Question: Holmes Corporation is a leading designer and
Holmes Corporation is a leading designer and manufacturer of material handling and processing equipment for heavy industry in the United States and abroad. Its sales have more than doubled, and its earnings have increased more than sixfold in the past five years. In material handling, Holmes is a major producer of electric overhead and gantry cranes, ranging from 5 tons in capacity to 600-ton giants, the latter used primarily in nuclear and conventional power-generating plants. It also builds underhung cranes and monorail systems for general industrial use carrying loads up to 40 tons, railcar movers, railroad and mass transit shop maintenance equipment, and a broad line of advanced package conveyors. Holmes is a world leader in evaporation and crystallization systems and furnishes dryers, heat exchangers, and filters to complete its line of chemical-processing equipment sold internationally to the chemical, fertilizer, food, drug, and paper industries. For the metallurgical industry, it designs and manufactures electric arc and induction furnaces, cupolas, ladles, and hot metal distribution equipment. The information here and on the following pages appears in the Year 15 annual report of Holmes Corporation
Management’s Report to Shareholders Year 15 was a pleasant surprise for all of us at Holmes Corporation. When the year started, it looked as though Year 15 would be a good year but not up to the record performance of Year 14. However, due to the excellent performance of our employees and the benefit of a favorable acquisition, Year 15 produced both record earnings and the largest cash dividend outlay in the company’s 93-year history. There is no doubt that some of the attractive orders received in late Year 12 and early Year 13 contributed to Year 15 profit. But of major significance was our organization’s favorable response to several new management policies instituted to emphasize higher corporate profitability. Year 15 showed a net profit on net sales of 6.4%, which not only exceeded the 6.0% of last year but represents the highest net margin in several decades. Net sales for the year were $102,698,836, down 6% from the $109,372,718 of a year ago but still the second largest volume in our history. Net earnings, however, set a new record at $6,601,908, or $3.62 per common share, which slightly exceeded the $6,583,360, or $3.61 per common share, earned last year. Cash dividends of $2,241,892 paid in Year 15 were 57% above the $1,426,502 paid a year ago. The record total resulted from your Board’s approval of two increases during the year. When we implemented the 5-for-4 stock distribution in June, Year 15, we maintained the quarterly dividend rate of $0.325 on the increased number of shares for the January payment. Then, in December, Year 15, we increased the quarterly rate to $0.375 per share. Year 15 certainly was not the most exuberant year in the capital equipment markets. Fortunately, our heavy involvement in ecology improvement, power generation, and international markets continued to serve us well, with the result that new orders of $95,436,103 were 18% over the $80,707,576 of Year 14. Economists have predicted a substantial capital spending upturn for well over a year, but, so far, our customers have displayed stubborn reluctance to place new orders amid the uncertainty concerning the economy. Confidence is the answer. As soon as potential buyers can see clearly the future direction of the economy, we expect the unleashing of a large latent demand for capital goods, producing a muchexpanded market for Holmes’ products. Fortunately, the accelerating pace of international markets continues to yield new business. Year 15 was an excellent year on the international front as our foreign customers continue to recognize our technological leadership in several product lines. Net sales of Holmes products shipped overseas and fees from foreign licensees amounted to $30,495,041, which represents a 31% increase over the $23,351,980 of a year ago. Management fully recognizes and intends to take maximum advantage of our technological leader ship in foreign lands. The latest manifestation of this policy was the acquisition of a controlling inter est in Société Française Holmes Fermont, our Swenson process equipment licensee located in Paris. Holmes and a partner started this firm 14 years ago as a sales and engineering organization to function in the Common Market. The company currently operates in the same mode. It owns no physical manufacturing assets, subcontracting all production. Its markets have expanded to include Spain and the East European countries. Holmes Fermont is experiencing strong demand in Europe. For example, in early May, a $5.5 million order for a large potash crystallization system was received from a French engineering
