1. Debt denomination decisionsSuppose that Coleman Co., a U.S.-based MNC, has a foreign subsidiary named Mostert Co.Mostert requires debt financing for a new project, and is deciding whether to denominate the debt in Mostert's local currency or in U.S. dollars.If Mostert denominates its debt in its U.S. dollars, itTrue or False: If the interest rate in the United States is lower, Mostert should always denominate its debt in U.S. dollars.Trueexchange rate risk on its debt repayments.O FalseGrade It NousSave & Continu

Exchange rate risk Exchange rate risk is the risk that happens if company or persons transaction in…

Answered: Suppose that Coleman Co., a U.S.-based…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter17: Multinational Capital Structure And Cost Of Capital

Section: Chapter Questions

Problem 19QA

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Which is the most simple way that is able to protect a U.S firm's earnings of its consolidated income statement in the depreciation of euro relative to U.S. dollar? A. Selling euros forward in the foreign exchange market. B. Partner with the local firm of the oversea market. C. Purchasing euros forward in the foreign exchange market. D. Establish a subsidiary in the oversea economy.
Suppose InBev Corporation (a non-U.S. MNC) buys Anheuser-Busch Corporation (a U.S. corporation) by paying the U.S. shareholders in cash. Which of the following can be said of the US capital account? Group of answer choices The acquisition of cash by US shareholders will decrease foreign ownership, which will be recorded as a debit. The US federal reserve will increase its currency reserves. InBev's reduction in cash will be recorded as a debit on the U.S. capital account.. InBev's increased ownership of US assets is recorded as a credit. U.S. shareholders increased ownership in InBev will be recorded as a credit.
In general, MNCs probably prefer to use ____ foreign debt when their foreign subsidiaries are subject to ____ local interest rates. Group of answer choices more; low more; high less; low B and C none of these
. Which of the following is incorrect? Country credit risk spread is the difference between yields of international bonds of the country and government bonds of the developed country (generally US. Credit default swap (CDS) is a derivative product which provides the buyer to grantee to be paid back face value of a bond by credit default swap issuer in case the borrower does not pay. In general, a Eurobond of developing country or company interest rate is smaller than sum of same maturity of US bond rate and country of company credit default swap rate point (CDS premium /10000). In general, a company or county Eurobond's primary market sale is done by a syndicated group (banks and other financial intuitions). If the US dollar index (USDX) increases, we expect depreciation of any other currency against the USD.
The functional currency of Bertrand, Inc.’s Irish subsidiary is the euro. Bertrand borrowed euros as a partial hedge of its investment in the subsidiary. Since then, the euro has decreased in value. Bertrand’s negative translation adjustment on its investment in the subsidiary exceeded its foreign exchange gain on its euro borrowing. How should Bertrand report the effects of the negative translation adjustment and foreign exchange gain in its consolidated financial statements? Choose the correct.a. Report the translation adjustment in accumulated other comprehensive income on the balance sheet and the foreign exchange gain as a gain on the income statement.b. Report the translation adjustment in the income statement and defer the foreign exchange gain in accumulated other comprehensive income on the balance sheet.c. Report the translation adjustment less the foreign exchange gain in accumulated other comprehensive income on the balance sheet.d. Report the translation adjustment less…
Which of the following suggests that the foreign entity's functional currency is the parent's currency? a. Intercompany transaction volume is low. b. Debt is serviced through local operations. c. There is an active and primarily local market. d. Sale prices are influenced by international factors.
From the following, please identify the 2 statements that are true as well as the 2 statements that are false. A) The global integration of capital markets is a major force leading to the convergence of accounting standards. B) Ericsson, the Swedish MNE, was required as of 2005 to adopt both Swedish and U.S. GAAP since it lists it securities in both the U.S. and Sweden. C) When using the current-rate method to translate foreign currency financial statements into the parent currency, translation gains and losses are recognized in comprehensive income. D) The balanced scorecard approach is a preferred method for measuring performance among U.S. firms, but the EU does not allow its usage.
A foreign subsidiary’s functional currency is its local currency, which has not experienced significant inflation. The current exchange rate at the balance sheet date is the appropriate exchange rate for translating:
Assuming that the functional currency of a foreign subsidiary is the local currency, which of the following accounts would be translated at the current rate on the Balance Sheet date (B/S Rate)? a.Additional Paid-In Capital b.Cost of Goods Sold c.Retained Earnings d.Allowance for Doubtful Accounts
A U.S. company purchases inventory from a foreign vendor, and purchases are denominated in the foreign currency (FC). The U.S. dollar is expected to weaken against the FC. Explain how a forward contract might be employed as a hedge against exchange rate risk.
The functional currency of Bertrand, Inc.’s Irish subsidiary is the euro. Bertrand borrowed euros as a partial hedge of its investment in the subsidiary. Since then, the euro has decreased in value. Bertrand’s negative translation adjustment on its investment in the subsidiary exceeded its foreign exchange gain on its euro borrowing. How should Bertrand report the effects of the negative translation adjustment and foreign exchange gain in its consolidated financial statements?a. Report the translation adjustment in accumulated other comprehensive income on the balance sheet and the foreign exchange gain as a gain on the income statement.b. Report the translation adjustment in the income statement and defer the foreign exchange gain in accumulated other comprehensive income on the balance sheet.c. Report the translation adjustment less the foreign exchange gain in accumulated other comprehensive income on the balance sheet.d. Report the translation adjustment less the foreign exchange…

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