International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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What do you know about arbitrage opportunity? Discuss with examples. Also, present a scenario of any type of international arbitrage if possible. If so, how would it be executed and how would market forces be affected? Does arbitrage opportunity destabilize foreign exchange markets?
Explain how exchange rate fluctuations affect the return from a foreign market measured in dollar terms. Discuss the empirical evidence on the effect of exchange rate uncertainty on the risk of foreign investment.
Would exchange rate changes always increase the risk of foreign investment? Discuss the condition under which exchange rate changes may actually reduce the risk of foreign investment.
Why might a foreign government’s policies be closely monitored by investors in other countries, even if the investors plan no investments in that country? Explain how monetary policy in one country can affect interest rates in other countries.
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- Which of the following is not an argument for central bank intervention? Exchange rates are highly volatile. Exchange rate fluctuations have an adverse effect on the macroeconomy. The market knows better than economic policy makers what the appropriate level of the exchange rate is. Central bank intervention can smooth out fluctuations in exchange rates.arrow_forwardLeads are deliberate early payments of amounts due to be paid in foreign currency to overseas suppliers, or other foreign currency payments. Leads can avoid the risk that the sterling cost of these payments may rise if the amounts of the payments are quoted in foreign currency and the foreign currency increases in value Under what circumstances can how an international company can use ‘leads and lags’ to protect itself against foreign exchange risk.arrow_forwardInvestors and MNCs exporting or importing goods and services or making foreign investments throughout the global economy are faced with an exchange rate risk,which can have severe financial consequences on firms profitability,cash flows,and their market value,if not managed appropriately. MNC's use a number of external techniques of risk(exposure)management and resort to contractual relationships outside thier companies in order to reduce (or redistribute)the risk of foreign exchange losses.What are the determinants of hedging currency risk or foreign exchange exposures which pose risks to MNC's cashflows,competitiveness,marker value and financial reporting.arrow_forward
- Does Arbitrage destabilize foreign exchange markets? Support your logic about that statementarrow_forwardExplain the International Fisher effect and Interest Rate Parity theories. If these theories exist, explain MNCs' justification to invest excess cash in foreign country. Present a situation in which investment in the foreign money market would provide a higher rate of return than the one offered at the home market.arrow_forwardAn important problem with the gold standard was that a. one country could easily manipulate the system to its advantage and the disadvantage of other countries. b. a country did not have control of its domestic monetary policy. c. exchange rates tended to fluctuate a great deal, making it difficult for businesses to make long-run plans. d. it was too complicated and restricted business activity.arrow_forward
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