Question: Would the U.S. balance-of-trade

> 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

> When South Korea’s export growth stalled, some South Korean firms suggested that South Korea’s primary export problem was the weakness in the Japanese yen. How would you interpret this statement?

> Explain how the existence of the euro may affect U.S. international trade

> Assume that during this semester, the euro appreciated against the dollar. Did the direct exchange rate of the euro increase or decrease? Did the indirect exchange rate of the euro increase or decrease?

> Why do you think international trade volume has increased over time? In general, how are inefficient firms affected by the reduction in trade restrictions among countries and the continuous increase in international trade?

> A relatively small U.S. balance-of-trade deficit is commonly attributed to a strong demand for U.S. exports. What do you think is the underlying reason for the strong demand for U.S. exports?

> a. What are some of the major objectives of the IMF? b. How is the IMF involved in international trade?

> How can government restrictions affect international payments among countries?

> a. How would a relatively high domestic inflation rate affect the home country’s current account, other things being equal? b. Is a negative current account harmful to a country? Discuss.

> There is an ongoing debate between the United States and China regarding whether the Chinese yuan’s value should be revalued upward. The cost of labor in China is substantially lower than that in the United States. a. Would the U.S. balance-of-trade defi

> The governments of many countries enact policies that can have a major impact on international trade flows. a. Explain how governments might give their local firms a competitive advantage in the international trade arena. b. Why might different tax laws

> a. Explain why a stronger dollar could enlarge the U.S. balance-of-trade deficit. Explain why a weaker dollar could affect the U.S. balance-of-trade deficit. b. It is sometimes suggested that a floating exchange rate will adjust to reduce or eliminate a

> MNCs commonly invest in foreign securities. a. Assume that the dollar is presently weak and is expected to strengthen over time. How will these expectations affect the tendency of U.S. investors to invest in foreign securities? b. Explain how low U.S. i

> Go to the currency converter at finance. yahoo.com/currency-converter and determine the bid/ask spread for the euro. Then determine the bid/ask spread for a currency in a less developed country. What do you think is the main reason for the difference in

> There has been considerable momentum to reduce or remove trade barriers in an effort to achieve “free trade.” Yet one disgruntled executive of an exporting firm stated, “Free trade is not conceivable; we are always at the mercy of the exchange rate. Any

> Assume a simple world in which the United States exports soft drinks and beer to France and imports wine from France. If the United States imposes large tariffs on the French wine, explain the likely impact on the values of U.S. beverage firms, U.S. wine

> a. What are the main components of the current account? b. What are the main components of the capital account?

> a. Rochester Co. is a U.S. firm that operates a language institute in France. This institute attracts Americans who want to learn the French language. Rochester Co. charges tuition to the American students in dollars. It expects that its dollar revenue f

> Assume that Alpine Co. is a U.S. firm that has direct foreign investment in Brazil as a result of establishing a subsidiary there. Political conditions have changed in Brazil, but investors’ best guesses of the future cash flows per year for Alpine Co. h

> Odessa Co., Midland Co., and Roswell Co. are U.S. firms in the same industry and have the same valuation as of yesterday, based on the present value of the future cash flows of each company. Odessa Co. obtains a large amount of its supplies invoiced in e

> a. Assume that Bangor Co., a U.S. firm, knows that it will have cash inflows of $900,000 from domestic operations, cash inflows of 200,000 Swiss francs due to exports to Swiss operations, and cash outflows of 500,000 Swiss francs at the end of the year.

> Co. is a U.S. firm that has a subsidiary in China. The subsidiary reinvests half of its net cash flows into operations and remits half to the parent. Biloxi Co. has expected cash flows from its domestic business equal to $10 million, and the Chinese subs

> Asheville Co. has a subsidiary in Mexico that develops software for its parent. It rents a large facility in Mexico and hires many people in Mexico to work in this facility. Asheville Co. has no other international business. All operations are presently

> Tuscaloosa Co. is a U.S. firm that assembles phones in Argentina and transports the final assembled products to the parent, which then sells the products in the United States. The assembled products are invoiced in dollars. The Argentine subsidiary obtai

> Today, the stock price of Genevo Co. (based in Switzerland) is priced at SF80 per share. The spot rate of the Swiss franc (SF) is $0.70. During the next year, you expect that the stock price of Genevo Co. will decline by 3 percent. You also expect that t

> During the Asian crisis, why did the discount of the forward rate of Asian currencies change? Do you think it increased or decreased? Why?

> MNCs tend to expand more when they can more easily access funds by issuing stock. In some countries, shareholder rights are very limited, and the MNCs have limited ability to raise funds by issuing stock. Explain why access to funding is more restricted

> Because of the low labor costs in Thailand, Melnick Co. (based in the United States) recently established a major research and development subsidiary there that it owns. The subsidiary was created to improve new products that Melnick can sell in the Unit

> If a U.S. recession occurred without any change in interest rates, identify the part of the MNC valuation equation that would most likely be affected.

