Solutions Manual for Multinational Business Finance, 15e David Eiteman, Arthur Stonehill, Michael Moffett
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Multinational Business Finance, 15e
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Multinational Business Finance, 15e
Solutions Manual for Multinational Business Finance, 15e David Eiteman, Arthur Stonehill, Michael Moffett
Solutions Manual for Multinational Business Finance, 15e David Eiteman, Arthur Stonehill, Michael Moffett
Solutions Manual for Multinational Business Finance, 15e David Eiteman, Arthur Stoneh...
Solu�ons Manual for
Mul�na�onal Business
Finance 15 Edi�on By
th
David Eiteman, Arthur
Stonehill, Michael
Moffet (All Chapters,
100% Original Verified
A+ Grade)
All Chapters Supplement files download link
at the end of this file.
, CHAPTER 1
MULTINATIONAL FINANCIAL MANAGEMENT:
OPPORTUNITIES AND CHALLENGES
1. Globalization Risks in Business. What are some of the risks that come with the
growing globalization of business?
▪ Exchange rates. The international monetary system, an eclectic mix of floating
and managed fixed exchange rates, is constantly changing. For example the
growth of the Chinese yuan is now changing the global currency landscape.
▪ Interest rates. Large fiscal deficits, including the current eurozone crisis, plague
most of the major trading countries of the world, complicating fiscal and
monetary policies, and ultimately, interest rates and exchange rates.
▪ Many countries experience continuing balance of payments imbalances, and in
some cases, dangerously large deficits and surpluses, all will inevitably move
exchange rates.
▪ Ownership, control, and governance vary radically across the world. The publicly
traded company is not the dominant global business organization-the privately
held or family-owned business is the prevalent structure-and their goals and
measures of performance vary dramatically.
▪ Global capital markets that normally provide the means to lower a firm's cost of
capital, and even more critically, increase the availability of capital, have in many
ways shrunk in size and have become less open and accessible to many of the
world's organizations.
▪ Financial globalization has resulted in the ebb and flow of capital in and out of
both industrial and emerging markets, greatly complicating financial management
(Chapter 5 and 8).
2. Globalization and the Multinational Enterprise (MNE). The term globalization
has become widely used in recent years. How would you define it?
Narayana Murthy’s quote is a good place to start any discussion of globalization:
“I define globalization as producing where it is most cost-effective, selling where
it is most profitable, and sourcing capital where it is cheapest, without worrying
about national boundaries.”
Narayana Murthy, President and CEO, Infosys
Copyright 2019 Pearson Education, Inc.
,2 ▪ Eiteman/Stonehill/Moffett | Multinational Business Finance, 15th Edition
3. Assets, Institutions, and Linkages. Which assets play the most critical role in
linking the major institutions that make up the global financial marketplace?
The debt securities issued by governments. These low risk or risk-free assets form the
foundation for the creation, trading, and pricing of other financial assets like bank
loans, corporate bonds, and equities (stock). In recent years a number of additional
securities have been created from the existing securities – derivatives, whose value is
based on market value changes in the underlying securities. The health and security of
the global financial system relies on the quality of these assets.
4. Currencies and Symbols. What technological change is even changing the symbols
we use in the representation of different country currencies?
As currency trading has shifted from verbal telephone conversations to electronic and
digital trading, currency symbols (many of which were not common across alphabetic
platforms like the British pound, £) have been replaced with the ISO-4217 codes,
three-letter currency codes like USD, EUR, and GBP.
5. Eurocurrencies and LIBOR. Why have eurocurrencies and LIBOR remained the
centerpiece of the global financial marketplace for so long?
Eurocurrencies and LIBOR (and there are LIBOR rates for all eurocurrencies) reflect
the ‘purest' of market driven currencies and instrument rates. They are largely
unregulated, and therefore reflect freely traded assets whose value is set by the daily
global marketplace.
6. Theory of Comparative Advantage. Define and explain the theory of comparative
advantage.
The theory of comparative advantage provides a basis for explaining and justifying
international trade in a model world assumed to enjoy free trade, perfect competition,
no uncertainty, costless information, and no government interference. The theory
contains the following features:
▪ Exporters in Country A sell goods or services to unrelated importers in Country
B.
▪ Firms in Country A specialize in making products that can be produced relatively
efficiently, given Country A’s endowment of factors of production: that is, land,
labor, capital, and technology. Firms in Country B do likewise, given the factors
of production found in Country B. In this way the total combined output of A and
B is maximized.
▪ Because the factors of production cannot be moved freely from Country A to
Country B, the benefits of specialization are realized through international trade.
▪ The way the benefits of the extra production are shared depends on the terms of
trade, the ratio at which quantities of the physical goods are traded. Each
country’s share is determined by supply and demand in perfectly competitive
markets in the two countries. Neither Country A nor Country B is worse off than
before trade, and typically both are better off, albeit perhaps unequally.
7. Limitations of Comparative Advantage. Key to understanding most theories is
what they say and what they don’t. Name four or five key limitations to the theory of
comparative advantage.
Although international trade might have approached the comparative advantage
model during the nineteenth century, it certainly does not today, for the following
reasons:
▪ Countries do not appear to specialize only in those products that could be most
efficiently produced by that country’s particular factors of production. Instead,
governments interfere with comparative advantage for a variety of economic and
political reasons, such as to achieve full employment, economic development,
national self-sufficiency in defense-related industries, and protection of an
agricultural sector’s way of life. Government interference takes the form of tariffs,
quotas, and other non-tariff restrictions.
▪ At least two of the factors of production, capital and technology, now flow
directly and easily between countries, rather than only indirectly through traded
goods and services. This direct flow occurs between related subsidiaries and
affiliates of multinational firms, as well as between unrelated firms via loans, and
license and management contracts. Even labor flows between countries such as
immigrants into the United States (legal and illegal), immigrants within the
European Union, and other unions.
▪ Modern factors of production are more numerous than in this simple model.
Factors considered in the location of production facilities worldwide include local
and managerial skills, a dependable legal structure for settling contract disputes,
research and development competence, educational levels of available workers,
energy resources, consumer demand for brand name goods, mineral and raw
material availability, access to capital, tax differentials, supporting infrastructure
(roads, ports, communication facilities), and possibly others.
▪ Although the terms of trade are ultimately determined by supply and demand, the
process by which the terms are set is different from that visualized in traditional
trade theory. They are determined partly by administered pricing in oligopolistic
markets.
Copyright 2019 Pearson Education, Inc.
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