International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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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.
Moral hazard is a barrier to financing global growth because:
OPTIONS:
if investors have trouble identifying high-risk firms they may be unwilling to give money to creditworthy firms.
firms sometimes have trouble determining whether they need funds or not.
there is the possibility that the funds are used for riskier behavior than the lender agreed to.
of the differences between financing using loans, portfolio investment and foreign direct investment.
Which of the following is NOT usually associated with “financial risk”?
a. A rise in the country’s interest rates.
b. A new government has been voted in.
c. Fluctuation in a country’s currency.
d. Difficulty in accessing funds from banks.
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- Assume U.S. interest rates are generally above foreign interest rates. What does this suggest about the future strength or weakness of the dollar based on the IFE? Should U.S. investors invest in foreign securities if they believe in the IFE? Should foreign investors invest in U.S. securities if they believe in the IFE?arrow_forwardFrom the U.S. standpoint, a capital outflow will occur when a Japanese investor buys a portion of the U.S. government debt. True Falsearrow_forwardWhich of the following factors will NOT increase the value of a currency in foreign markets? A. High inflation in that country B. High interest rates in that country C. A positive balance of payments with that country D. A strong stock market rally in that countryarrow_forward
- 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.arrow_forwardInvestors from Japan, Philippines, and China frequently invest in each other based on prevailing interest rates. If China’s interest rates increase, Japanese investors are likely to buy ____ peso denominated securities, and the Chinese yuan is likely to ____ relative to the peso. A. more; depreciate B. more; appreciate C. fewer; depreciate D. fewer; appreciatearrow_forwardExplain 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.arrow_forward
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