost production sites overseas in order to remain cost competitive both at home and abroad. In all cases, the firms involved recognize that the world is larger than the home country and provides opportunities to gain additional supplies, sell more products or find lower cost sources of production. 2.a. How does foreign competition limit the prices that domestic companies can charge and the wages and benefits that workers can demand? ANSWER. As domestic producers raise their prices, customers begin substituting less expensive goods and services supplied by foreign producers. The likelihood of losing sales limits the prices that domestic firms can charge. Foreign competition also acts to limit the wages and benefits that workers can demand. If workers demand more money, firms have two choices. Acquiesce in these demands or fight them. Absent foreign competition, the cost of acquiescence is relatively low, particularly if the industry is unionized...
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...Goals of the MNC • Maximize shareholder wealth – Problems encountered in meeting goals: 1) Agency problems larger for MNCs than purely domestic firms because: a) monitoring more difficult because of geographic distance b) different cultures c) MNC size d) subsidiary managers may maximize the value of their subsidiary but not of the MNC as a whole 2) Centralized vs. decentralized management a) centralized reduces agency costs because it gives parent more control; downside is that local managers may be better informed b) decentralized management increases agency costs but may result in better decisions c) Internet may facilitate monitoring of foreign subsidiaries 3) Corporate control used to reduce agency problems a) executive compensation with stock b) threat of hostile takeover c) monitoring by large shareholders – Constraints encountered in meeting goals 1) Environmental - other countries may be tougher (e.g., pollution controls) 2) Regulatory - e.g., currency convertibility, remittance of profits, etc. 3) Ethical - e.g., bribes may be more acceptable in other countries Theories of International Business • Theory of Comparative Advantage – countries specialize in the production of goods they can produce with relative efficiency and trade for other products • Imperfect Markets Theory – factors of production (labor and other resources) are immobile. • Firms can capitalize on imperfect markets by...
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...CHAPTER 17 MULTINATIONAL FINANCIAL MANAGEMENT (Difficulty Levels: Easy, Easy/Medium, Medium, Medium/Hard, and Hard) Please see the preface for information on the AACSB letter indicators (F, M, etc.) on the subject lines. Multiple Choice: True/False (17-2) Multinational fin. mgmt. F T Answer: a EASY [i]. Multinational financial management requires that financial analysts consider the effects of changing currency values. a. True b. False (17-2) Multinational fin. mgmt. F T Answer: b EASY [ii]. Legal and economic differences among countries, although important, do NOT pose significant problems for most multinational corporations when they coordinate and control worldwide operations and subsidiaries. a. True b. False (17-3) Currency appreciation F T Answer: a EASY [iii]. When the value of the U.S. dollar appreciates against another country's currency, we may purchase more of the foreign currency with a dollar. a. True b. False (17-3) Floating exchange rates F T Answer: a EASY [iv]. The United States and most other major industrialized nations currently operate under a system of floating exchange rates. a. True b. False (17-4) Exchange rates F T Answer: b EASY [v]. Exchange rate quotations consist solely of direct quotations. a. True b. False (17-4) Cross rates F T Answer: a EASY [vi]. Calculating a currency cross rate involves determining the exchange...
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...Class of: 2013 Course Title: Financial Risk Management (FRM) Semester: III Credits: 3 Course Objective & Learning Outcome: This course gives students a working knowledge of derivative instruments and their applications in managing various types of financial risks. While doing so, students would understand the organizational aspects of those risk functions and their roles & responsibilities. The emphasis is on mechanics, properties and valuation of forwards, futures, options and swap instruments. In covering these instruments, cases, examples and notes would be sought from markets so as to provide a holistic view of the financial market structure i.e., currency, fixed income, equity and money markets. Cases discussed in the class would be contemporary in nature drawn from international experience. Pre-requisites: Students are advised to be through with Financial Management I, Financial Management II and Quantitative Methods. Students are expected to go through all the reading prescribed before every class and make a meaningful contribution through active class participation. The course is delivered through a combination of case discussions, problem solving, real life risk reports and simulation. The course would have an analytical and numerical flavor and hence students are required to bring their calculators/laptops to every class. Text Book: 1. Hull, John C. & Basu, S., Options, Futures, and Other Derivatives, 7th Edison, Prentice-Hall...