company representing a Russian client. Management estimates that Holmes Fermont will contribute approximately $6 to $8 million of net sales in Year 16. Holmes’ other wholly owned subsidiaries—Holmes Equipment Limited in Canada; Ermanco Incorporated in Michigan; and Holmes International, Inc., our FSC (Foreign Sales Corporation)—again contributed substantially to the success of Year 15. Holmes Equipment Limited registered its secondbest year. However, capital equipment markets in Canada have virtually come to a standstill in the past two quarters. Ermanco achieved the best year in its history, while Holmes International, Inc., had a truly exceptional year because of the very high level of activity in our international markets. The financial condition of the company showed further improvement and is now unusually strong as a result of very stringent financial controls. Working capital increased to $23,100,863 from $19,029,626, a 21% improvement. Inventories decreased 6% from $18,559,231 to $17,491,741. The company currently has no long-term or short-term debt, and has considerable cash in short-term instruments. Much of our cash position, however, results from customers’ advance payments, which we will absorb as we make shipments on the contracts. Shareholders’ equity increased 19% to $29,393,803 from $24,690,214 a year ago. Plant equipment expenditures for the year were $1,172,057, down 18% from $1,426,347 of Year 14. Several appropriations approved during the year did not require expenditures because of delayed deliveries beyond Year 15. The major emphasis again was on our continuing program of improving capacity and efficiency through the purchase of numerically controlled machine tools. We expanded the Ermanco plant by 50%, but since this is a leasehold arrangement, we made only minor direct investments. We also improved the Canadian operation by adding more manufacturing space and installing energy-saving insulation. Labor relations were excellent throughout the year. The Harvey plant continues to be nonunion. We negotiated a new labor contract at the Canadian plant, which extends to March 1, Year 17. The Pioneer Division in Alabama has a labor contract that does not expire until April, Year 16. While the union contract at Ermanco expired June 1, Year 15, work continues while negotiation proceeds on a new contract. We anticipate no difficulty in reaching a new agreement. We exerted considerable effort during the year to improve Holmes’ image in the investment community. Management held several informative meetings with security analyst groups to enhance the awareness of our activities and corporate performance. The outlook for Year 16, while generally favorable, depends in part on the course of capital spending over the next several months. If the spending rate accelerates, the quickening pace of new orders, coupled with present backlogs, will provide the conditions for another fine year. On the other hand, if general industry continues the reluctant spending pattern of the last two years, Year 16 could be a year of maintaining market positions while awaiting better market conditions. Management takes an optimistic view and thus looks for a successful Year 16. The achievement of record earnings and the highest profit margin in decades demonstrates the capability and the dedication of our employees. Management is most grateful for their efforts throughout the excellent year. T. R. Varnum T. L. Fuller President Chairman March 15, Year 16 Review of Operations Year 15 was a very active year although the pace was not at the hectic tempo of Year 14. It was a year that showed continued strong demand in some product areas but a dampened rate in others. The product areas that had some special economic circumstances enhancing demand fared well. For example, the continuing effort toward ecological improvement fostered excellent activity in Swenson processing equipment. Likewise, the energy concern and the need for more electrical power generation capacity boded well for large overhead cranes. On the other hand, Holmes’ products that relate to general industry and depend on the overall capital spending rate for new equipment experienced lesser demand, resulting in lower new orders and reduced backlogs. The affected products were small cranes, underhung cranes, railcar movers, and metallurgical equipment. Year 15 was the first full year of operations under some major policy changes instituted to improve Holmes’ profitability. The two primary revisions were the restructuring of our marketing effort along product division lines and the conversion of the product division incentive plans to a profit-based formula. The corporate organization adapted extremely well to the new policies. The improved profit margin in Year 15, in substantial part, was a result of the changes. International activity increased markedly during the year. Surging foreign business and the expressed objective to capitalize on Holmes’ technological leadership overseas resulted in the elevation of Mr. R. E. Foster to officer status as Vice President–International. The year involved heavy commitments of the product division staffs, engineering groups, and manufacturing organization to such important contracts as the $14 million Swenson order for Poland, the $8 million Swenson project for Mexico, the $2 million crane order for Venezuela, and several millions of dollars of railcar movers for all areas of the