International finance management

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1. Explain the agency problem of MNCs.

2. Why might agency costs be larger for an MNC than for a purely domestic firm?

3. Do you think that either the acquisition of a foreign firm or licensing will result in greater growth for an MNC? Which alternative is likely to have more risk?

4. Impact of Exchange Rate Movements. Plak Co. of Chicago has several European subsidiaries that remit earnings to it each year. Explain how appreciation of the euro (the currency used in many European countries) would affect Plak’s valuation

5. Exposure to Exhange Rates. McCanna Corp., a U.S. firm, has a French subsidiary that produces wine and exports to various European countries. All of the countries where it sells its wine use the euro as their currency, which is the same as the currency used in France. Is McCanna Corp. exposed to exchange rate risk?

6. How would a relatively high home inflation rate affect the home country’s current account, other things being equal?

7. What are some of the major objectives of the IMF?

8. Exchange Rate Effect on Trade Balance. Would the U.S. balance of trade deficit be larger or smaller if the dollar depreciates against all currencies, versus depreciating against some currencies but appreciated against others? Explain

9. Currency Effects. When South Korea’s export growth stalled, some South Korean firms suggested that South Korea’s primary export problem was the weakness in the Japanese yen. How would you interpret this statement?

10. Effects of the Euro. Explain how the existence of the euro may affect U.S. international trade.

Sample Solution

In the 1980’s, following two many years of the Centralia mine fire consuming, the impacts on its occupant populace got clear. Carbon Monoxide gas was being discharged by the fire and was leaking up into the homes and organizations around town. Carbon Monoxide harming turned into a pervasive general medical problem in Centralia and caused numerous instances of cerebrum harm and even demise. Low oxygen levels and poisonous smoke additionally added to the unsafe wellbeing and security conditions in the town (About, 2017). Since general wellbeing had declined so radically “In 1984, a deliberate program was started to move occupants from their homes. Many acknowledged buyout offers for their properties and moved somewhere else. In the wake of leaving, their homes were leveled. In 1992, the Commonwealth of Pennsylvania utilized famous space to assume responsibility for all the property inside the town. The rest of the structures were sentenced and the occupants requested to leave. Many did, yet a couple remained and sued for their entitlement to remain” (site). This devastatingly affected nearby economy. After the vast majority of the home must be emptied there was practically no nearby economy left to talk about.

The administration’s contribution in Centralia was not an aid to the individuals of the town. In 1967, a couple of years after the fire had begun, the US Bureau if Mines had proposed the utilization of channels to contain the mine discharge. This technique for control had demonstrated viable previously and, had it been actualized, could have contained the fire keeping it from more fuel. This proposition would have cost the government $4.5 million dollars. This expense would at last lead to the rejecting of this proposition and rather less emotional, however a lot less expensive, flush boundaries were utilized in Centralia. The US Bureau of Mines safeguarded this choice since they accepted that sparing $500,000 of land properties, in a town over the hill, didn’t legitimize the $4.5 million dollars of citizen cash expected to support this undertaking. This would demonstrate defective thinking however on the grounds that the joined expense of the flush hindrances a

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