Chapter A6, Problem 4DQ

Suppose a U.S. firm builds a factory in China, staffs it with Chinese workers, uses materials supplied by Chinese companies, and finances the entire operation with a loan from a Chinese bank located in the same town as the factory. This firm is most likely trying to greatly reduce, or eliminate, which one of the following? Interest rate disparities   Short-run exposure to exchange rate risk   Long-run exposure to exchange rate risk   Political risk associated with the foreign operations   Translation exposure to exchange rate risk

An important problem with the gold standard was that a. one country could easily manipulate the system to its advantage and the disadvantage of other countries. b. a country did not have control of its domestic monetary policy. c. exchange rates tended to fluctuate a great deal, making it difficult for businesses to make long-run plans. d. it was too complicated and restricted business activity.

Today, the US dollar is the currency of choice in Cross-Border Trade and Investment activities. In this context, what are some of the pros and cons associated with the dollar?If you were the CFO for Global Operations at Lutar International, a Phoenix based multinational company, would you prefer to use a strong or weak dollar in your global operations? Why?