> Arlington Co. expects to receive 10 million euros in each of the next 10 years. It will need to obtain 2 million Mexican pesos in each of the next 10 years. The euro exchange rate is presently valued at $1.38 and is expected to depreciate by 2 percent ea

> Minneapolis Co. is a major exporter of products to Canada. Today, an event occurred that has increased the uncertainty surrounding the Canadian dollar’s future value over the long term. Explain how this event might affect the valuation of Minneapolis Co

> Olmsted Co. has small computer chips assembled in Poland and transports the final assembled products to the parent company; the parent then sells these products in the United States. The assembled products are invoiced in dollars. Olmsted Co. uses Polish

> Carlisle Co. is a U.S. firm that is about to purchase a large company in Switzerland at a purchase price of $20 million. This company, which produces furniture and sells it locally (in Switzerland), is expected to earn large profits every year. Following

> Rose Co., a U.S. firm, has expanded its business by establishing networking portals in numerous countries, including Argentina, Australia, China, Germany, Ireland, Japan, and the United Kingdom. It has cash outflows associated with the creation and admin

> Nantucket Travel Agency specializes in tours for American tourists. Until recently, all of its business was in the United States It just established a subsidiary in Athens, Greece, which provides tour services in the Greek islands for American visitors.

> In addition to its stores in the United States, Walmart Stores, Inc., has numerous retail units in Argentina, Brazil, Canada, China, Mexico, and the United Kingdom. Consider that the value of Walmart is composed of two parts: a U.S. part (due to business

> Today you notice the following exchange rate quotations: (a) $1 5 3.00 Argentine pesos and (b) 1 Argentine peso 5 0.50 Canadian dollar. You need to purchase 100,000 Canadian dollars with U.S. dollars. How many U.S. dollars will you need for your purchase

> Fort Worth, Inc., specializes in manufacturing some basic parts for sports utility vehicles (SUVs) that are produced and sold in the United States. Its main advantage in the United States is that its production is efficient and less costly than that of s

> Birm Co., based in Alabama, is considering several international opportunities in Europe that could affect the firm’s value. Its valuation depends on four factors: (1) expected cash flows in dollars, (2) expected cash flows in euros that are ultimately c

> The managers of Loyola Corp. recently had a meeting to discuss new opportunities in Europe as a result of recent integration among Eastern European countries. They decided not to penetrate new markets because of their present focus on expanding market sh

> Anheuser-Busch (which is now part of AB InBev due to a merger), the producer of Budweiser and other beers, has engaged in a joint venture with Kirin Brewery, the largest brewery in Japan. The joint venture enabled Anheuser-Busch to have its beer distribu

> Following the terrorist attacks on the United States on September 11, 2001, the valuations of many MNCs declined by more than 10 percent. Explain why the expected cash flows of MNCs were reduced, even if they were not directly hit by the terrorist attack

> Explain why political risk may discourage international business.

> Snyder Golf Co., a U.S. firm that sells high-quality golf clubs in the United States, wants to expand internationally by selling the same golf clubs in Brazil. a. Describe the trade-offs that are involved for each method (such as exporting, direct forei

> Duve, Inc., desires to penetrate a foreign market either by creating a licensing agreement with a foreign firm or by acquiring a foreign firm. Explain the differences in potential risk and return between a licensing agreement with a foreign firm and the

> Review this book’s table of contents and indicate whether each of the chapters from Chapter 2 through Chapter 21 has a macro or micro perspective.

> McCanna Corp., a U.S. firm, has a French subsidiary that produces and exports wine. All of the European countries where it sells its wine use the euro as their currency, which is the same currency used in France. Is McCanna Corp. exposed to exchange rate

> Why do interest rates vary among countries? Why are interest rates usually similar for those European countries that use the euro as their currency? Offer a reason why the government interest rate of one country could be slightly higher than the governme

> Explain why morestandardized product specifications across countries can increase global competition

> Would the agency problem be more pronounced for Berkeley Corp., whose parent company makes most major decisions for its foreign subsidiaries, or Oakland Corp., which uses a decentralized approach?

> Hudson Co., a U.S. firm, has a subsidiary in Mexico, where political risk has recently increased. Hudson’s best guess of its future peso cash flows to be received has not changed. However, its valuation has declined as a result of the increase in politic

> As an overall review of this chapter, identify possible reasons for growth in international business. Then list the various disadvantages that may discourage international business

> Plak Co. of Chicago has several European subsidiaries that remit earnings to it each year. Explain how appreciation of the euro (the currency used in many European countries) would affect Plak’s valuation

> Rollins, Inc., has $3 million in cash available for 1 year. It can earn 3 percent on aU.S. Treasury bill or 5 percent on a British Treasury security. The British investment requires conversion of the company’s dollars to British pounds. Assume that inter

> Fort Collins, Inc., has $1 million in cash available for 30 days. It can earn 1 percent on a 30-day investment in the United States. Alternatively, if it converts the dollars to Mexican pesos, it can earn 1.5 percent on a Mexican deposit. The spot rate o

> Evansville, Inc., has $2 million in cash available for 90 days. It is considering the use of covered interest arbitrage because the euro’s 90-day interest rate is higher than the U.S. interest rate. What will determine whether this strategy is feasible?

> Why would a U.S. firm consider investing its short-term funds in euros even when it does not have any future cash outflows in euros?