International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Imagine an American MNC. Why it might decide to borrow in a country such as Brazil, where interest rates are high, rather than a country like Germany, where interest rates are low? Discuss why this may be the best strategy for the firm, given your understanding of the relationship between inflation, interest rates, and exchange rate.
Determine the key reasons why a multinational corporation might decide to borrow in a country such as Brazil, where interest rates are high, rather than in a country like Switzerland, where interest rates are low. Provide support for your rationale.
What impact does foreign investment have on the weighted average cost of capital calculations?
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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- If a country’s par exchange rate is overvalued, what kind of intervention would that country’s central bank be forced to undertake, and what kind of effect would it have on its international reserves? What must happen if this country’s central bank decides not to intervene anymore?arrow_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_forwardWhich of the following factors would best justify a decision to avoid investing in a country's sovereign debt? A.Suitable checks and balances in policy making B.Freely floating currency C.A population that is shrinkingarrow_forward
- If US dollars gets lower interest rates in the United States. How would this affect a fundamental forecast of foreign currencies? How would this affect the forward rate forecast of foreign currencies?arrow_forwardQ. If barriers to international securities markets are reduced, will a country’s interest rate be more or less susceptible to foreign lending and borrowing activities? Explain.arrow_forward
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