International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Students have asked these similar questions
Belmonte Corporation, with a division located in Germany, must translate its financial statements from euros to U.S. dollars. What is the major accounting issue involved in translation?
O Most accountants are not conversant in foreign currency exchange.
O U.S. GAAP may differ from German GAAP. The U.S. dollar has been steadily falling relative to the euro. O The resulting balance sheet may not balance.
The foreign subsidiary of a U.S. firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S. dollars. This is an example of which one of the following?
A.
Interest rate disparities
B.
Short-run exposure to exchange rate risk
C.
Long-run exposure to exchange rate risk
D.
Political risk associated with the foreign operations
E.
Translation exposure to exchange rate risk
Give typing answer with explanation and conclusion
Which of the following is an example of foreign exchange risk for an MNC?
a. Foreign subsidiary of the MNC may face higher tarriffs b. Foreign subsidiary of the MNC may have to pay higher taxes c. Foreign subsidiary of the MNC may make less sales due to weak foreign currency d. Foreign subsidiary of the MNC may make less sales due to lower consumer income
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- 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_forwardSuppose 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 riskarrow_forwardWhich of the following is not a potential problem caused by differences in financial reporting practices across countries? Choose the correct.a. Consolidation of financial statements by firms with foreign operations is more difficult.b. Firms incur additional costs when attempting to obtain financing in foreign countries.c. Firms face double taxation on income earned by foreign operations.d. Comparisons of financial ratios across firms in different countries may not be meaningful.arrow_forward
- An 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_forwardIf a U.S.-based company regularly purchases goods from foreign suppliers in Japan with the invoice price denominated in Japanese Yen. And if the U.S. company has experienced several foreign exchange losses due to the appreciation of the Japanese Yen. I am confused about which type of hedging instrument (Foreign currency forward contract or foreign currency option) the company should employ. Can you please help me to understand a justification for the selection? Maybe to illustrate, you can compare the advantages and disadvantages of using (Forward contracts) and (Options) to hedge foreign exchange risk.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
- Shera Corporation has extensive liabilities denominated in pounds resulting from imports from UK. However, Shera's revenues are denominated solely in U.S. dollars. Which of the following is probably not true? A. Shera would benefit from a depreciation of the British pound. B. Shera has at least some economic exposure. C. All of the options are true. D. Shera has at least some transaction exposure. E. Shera has at least some translation exposure.arrow_forwardYour company located in the US imports raw materials from Europe. If the European Central Bank announces to lower the Euro exchange rate, what impact do you expect to see in your business? A. Your company will pay higher US dollar costs to import from Europe. B. Your company will pay lower US dollar costs to import from Europe. C. The Euro exchange rate doesn't have any impact on your company. D. It should reduce your competitiveness in your home market.arrow_forwardSuppose 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.arrow_forward
- Suppose that Salem Co, a U.S.-based MNC that both purchases supplies from Canada and sells exports in Canada, is seeking to measure the economic exposure of its cash flows. Salem wishes to analyze how its cash flows might change under different exchange rates for the Canadian dollar (the only foreign currency in which it deals). Salem believes that the value of the Canadian dollar will be $0.70, $0.75, or $0.80, and seeks to analyze its cash flows under each of these scenarios. The following table shows Salem’s cash flows under each of these exchange rates. Use the table to answer the question that follows. Exchange Rate Scenario Exchange Rate Scenario Exchange Rate Scenario C$1=$0.70 C$1=$0.75 C$1=$0.80 (Millions) (Millions) (Millions) Sales (1) U.S. Sales $315 $315 $315 (2) Canadian Sales $3.50 $4.00 $4.00 (3) Total Sales in U.S. $ $318.50 $318.75 $319.00 Cost of Materials and Operating Expenses (4)…arrow_forwardWhich of the following is true about financial institutions in the United States compared to those in other countries? (a). Most U.S. intermediaries are allowed to engage in nonbanking (nonfinancial) business activities, whereas the nonbanking activities of foreign financial institutions have been severely restricted until recently (b) .US, financial institutions have been much more heavily regulated than their foreign counterparts with regard to expansion (branching) and the services that could be offered (c).U.S. financial institutions and their foreign counterparts have similar regulations with regard to engaging in nonbanking activities (d). U.S. financial institutions and their foreign counterparts have similar regulations with regard to expansion (branching) and the services that could be offered. (e).US, financial Institutions have been regulated less than their foreign counterparts with regard to expansion (branching) and the services that could be offered.arrow_forward
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