world. The acquisition of control and commencement of operating responsibility of Société Française Holmes Fermont, the Swenson licensee in Paris, was a major milestone in our international strategy. This organization has the potential of becoming a very substantial contributor in the years immediately ahead. Its long-range market opportunities in Europe and Asia are excellent. Material Handling Products Material handling equipment activities portrayed conflicting trends. During the year, when total backlog decreased, the crane division backlog increased. This was a result of several multimillion-dollar contracts for power plant cranes. The small crane market, on the other hand, experienced depressed conditions during most of the year as general industry withheld appropriations for new plant and equipment. The underhung crane market experienced similar conditions. However, as congressional attitudes and policies on investment unfold, we expect capital spending to show a substantial upturn. The Transportation Equipment Division secured the second order for orbital service bridges, a new product for the containment vessels of nuclear power plants. This design is unique and allows considerable cost savings in erecting and maintaining containment shells. The Ermanco Conveyor Division completed its best year with the growing acceptance of the unique XenoROL design. We expanded the Grand Haven plant by 50% to effect further cost reduction and new concepts of marketing. The railcar moving line continued to produce more business from international markets. We installed the new 11TM unit in six domestic locations, a product showing signs of exceptional performance. We shipped the first foreign 11TM machine to Sweden. Processing Equipment Products Processing equipment again accounted for slightly more than half of the year’s business. Swenson activity reached an all-time high level with much of the division’s effort going into international projects. The large foreign orders required considerable additional work to cover the necessary documentation, metrification when required, and general liaison. We engaged in considerably more subcontracting during the year to accommodate one-piece shipment of the huge vessels pioneered by Swenson to effect greater equipment economies. The division continued to expand the use of computerization for design work and contract administration. We developed more capability during the year to handle the many additional tasks associated with turnkey projects. Swenson’s research and development efforts accelerated in search of better technology and new products. We conducted pilot plant test work at our facilities and in the field to convert several sales prospects into new contracts. The metallurgical business proceeded at a slower pace in Year 15. However, with construction activity showing early signs of improvement and automotive and farm machinery manufacturers increasing their operating rates, we see intensified interest in metallurgical equipment. Financial Statements The financial statements of Holmes Corporation and related notes appear in Exhibits 12.20 to12.22. Exhibit 12.23 presents five-year summary operating information for Holmes. Notes to Consolidated Financial Statements Year 15 and Year 14 Note A—Summary of Significant Accounting Policies. Significant accounting policies consistently applied appear below to assist the reader in reviewing the company’s consolidated financial statements contained in this report.
> The Coca-Cola Company is a global soft drink beverage company (ticker: KO). The data in Chapter 12’s Exhibits 12.14, 12.15, and 12.16 (pages 712–715) include the actual amounts for 2020 and projected amounts for Year 11 to Year 16 for the income statemen
> Suppose the following hypothetical data represent total assets, book value, and market value of common shareholders’ equity (dollar amounts in millions) for Microsoft, Intel, and Dell, three firms involved in different aspects of the co
> The Coca-Cola Company is a global soft drink beverage company (ticker symbol = KO). The data in Exhibits 12.14 to 12.16 include the actual amounts for fiscal 2020 and projected amounts for Year +1 to Year +6 for the income statements, balance sheets, and
> The 3M Company is a global diversified technology company active in the following product markets: consumer and office; display and graphics; electronics and communications; health care; industrial; safety, security, and protection services; and transpor
> Walmart Stores (Walmart) is the world’s largest retailer. It employs an “everyday low price” strategy and operates stores as three business segments: Walmart U.S., International, and Samâ€&
> The Coca-Cola Company is a global soft drink beverage company (ticker: KO). The following data for Coca-Cola include the actual amounts for Year 0 and the projected amounts for Years 11 through 15 for comprehensive income and common shareholdersâ&#
> Barnes & Noble sells books, magazines, music, and videos through retail stores and online. For a retailer like Barnes & Noble, inventory is a critical element of the business, and it is necessary to carry a wide array of titles. Inventories constitute th
