International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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A U.S.-based MNC has a subsidiary in Malaysia that generates substantial net cash inflows denominated in Ringgit Malaysia. Given this information, the MNC would ____ from a ____ of the Ringgit Malaysia.
A.
benefit; appreciation
B.
not benefit; depreciation
C.
benefit; depreciation
D.
not benefit; appreciation
Explain the International Fisher effect and Interest Rate Parity. If these parity exists, explain the justification for MNCs to invest excess cash in foreign country. Provide examples in which situation the excess cash investment would gain higher rate of return that the one offered at the home market.
Consider a US-based MNC with a wholly owned Italian subsidiary. Following a depreciation of the dollar against the euro, which of the following conclusions are correct?
Group of answer choices
a. The cash flow in euros could be altered due a change in the firm's competitive position in the marketplace.
b. A given operating cash flow in euros will be converted to a higher US dollar cash flow.
c. Both A and B
d. None of the above
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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
Explain 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.
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Which of the statements below is FALSE?
A. Multinational capital budgeting is a straightforward application of the Net Present Value (NPV. model with one twist: we can do the analysis in either domestic currency or foreign currency.
B. If we are using foreign currency for the NPV decision, all we have to do is restate all the foreign incremental cash flow in terms of future value and use the current exchange rate.
C. In conducting a multinational NPV, one must be careful to avoid differences with rounding of exchange rates, discount rates, and cash flow to produce the exact same value.
D. With the foreign currency approach in NPV analysis, if we know the appropriate discount rate in the home country and the expected inflation rates in the two countries, we can determine the appropriate foreign discount rate.
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