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...The role of writing in financial field Abstract As far as we are known, writing plays an important role in our daily life and is essential to all people from all walks of lives. Writing can prompt the fast development of the individual progress as well as their professional capacity as well. I am willing to come true this aim in the way of writing, so I do my best to interview a person, her name is Doris. We have the opportunity to pick up some techniques and significant skills in the way of giving question-- how to write in an appropriate way in some degree. Now, Doris is working in financial field. There is no doubt that we can learn some key points of how to write something in this field from her useful and important experiences. This assignment which is an informational report aims to give a brief introduction about the different genres of writings, then provide some useful instructions to her expected audience, what’s more, making those audience known that writing can convey unexpected reflection of our daily life in reality. The importance of writing in financial I have acquire that writing could promote her to achieve a lot of things during the process of her career such as data analysis, strategy decision making, and more about the international business. Moreover, Doris has spent 3 more years working in this field. And everyday, she takes one and a half to write. Meanwhile, she will try her best to finish her tasks, no matter how difficult the tasks are, she...
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...CPA Program The Practical Experience Guide EVE CHENG CPA SENIOR ANALYST BHP BILLITON Contents Practical experience requirement How to identify if your role is relevant Where do you fit? What skills areas do you need to demonstrate? Your mentoring relationship How to record your experience in the logbook The skills guide Personal effectiveness skills Leadership skills Business skills Technical skills 3 4 6 7 8 10 11 12 13 14 15 MICHELLE ROACH CPA 2 Practical experience requirement Did you know? Our studies show that members consistently perform better in their segments when they are enrolled in the practical experience requirement The practical experience requirement of the CPA Program gives you the opportunity to use the knowledge and skills gained in your education and apply them in your workplace. Combining your education with mentored practical experience will give you the opportunity to develop and demonstrate highly sought after technical and soft-skills that will benefit your entire career. Starting your practical experience requirement means that you are one step closer to your goal of becoming a CPA. CPA Australia recommends that you start the practical experience requirement and the professional level segments at the same time, if you are employed in a relevant role. What are the requirements? • complete a minimum of three years of relevant full-time or equivalent part-time work experience • demonstrate competence in 16 personal effectiveness...
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...analytical and educational background Management experience Diverse work and life experience Experience 02/2010 – present Raiffeisen Bank International AG, Austria Credit management corporate, Director Counterparty credit risk and underwriting management in European emerging markets with special focus on Russia and Ukraine. 12/2008 – 01/2010 Structuring complex corporate credit transactions such as LBOs and investment loans. Developing an advanced internal tool for calculating Risk weighted assets under both standardised and IRB approaches. Developing and implementing industry concept in credit risk management. Reporting large and complex transactions to the bank’s Credit committee and Management board. Exercising my own approval competences for approval of credit transactions. Mentoring junior professionals and trainees in the department. Raiffeisenbank AD, Bulgaria Corporate credit risk, Head of department Managed a credit risk department of 10 risk professionals responsible for the largest corporate credit risk exposures. Was a voting member of the bank’s credit committee with own approval authorities. Steering the credit committee meetings. Participated in risk related projects originated in head office improvement, Data Quality management, Regular risk reporting). Met National Supervisory in terms of IRB application status of the bank. (Rating model 06/2008 – 11/2008 EFG Eurobank AD, Bulgaria Credit risk management, Head of department Managed...
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...Behavioural Finance Financial Risk Management Table of Contents Table of Contents 1 Risk Management Paper ........................................................................................................ 2 1.1 Introduction and interpretation .................................................................................................... 2 1.2 Implementation ............................................................................................................................ 4 1.2.1 Aspects to consider ....................................................................................................................... 4 1.2.2 Implementation Process ............................................................................................................... 8 2 Appendix I – References ....................................................................................................... 10 Date: 24 of May 2012 th i Risk Management Paper 1 1.1 Risk Management Paper Introduction and interpretation If at the beginning of 2011, a highly respected person advised me that I was going to live through three major earthquakes within a year I would have struggled to believe them and justify arguing with the historical and scientific data, which clearly states the converse...