> Hasbro designs, manufactures, and markets toys and games for children and adults in the United States and in international markets. Hasbro’s portfolio of brands and products contains some of the most well-known toys and games under famous brands such as
> The following is an excerpt from Note 13 (Pensions and Other Post-Employment Benefits) to the 2020 Consolidated Financial Statements of Coca-Cola Company (Coca-Cola): REQUIRED: a. Write a memorandum explaining the change in the net pension liability in
> The following are excerpts from Note 14 (Income Taxes) to the 2020 Consolidated Financial Statements of Coca-Cola Company (Coca-Cola): A reconciliation of the statutory U.S. federal tax rate and our effective tax rate is as follows: REQUIRED: a. Does Co
> Kentucky Gold (KG) holds 10,000 gallons of whis key in inventory on October 31, Year 1, that costs $225 per gallon. KG contemplates selling the whiskey on March 31, Year 2, when it completes the aging process. Uncertainty about the selling price of whisk
> Lynn Construction enters into a firm purchase commitment for equipment to be delivered on June 30, Year 1, for a price of £10,000. It simultaneously signs a forward foreign exchange contract for £10,000. The forward rate on June 30, Year 1, for settlemen
> Following information relates to a firm’s pension plan. REQUIRED: a. Compute the December 31, Year 1, PBO and FMV of pension assets. b. Compute Year 1 pension expense. c. Use the financial statements effects template to show the eff
> A large manufacturer of truck and car tires recently changed its cost-flow assumption method for inventories at the beginning of Year 2. The manufacturer has been in operation for almost 40 years, and for the last decade it has reported moderate growth i
> Deere & Company manufactures agricultural and industrial equipment and provides financing services for its independent dealers and their retail customers. In Note 2 to its October 31, Year 12, Form 10-K, Deere discloses the following revenue recognition
> Prime Contractors (Prime) is a privately owned company that contracts with the U.S. government to provide various services under multiyear (usually five-year) contracts. Its principal services are as follows: Refuse: Picks up and disposes of refuse from
> On January 1, Year 1, assume that Turner Construction Company agreed to construct an observatory for Dartmouth College for $120 million. Dartmouth College must pay $60 million upon signing and $30 million in Year 2 and Year 3. Expected construction costs
> Foreign Sub is a wholly owned subsidiary of U.S. Domestic Corporation. U.S. Domestic Corporation acquired the subsidiary several years ago. The financial statements for Foreign Sub for Year 2 in its own currency appear in Exhibit 8.31. LO 8-6 December 31
> Exhibit 8.28 presents the separate financial statements at December 31, Year 2, of Prestige Resorts and its 80%-owned subsidiary Booking, Inc. Two years earlier on January 1, Year 1, Prestige acquired 80% of the common shares of B
> On December 31, Year 1, Pace Co. paid $3,000,000 to Sanders Corp. shareholders to acquire 100% of the net assets of Sanders Corp. Pace Co. also agreed to pay former Sanders shareholders $200,000 in cash if certain earnings projections were achieved over
> Ormond Co. acquired all of the outstanding common stock of Daytona Co. on January 1, Year 1. Ormond Co. gave shares of its common stock with a fair value of $312 million in exchange for 100% of the Daytona Co. common stock. Daytona Co. will remain a lega
> Lexington Corporation acquired all of the outstanding common stock of Chalfont, Inc., on January 1, Year 1. Lexington gave shares of its no par common stock with a market value of $504 million in exchange for the Chalfont common stock. Chalfont will rema
> Bed and Breakfast (B&B), an Italian company operating in the Tuscany region, follows IFRS and has made the choice to premeasure long-lived assets at fair value. B&B purchased land in Year 1 for €150,000. At December 31 of the next four years, the land is
> Floral Delivery, Inc. (FD) acquired a fleet of vans on January 1, 2021, by issuing a $500,000, four-year, 4% fixed rate note, with interest payable annually on December 3. FD has the option to repay the note prior to maturity at the note’s fair value. FD
> Exhibits 7.14 and 7.15 provide footnote excerpts to the financial reports of The Coca-Cola Company and Eli Lilly and Company that discuss the stock option grants given to the employees of the two firms. Each firm uses options extensively to reward employ
> Eli Lilly and Company Produces pharmaceutical products for humans and animals. Exhibit 7.15 includes a footnote excerpt from the annual report of Lilly for the period ending December 31, Year 4. REQUIRED: Review Exhibits 7.15 and answer the following qu
> Refer to financial statements for Walmart in Exhibit 1.19 (Balance Sheets), Exhibit 1.20 (Statements of Income), and Exhibit 1.22 (Statement of Cash Flows). Exhibit 1.19: Exhibit 1.20: Exhibit 1.22: REQUIRED a. Explain why depreciation and amortiza
