International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Drexel Co. is a U.S.-based company that is establishing a project in a politically unstable country. It is considering two possible sources of financing. Either the parent could provide most of the financing, or the subsidiary could be supported by local loans from banks in that country. Which financing alternative is more appropriate to protect the subsidiary?
Which of the following does NOT refer to the ways of how a multinational company can reduce political risk?
Taking a conservative approach to investment and adjusting NPV of the project by reducing expected cash flows or by increasing the cost of capital in accordance with existing trends.
Purchasing insurance policy against political risks.
Acquiring minor shares in foreign corporations.
Creating a joint venture with local partners or a consortium with other multinational companies.
Question:1
A multinational corporation has a subsidiary in a country with high political instability. Which source of financing is best, if any?
Debt financing by the parent
Equity financing by the parent
Debt financing from local banks in the host country
All sources are equally good
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- Suppose 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_forwardWhich one of the following is likely discouraging foreign direct investmen (FDI) in one country? A. The foreign firm would produce a good which is currently not available in the host country. B. The foreign firm intends to partner with the local firms of the host country. C. The foreign firm's products are similar with the local firms of the host country. D. The foreign firm is able to compete in the market of the host country. Clear my choicearrow_forwardA U.S. parent firm has a subsidiary using euro. The manager of the parent firm should understand that ___________ is economically beneficial to the parent firm. A. weakening euro B. stable euro currency C. stable US dollar D. strengthening euroarrow_forward
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