International Finance

1841 Words Apr 24th, 2011 8 Pages
Question 1
a. The dollar is presently weak and is expected to strengthen over time. These expectations affect the tendency of U.S investors to invest in foreign securities because the value of U.S dollar decrease will lead to the U.S company get less profit and earn less money. Consequently, U.S companies will pay fewer dividends for investors who invest in these companies. So, investors will tend to invest in foreign securities where they can get higher dividend. On the other hand, a weak currency can reduce unemployment but maybe it can lead to high inflation, and simultaneously it may reduce U.S imports and boost U.S exports or buy more goods than it sells abroad (imports exceed exports). Another thing, in the long run, trade deficits
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And when it is expected to strengthen against, owns or earnings from the foreign securities can periodically be converted back to more dollars when they were sold.
Question 2:
In my opinion, a financial manager of Chapman Co. recommends that it wait until the world stock market recover before it issue stock. He is correct because this is the first time Chapman Co. engage in an initial public offering (IPO). And IPO is very important so it is the first challenge for company to issue stock. Consequently, when Chapman Co. waits until the world stock market recover before it issues stock, this will make Chapman Co.‘s stock price increase according to the world stock marker recover, then, Chapman Co. can gain more profit. Because at the beginning, Chapman Co. issued stock with initial price, and the world market recover will make the Chapman Co.‘s stock price increases more than initial price. Consequently, Chapman Co. gets more profit from IPO and can finance its international expansion.
On the other hand, if Chapman Co. follows the other managers to issue stock now even if the world stock market‘s price would low, the Chapman‘s stock price would be low and tend to more decrease according to weak world stock market. So the low stock price at this time will not encourage people to buy. Moreover, the world stock market is still not recovered, the other companies’ stock may also get problems and lead to decrease their stock price. And investors will
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