> Exhibit 7.14 includes a footnote excerpt from the annual report of The Coca-Cola Company for Year 4. The beverage company offers stock options to key employees under plans approved by stockholders. REQUIRED: Review Exhibit 7.14 and answer the followin
> On January 1 of Year 1, Baylor Company needs to acquire an industrial drilling machine that has a five-year life. Baylor could borrow funds and buy the machine outright for $50,000 or it could lease it from Gonzaga Financial by making annual end-of-the-y
> Exhibits 6.17–6.19 present the December 31, 2019, Consolidated Statements of Income, Statements of Comprehensive Income, Consolidated Statements of Cash Flows for Chipotle Mexican Grill, Inc. Notes 5 and 6 to the financial statements pr
> Socket Mobile develops and deploys bar-code-enabled mobile apps, cordless bar-code scanners, and contactless reading and writing devices to enable data capture. Its primary revenue source is the servicing of firms in the specialty retailer, field service
> Exhibit 6.16 presents the Consolidated Statements for Income of Harley-Davidson, Inc., and Note 3 describes restructuring expenses. NOTE: 3 Accompanying HARLEY-DAVIDSON, INC. December 31, 2019, Consolidated Financial Statements 3. Restructuring Expense
> Diviney Company wants to raise $50 million cash but for various reasons does not want to do so in a way that results in a newly recorded liability. The firm is sufficiently solvent and profitable, so its bank is willing to lend up to $50 million at the p
> Delta Air Lines, Inc., is one of the largest airlines in the United States. It has operated on the verge of bankruptcy for several years. Exhibit 5.17 presents selected financial data for Delta Air Lines for each of the five years ending December 31, 200
> Exhibit 5.16 presents risk ratios for Coca-Cola for Year 1 through Year 3. REQUIRED a. Assess the changes in the short-term liquidity risk of Coca-Cola between Year 1 and Year 3. b. Assess the changes in the long-term solvency risk of Coca-Cola betwe
> Abercrombie & Fitch sells casual apparel and personal care products for men, women, and children through retail stores located primarily in shopping malls. Its fiscal year ends January 31 of each year. Financial statements for Abercrombie & Fitch
> The following are summary financial data for three well-known companies—American Airlines, Amazon, and The Home Depot. Based on your awareness of these companies and the economic events surrounding the COVID-19 pandemic that
> Exhibits 1.19–1.22 of Integrative Case 1.1 (Chapter 1) present the financial statements for Walmart for 2019–2021. In addition, the website for this text contains Walmart’s January 31, 2021, Form 10-K
> Analyzing the profitability of restaurants requires consideration of their strategies with respect to ownership of restaurants versus franchising. Firms that own and operate their restaurants report the assets and financing of those restaurants on their
> Selected data for General Mills for Year 1, Year 2, and Year 3 appear below (amounts in millions). REQUIRED a. Compute the rate of ROCE for Year 1, Year 2, and Year 3. b. Compute basic EPS for Year 1, Year 2, and Year 3. c. Interpret the changes in RO
> Sirius XM Radio Inc. is a satellite radio company, formed from the merger of Sirius and XM in 2008. Exhibit 3.20 presents a statement of cash flows for Sirius XM Radio for 2006, 2007, and 2008. Sirius XM and its predecessor, Sirius, realized revenue grow
> Aer Lingus is an international airline based in Ireland. Exhibit 3.24 provides the statement of cash flows for Year 1 and Year 2, which includes a footnote from the financial statements. Year 2 was characterized by weakening consumer demand for air trave
> The Apollo Group is one of the largest providers of private education and runs numerous programs and services, including the University of Phoenix. Exhibit 3.23 provides statements of cash flows for Year 1 through Year 3. REQUIRED Discuss the relation
> Montgomery Ward operates a retail department store chain. It filed for bankruptcy during the first quarter of Year 12. Exhibit 3.22 presents a statement of cash flows for Montgomery Ward for Year 7 to Year 11. The firm acquired Lechmere, a discount reta
> Sunbeam Corporation manufactures and sells a variety of small household appliances, including toasters, food processors, and waffle grills. Exhibit 3.21 presents a statement of cash flows for Sunbeam for Year 5, Year 6, and Year 7. After experiencing de
> Using the analytical framework, indicate the effect of each of the three independent sets of transactions described next. (1) a. January 15, 2018: Purchased marketable debt securities for $100,000. b. December 31, 2018: Revalued the marketable securiti
> In Integrative Case 10.1, we projected financial statements for Walmart Stores for Years 11 through 15. The data in Chapter 12, Exhibits 12.17 through 12.19, include the actual amounts for 2020 and the projected amounts for Year 11 to Year 16 for the inc
> Residual Income Valuation of Walmart’s Common Equity In Integrative Case 10.1, we projected financial statements for Walmart Stores, Inc. (Walmart), for Years 11 through 15. The data in Chapter 12’s Exhibits 12.17, 12.
