International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Boseman is also considering making the entry into the international market by engaging in foreign direct investments in the nations. Which one of the following is not a true statement regarding foreign direct investment from the host country’s perspective?
a.Significant financial inflows always result from engaging in foreign direct investment.
b.Foreign direct investment can create new jobs and can generate tax revenues for governments
c.A concern of the local governments in host countries is the lack of corporate social responsibility
d.There is the potential for exploitation of human labor within certain countries
e.These investments may take the form of plants, buildings, or inventories
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.
Your 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.
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- The complexity posed by differences in the cultural, political, legal, and economic environments creates a so-called “liability of foreignness.” This idea holds that foreign companies, because of their poorer familiarity with local conditions, incur additional costs. In theory, the liability of foreignness makes IB activity too expensive. In practice, companies offset this liability by capitalizing on their unique advantages as well as selecting the mode of international business that best reflects their resource profile and risk tolerance--Always in the effort toward minimizing the intrinsic higher costs of international operations. The higher costs of international operations, executives point out, are driven by things as varied as the cost of legally establishing businesses, real estate costs, customs duties, and translation costs. Managing these costs is complicated by the report that _53_______%___ of global CEOs are concerned about the impact of __bribery and…arrow_forwardyou are an employee of a Malaysian firm that produces laptops in Peru and then exports them to Malaysia and other countries for sale. The laptops were originally produced in Peru to take advantage of relatively low labor costs and a skilled workforce. other possible locations considered at the time were Malta and Iraq. The Malaysian government decides to impose punitive 100 percent tariffs on imports of cars from Peru to punish the country for administrative trade barriers that restrict Malaysian exports to peru. How should your firm respond?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_forward
- 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?arrow_forwardWhich of the following would NOT participate in the foreign exchange market? Canadian parents purchasing children's toys that were manufactured in China. American tourists visiting Turkey U.S. Based firms trading cars that were manufactured in Canada, China, South Korea, and Germany for sale in the United States. Mexican investors buying part-ownership of a French company.arrow_forwardWhich of the following is relevant to Kitchenware.com’s decision to accept a special order at a lower sale price from a large customer in China? a. The cost of shipping the order to the customer b. The cost of Kitchenware.com’s warehouses in the United States c. Founder Eric Crowley’s salary d. Kitchenware.com’s investment in its Web sitearrow_forward
- If 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_forwardWhich of the following statements is true of foreign trade zone? It is an area through which merchandise is allowed to pass with fewer procedures but higher taxes. These areas provide very limited employment opportunities. International companies can store goods in these zones without incurring taxes, before shipping them to other countries. Goods imported into these zones require import licenses and are subject to import duties.arrow_forwardIf 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_forward
- Which of the following is relevant to Kitchenware.com’s decision to accept a special order at a lower sale price from a large customer in China? The cost of shipping the order to the customer. The cost of Kitchenware.com’s warehouses in the United States Founder Eric Crowley’s salary Kitchenware.com’s investment in its Web sitearrow_forwardReasons that a company might choose to acquire a business in a foreign country include all of the following except: Take advantage of free trade agreements Purchase local customer loyalty Local management understands local ing-hiet equatitionsarrow_forward2. If payment of bribes is an acceptable business practice in a foreign country, how should a U.S. based parent company react to such practices when doing business in the foreigncountry? Defend your answer.arrow_forward
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