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...CPA Program The practical experience guide and logbook If you require further information about the practical experience requirement, or would like to notify us of a change, please contact CPA Australia: practicalexperience@cpaaustralia.com.au or contact your local office – details can be found on the inside back page of this guide. Disclaimer The material used in this booklet has been designed and prepared for CPA Australia’s practical experience requirement. It provides tailored guidance for mentors who are registered in CPA Australia’s practical experience requirement. The booklet and contents should not be used for any other purpose. CPA Australia, the publisher and the author of this booklet take no responsibility for any loss incurred by any person who relies on guidance offered in this booklet. Legal notice Copyright CPA Australia Ltd (ABN 64 008 392 452) (“CPA Australia”), 2010. All rights reserved. Save and except for third party content, all content in these materials is owned by or licensed to CPA Australia. All trade marks, service marks and trade names are proprietory to CPA Australia. For permission to reproduce any material, a request in writing is to be made to the Legal Business Unit, CPA Australia Ltd, 385 Bourke Street, Melbourne, Victoria 3000. CPA Australia has used reasonable care and skill in compiling the content of this material. However, CPA Australia and the editors make no warranty as to the accuracy or completeness of any information in these...
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...Study: Coca-Cola HBC Treasury Takes Control of Commodity Risk Management Dimitris Papathanasiou, Coca-Cola HBC - 11 Sep 2013 Coca-ColaHellenic Bottling Company standardised its approach to risk management by transferring commodity risk management into treasury, so this central and vital business process could be managed by experts on an integrated basis with other financial risks and overseen by the financial risk management committee. This case study explains how organisational changes, combined with the introduction of risk management technology, enabled the organisation to plan and execute a consistent, cost-effective hedging strategy, with reduced counterparty risk exposure levels, improved transparency and stronger levels of control. Coca-Cola Hellenic Bottling Company (Coca-Cola HBC) is the world’s second largest bottler of the Coca-Cola Company’s products and the largest in Europe. Net sales revenue for fiscal 2012 was €6.8bn. Coca-Cola HBC is headquartered in Zug, Switzerland, and has a premium listing on the London Stock Exchange and a secondary listing on the Athens Exchange. It serves approximately 581m people in 28 countries. The company decided to concentrate its commodity market risk management within the treasury department, in response to high levels of profit and loss (P/L) volatility and the relatively high credit risk with its suppliers. The ensuing project involved change management for transfer of the company’s commodity risk hedging to treasury...
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...A risky business Dodie: We are all here now. As you know that Zelal Sulen is our new boss now. After she took up the official post, she found that Hi-Style is out of touch with its target consumers and is losing direction. As the member of manager consultants, for this point, today we need to think out at least two options to advise her to improve the situation. Am I understood? And think a while... Okay, let's make a start. Who want to speak first? Lily: Well, in my opinion, Hi-Style could allocate £10m to new investment in the business. For example, it could improve distribution and sales through an exclusive agreement with a major retailer, which could provide a steady marketing channel. Second, to launch new product ranges with major advertising campaigns. Thus, new products will be known to customers. Hi-Style could definitely reach wide publicity. Thirdly, to employ brand development consultants so as to improve its image. Brand development consultants are more professional so that better brand image will be built, leading to its properous future. Fourthly, to hire a top retailing executive to run the business. Therefore, the business will be more smooth and sales will be increased. The last one is to commission City Associates to do a thorough review of all Hi-Style's activities, from which Hi-Style could catch a better understanding of the whole business to control its operation. Dodie: Good.Thanks. Lily. And what's your opinion, Serena? Serena: Well, I prefer the...