> Nike, Inc.’s principal business activity involves the design, development, and worldwide marketing of athletic footwear, apparel, equipment, accessories, and services for serious and recreational athletes. Nike boasts that it is the lar
> In Integrative Case 10.1, we projected financial statements for Walmart Stores, Inc. (Walmart), for Years +1 through +5. In this portion of the Walmart Integrative Case, we use the projected financial statements from Integrative Case 10.1 and apply the t
> Integrative Case 10.1 involves projecting financial statements for Walmart for Years 11 through 15. The following data for Walmart include the actual amounts for fiscal 2020 and the projected amounts for Years 11 through 15 for comprehensive income and c
> Since the early 1990s, woodstove sales have declined from 1,200,000 units per year to approximately 100,000 units per year. The decline has occurred because of (1) stringent new federal EPA regulations, which set maximum limits on stove emissions beginni
> Walmart Stores, Inc. (Walmart) is the largest retailing firm in the world. Building on a base of discount stores, Walmart has expanded into warehouse clubs and Supercenters, which sell traditional discount store items and grocery products. Exhibits 10.10
> The website for this text contains Walmart’s January 31, 2021, Form 10-K. You should read the management discussion and analysis (MD&A), financial statements, and notes to the financial statements, especially Note 1, “Summary of Significant Accounting Po
> Walmart makes significant investments in operating capacity, primarily via investments in property, plant, and equipment, but also via investments in wholly and partially owned subsidiaries. Walmart also has significant non-U.S. operations in its Walmart
> As you learned in the first two steps of the six-step financial statement analysis and valuation process, a firm’s financing activity is greatly influenced by industry economics and strategy, especially its stage within its life cycle. Early-stage firms
> Arbortech, a designer, manufacturer, and marketer of PC cards for computers, printers, telecommunications equipment, and equipment diagnostic systems, was the darling of Wall Street during Year 6. Its common stock price was the leading gainer for the yea
> Citigroup Inc. (Citi) is a leading global financial services company with more than 200 million customer accounts and operations in more than 140 countries. Its operating units Citicorp and Citi Holdings provide a broad range of financial products and se
> The first case at the end of this chapter and numerous subsequent chapters is a series of integrative cases involving Walmart, Inc. (Walmart). The series of cases applies the concepts and analytical tools discussed in each chapter to Walmartâ€
> Diamond Bank expects that the Singapore dollar will depreciate against the U.S. dollar from its spot rate of $0.43 to $0.42 in 60 days. The following interbank lending and borrowing rates exist: Diamond Bank considers borrowing 10 million Singapore doll
> Blue Demon Bank expects that the Mexican peso will depreciate against the dollar from its spot rate of $0.15 to $0.14 in 10 days. The following interbank lending and borrowing rates exist: Assume that Blue Demon Bank has a borrowing capacity of either $
> Assume that the U.S. inflation rate becomes high relative to Canadian inflation. Other things being equal, how should this affect (a) the U.S. demand for Canadian dollars, (b) the supply of Canadian dollars for sale, and (c) the equilibrium value of t
> Assume that the United States invests heavily in government and corporate securities of Country K. In addition, residents of Country K invest heavily in the United States. Approximately $10 billion worth of investment transactions occur between these two
> Mexico tends to have much higher inflation than the United States as well as much higher interest rates than the United States. Inflation and interest rates are much more volatile in Mexico than in industrialized countries. The value of the Mexican peso
> Tarheel Co. plans to determine how changes in U.S. and Mexican real interest rates will affect the value of the U.S. dollar. (See Appendix C for the basics of regression analysis.) a. Describe a regression model that could be used to achieve this purpos
> How do you think weaker U.S. economic conditions could affect capital flows? If capital flows are affected, how would this influence the value of the dollar (holding other factors constant)?
> Why do you think most crises in countries cause the local currency to weaken abruptly? Is it because of trade flows or capital flows
> If Asian countries experience a decline in economic growth (and experience a decline in inflation and interest rates as a result), how will their currency values (relative to the U.S. dollar) be affected?
