International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
error_outline
This textbook solution is under construction.
Students have asked these similar questions
Aggie Co. produces chemicals. It is a major exporter to Europe, where it’s main competition is from other U.S. exporters. All these companies invoice the products in U.S. dollars. Is Aggie’s transaction exposure likely to be significantly affected if the euro strengthens or weakens? Explain. If the euro weakens for several years, can you think of any change that might occur in the global chemicals.
Which of the following is an example of managing economic exposure by flexible sourcing policy?
An American company sells its products in Brazil and Portugal. Reduced sales in Brazil due to the dollar appreciation against the “real” can be compensated by increased sales in Portugal due to the dollar depreciation against the euro.
If yen is strong, it is preferable for a Japanese company to open a manufacturing subsidiary in the U.S. to produce and sell its products there.
An American IT company hires software developers in Ukraine because of the weak position of grivna against dollar.
A Canadian company spends a lot of money for research & development activities to improve its reputation and gain more customers.
Suppose a U.S. firm builds a factory in China, staffs it with Chinese workers, uses materials supplied by Chinese companies, and finances the entire operation with a loan from a Chinese bank located in the same town as the factory. This firm is most likely trying to greatly reduce, or eliminate, which one of the following?
Interest rate disparities
Short-run exposure to exchange rate risk
Long-run exposure to exchange rate risk
Political risk associated with the foreign operations
Translation exposure to exchange rate risk
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Given that Thai roller blade manufacturers located in Thailand have begun targeting the U.S. roller blade market, how do you think Blades’ U.S. sales were affected by the depreciation of the Thai baht? How do you think its exports to Thailand and its imports from Thailand and Japan were affected by the depreciation?arrow_forwardPalmetto Bug Extermination Corporation (PBEC), a U.S. company, regularly purchases chemicals from a supplier in Switzerland with the invoice price denominated in Swiss francs. PBEC has experienced several foreign exchange losses in the past year due to increases in the U.S. dollar price of the Swiss currency. As a result, Dewey Nukem, PBEC's CEO, has asked you to investigate the possibility of using derivative financial instruments, specifically foreign currency forward contracts and foreign currency options, to hedge the company's exposure to foreign exchange risk. Required Draft a memo to CEO Nukem comparing the advantages and disadvantages of using forward contracts and options to hedge foreign exchange risk. Recommend the type of hedging instrument you believe the company should employ and justify this recommendation.arrow_forwardRiverside Clippers Corp believes that the U.S. dollar may weaken in the coming months against the New Taiwanese Dollar and does not want to face any currency risk. Assume that Riverside Clippers Corp can enter into a forward contract today to purchase 175 NTD for $5.35. Should Riverside Clippers Corp manufacture the 800,000 garden tools in the Maryland facility or purchase them from the Taiwan supplier? Explain.arrow_forward
- If Blades does not enter into the agreement with the British firm and continues to export to Thailand and import from Thailand and Japan, do you think the increased correlations between the Japanese yen and the Thai baht will increase or decrease Blades’ transaction exposure?arrow_forwardABC Inc. is a U.S. firm with annual export sales to Canada of about C$500 million. Its main competitor is XYZ Inc., also based in the United States, with a subsidiary in Canada that generates about C$500 million in annual sales. Any earnings generated by the subsidiary are reinvested to support its operations. Based on the information provided, which company is subject to a higher degree of translation exposure? Explain.arrow_forwardFollowing an unanticipated dollar appreciation, would you recommend that a domestic manufacturing company such as Cummins Engine sell foreign assets? Yes or Noarrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Business Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:Cengage
Business Its Legal Ethical & Global Environment
Accounting
ISBN:9781305224414
Author:JENNINGS
Publisher:Cengage
Foreign Exchange Risks; Author: Kaplan UK;https://www.youtube.com/watch?v=ne1dYl3WifM;License: Standard Youtube License