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...896N1 - Multinational Financial Management The impact of the global financial crisis on the Multinational bank funding and its liquidity CandNo: 109098 Tutor: Dr Bruce Hearn, Dr Javad Izadi Zadeh Darjezi and Miss Madina Tash Date of Submission: 7th March 2013 Abstract This paper analyses the impact of the global financial crisis on the Multinational bank funding and its liquidity. In analysis of several articles, under the global financial crisis, multinational banks change their funding model to the stable wholesale funding and reduce the lending when the parent banks are financially weak. For its liquidity, multinational bank subsidiaries can rely on support from the bank group they belong to and therefore tend to hold a slightly lower liquidity. Content Abstract 1 Introduction 3 Literature Review 3 Analysis 5 Conclusion 6 Reference 6 Appendix 7 Introduction As the financial crisis existed through the fabric of the world’s financial system in the third quarter of 2007, it became clear that firm access to finance was going to be an early victim, including Multinational banks. During the local crisis, strong parent banks used their internal capital market to provide subsidiaries with capital and liquidity (Haas and Lelyveld, 2010). Domestic banks rely to a great extent on local funding, whereas an affiliate of a multinational bank can exploit both local funding possibilities and the funding capacity of its parent bank, all of which are embedded in...
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...Chapter 1 – Globalization and the Multinational Enterprise Eiteman, Stonehill & Moffett Multinational Business Finance, 12th Ed A Multinational Enterprise (MNE) is one that has operating subsidiaries, branches, or affiliates located in foreign countries. a. MNEs may be headquartered anywhere in the world. b. MNEs are often owned by a mixture of domestic and foreign stockholders. c. Ownership in a MNE may be so dispersed internationally that they may be known as transnational corporations. d. MNEs are often managed from a global perspective rather than from the perspective of any single country. e. The term enterprise is used rather than corporation because as business move into many emerging markets, they will enter into business arrangements with various types of enterprises that are not corporations such as joint ventures, strategic alliances, or simply operating agreements with enterprises that may not be publicly traded or even privately owned, but are actually extensions of the government. Domestic firms may export their products or not. Domestic firms may license foreign firms to conduct the domestic firm’s foreign business. Domestic firms are not protected from international competition. Purely domestic firms must understand the multinational nature of business today. Globalization and Creating Value in the Multinational Enterprise To become a successful multinational enterprise requires (1) an open...
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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 sturdy, but fundamentally unsound and and incapable of coping with the upheavals now apparent in international financial markets. Answer: FALSE Diff: 1 Topic: 1.1 Financial Globalization and Risk Skill: Recognition 2) Multinational enterprises (MNEs) are firms, both for profit companies and not-for-profit organizations, that have operations in more than one country, and conduct their business through foreign subsidiaries, branches, or joint ventures with host country firms. Answer: TRUE Diff: 1 Topic: 1.1 Financial Globalization and Risk Skill: Recognition 3) Ownership, control, and governance changes radically across the world. The publicly traded company is not the dominant global business organization—the privately held or family-owned business is the prevalent structure—and their goals and measures of performance differ dramatically. Answer: TRUE Diff: 2 Topic: 1.1 Financial Globalization and Risk Skill: Recognition 1.2 The Global Financial Marketplace Multiple Choice 1) A well-established, large U.S.-based MNE will probably NOT be able to overcome which of the following obstacles to maximizing firm value? A) an open market place B) high...
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... CHAPTER 1 INTRODUCTION Risk management structure should be well thought-out, as well as a cultural fit and sustainable. (Smiechewicz, 2001) Uncertainty is not measurable. Risk is. - Frank Knight, Risk, Uncertainty and Profit (1921) 1.1 Introduction Success in business, to a certain degree, requires owners and managers to take calculated risks. The most successful business is usually managed by people who know when to push forward and when to pull back, when to buy and when to sell, when to stand firm and when to compromise. The successful company is managed by people who understand what risk in business is, and how this risk should be managed and mitigated. Risk is an undeniable reality of doing business today, whether domestically or globally. A successful entrepreneur does not fear risk, but strives to understand it, to manage it, even to take advantage of it. As risk management tools and techniques become more and more complex, however, companies require the services of a Risk Management specialist. A growing specialty in this field, globally, is that of international accounting risk management. International accounting professionals can contribute to the 2 success of their companies must have a strong grasp of financial risk management techniques for multinational and multilateral business transactions of great complexity. Unfortunately, as the world of business becomes increasingly borderless, risk management becomes, likewise, borderless, and thus...
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