> Analysts commonly attribute the appreciation of a currency to expectations that economic conditions will strengthen. Yet, this chapter suggests that when other factors are held constant, increased national income could increase imports and cause the loca
> On August 26, 1998, the day that Russia decided to let the ruble float freely, the ruble declined by about 50 percent. N the following day, called bloody Thursday, stock markets around the world (including the U.S.) declined by more than 4 percent. Why d
> In some historical periods, Brazil’s inflation rate has been very high. Explain why this places pressure on the Brazilian currency
> Explain why the value of the British pound against the dollar will not always move in tandem with the value of the euro against the dollar.
> Every month, the U.S. trade deficit figures are announced. Foreign exchange traders often react to this announcement and even attempt to forecast the figures before they are announced. a. Why do you think the trade deficit announcement sometimes has suc
> Assume the spot rate of the British pound is $1.73. The expected spot rate one year from now is assumed to be $1.66. What percentage depreciation does this reflect?
> Explain the foreign exchange situation for countries that use the euro when they engage in international trade among themselves.
> The Wolfpack Corp. is a U.S. exporter that invoices its exports to the United Kingdom in British pounds. If it expects that the pound will appreciate against the dollar in the future, should it hedge its exports with a forward contract? Explain.
> Compute the bid/ask percentage spread for Mexican peso retail transactions in which the ask rate is $0.11 and the bid rate is $0.10.
> Utah Bank’s bid price for Canadian dollars is $0.7938 and its ask price is $0.8100. What is the bid/ask percentage spread?
> List some of the important characteristics of bank foreign exchange services that MNCs should consider.
> Explain how the appreciation of the Japanese yen against the U.S. dollar would affect the return to a U.S. firm that borrowed Japanese yen and used the proceeds for a U.S. project.
> During the Hong Kong crisis, the Hong Kong stock market declined substantially over a four-day period due to concerns in the foreign exchange market. Why would stock prices decline due to such concerns in the foreign exchange market? Why would some count
> In July 2015, Greece was negotiating to obtain its third bailout from several European governments over a five-year period. Greece argued that austerity measures should not be imposed. Offer some reasoning for this argument. The European governments insi
> As of today, the interest rates in Countries X, Y, and Z are similar. In the next month, Country X is expected to have a weak economy, while Countries Y and Z are expected to experience a 6 percent increase in their economic growth. However, conditions t
> Bloomington Co. is a large U.S.-based MNC with large subsidiaries in Germany. It has issued stock in Germany to establish its business. As an alternative financing mechanism, it could have issued stock in the United States and then used the proceeds to s
> Explain how the international integration of financial markets caused the credit crisis of 2008–2009 to spread across many countries
> Explain how the appreciation of the Australian dollar against the U.S. dollar would affect the return to a U.S. firm that invested in an Australian money market security.
> Identify some of the key factors that can allow for stronger governance, thereby increasing participation and trading activity in a stock market
> a. What factors cause some firms to become more internationalized than others? b. Why might the Internet have resulted in more international business?
> a. Do you think the acquisition of a foreign firm or licensing will result in greater growth for an MNC? Which alternative is likely to have more risk? b. Describe a scenario in which the size of a corporation is not affected by access to international
> a. Explain how the existence of imperfect markets has led to the establishment of subsidiaries in foreign markets. b. If perfect markets existed, would wages, prices, and interest rates among countries be more similar or less similar than under conditio
> a. Explain how the theory of comparative advantage relates to the need for international business. b. Explain how the product cycle theory relates to the growth of an MNC.
> Explain the relationship between transparency of firms and investor participation (or trading activity) in stock markets. Based on this relationship, how can governments of countries increase the amount of trading activity (and therefore liquidity) of th
> a. Explain the agency problem of MNCs. b. Why might agency costs be larger for an MNC than for a purely domestic firm?
> Briefly describe the historical developments that led to floating exchange rates as of 1973.
> What is the function of the international money markets? Briefly describe the reasons for the development and growth of the European money market. Explain how the international money, credit, and bond markets differ from one another.
> Explain the process used by banks in the Eurocredit market to determine the rate to charge on loans.
> Explain how syndicated loans are used in international markets
> Assume Poland’s currency (the zloty) is worth $0.17 and the Japanese yen is worth $0.008. What is the cross exchange rate of the zloty with respect to yen? That is, how many yen equal one zloty?
> If the direct exchange rate of the euro is $1.25, what is the euro’s indirect exchange rate? That is, what is the value of a dollar in euros?
> Explain why an MNC may invest funds in a financial market outside its own country
