Fins3616 Answers Homework

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Questions and Problems

to accompany

Multinational Finance
by Kirt C. Butler

Fourth Edition (2008)
John Wiley & Sons

PART I Overview and Background
Chapter 1 An Introduction to Multinational Finance
Answers to Conceptual Questions
1.1List the MNC’s key stakeholders. How does each have a stake in the MNC? *
Stakeholders narrowly defined include shareholders, debtholders, and management. More broadly defined, stakeholders also would include employees, suppliers, customers, host governments, and residents of host countries. *

1.2In what ways do cultural differences impact the conduct of international business? *
Because they define the rules of the game, national business and popular cultures impact each of the functional disciplines of business from research and development right through to marketing, production, and distribution. *

1.3What is country risk? Describe several types of country risk one might face when conducting business in another country. *
Country risks refer to the political and financial risks of conducting business in a particular foreign country. Country risks include foreign exchange risk, political risk, and cultural risk. *

1.4What is political risk?
Political risk is the risk that a sovereign host government will unexpectedly change the rules of the game under which businesses operate. *
1.5What is foreign exchange risk?
Foreign exchange risk is the risk of unexpected changes in foreign currency exchange rates. *
1.6What investment opportunities might MNCs enjoy that are not available to local firms? *
Operating cash flows can be increased by increasing revenues or decreasing operating expenses. The text mentions revenue enhancing opportunities such as global branding, advantages of size and scope, and flexibility in marketing and distribution; operating cost reductions through access to low-cost labor or raw materials, flexibility in sourcing or production, and economies of scale or vertical integration; and business strategies such as follow the customer, lead the customer, follow the leader, and building capacity directly in a foreign market (going local). *

1.7How can MNCs can reduce operating expenses relative to domestic firms. *
MNCs can enjoy several advantages over domestic firms including global brands, size, and flexibility in marketing and distribution. Strategies for enhancing revenues include follow the customer, lead the customer, follow the leader, and establishing local production. Operating costs can be reduced through access to low-cost raw materials and labor, flexibility in sourcing, production, or site selection, and economies of scale or vertical integration. *

1.8What are the perfect financial market assumptions? What is their implication for multinational financial management. *
In a perfect market, rational investors have equal access to prices and information in a frictionless market. If financial policy is to increase firm value, it must increase expected cash flows or...
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