International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Which of the following factors is not expected to generally have a favorable impact on the firm's cost of capital?
Group of answer choices
easy access to international capital markets.
high degree of international diversification.
high exposure to exchange rate fluctuations.
all of these
A key issue facing financial executives of multinational firms is exposure to exchange rate changes.a. Define exposure, differentiating between accounting and economic exposure. What role does inflation play?b. Describe at least three circumstances under which economic exposure is likely to exist? c. Of what relevance are the international Fisher effect and purchasing power parity to your answers to parts a and b? d. What is exchange risk, as distinct from exposure
From a practical standpoint, how do international markets differ from domestic markets?
What role do international securities play in a corporate portfolio?
In what ways do investors quantify the risk levels between domestic and foreign securities?
What asset allocation strategies and weightings would you consider when investing in international securities? Explain your reasoning.
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- Why do companies with small profit margins have a smaller motivation to hedge against currency movements? Which industries (both specifically and the market form) are these to be most likely to be found it?arrow_forwardWhich of the following is a political risk to a company's bottom line? Spot exchange rates Changing tax rates Stable exchange rates Forward tax ratesarrow_forwardHow foreign currency risk can affect the value of a multinational company?arrow_forward
- Discuss and illustrate how the following barriers affect diversification of portfolios into international markets: Segmented markets Exchange rate controls Less developed capital markets Exchange rate riskarrow_forward1. Explain the differences and similarities between Forward, Futures, andOptions. Then why can there be a Long Term Funding Deficit related to a company's cash flows? and Explain the meaning of international parity conditions, and why it can be used to predict exchange rates. and what is the meaning of foreign exchange exposure and types of foreign exchange exposure faced by multinational companies.arrow_forwardExplain how multinational companies can reduce the foreign currency risk by hedging.arrow_forward
- Explain why would a firm consider investing in a portfolio of foreign currencies instead of just a single foreign currency?arrow_forwardWall Street firms have traditionally compensated their traders with a share of the trading profits that they generated. How might this practice have affected traders’ willingness to assume risk? What is the agency problem this practice engendered?arrow_forwardWhat are the benefits of international portfolio diversification? Outline the arguments in favour of diversifying internationally than domestically. Discuss the possible reasons why securities are much less correlated across countries than within a country.arrow_forward
- What are the criteria for selecting between hedging or diversification to manage risk in the foreign exchange market?arrow_forwardIdentify an economic crisis or turning point that had significant impacts to certain industries in the U.S. market. Explain why investing in international markets can be a good strategy to hedge against this.Why is maintaining a portfolio that contains foreign securities considered a good long-term investment strategy?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
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