Test Bank for International Financial Management, 14th Edition by Jeff Madura.pdf

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Solution Manual For International Financial Management,
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14th Edition by Jeff Madura | Complete Verified Chapter’s
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Chapterm1


MultinationalmFinancialmManagement:mAnmOverview mLectu


remOutline


ManagingmthemMNC
How mBusinessmDisciplinesmAremUsed mtomManagemthemMNCmAgencymProblemsmManagem
ent mStructuremof manmMNC


WhymFirmsmPursuemInternationalmBusinessmTheorymof mComparativemAdvantagemImperfect mMarket
smTheory
Product mCyclemTheory


MethodsmtomConduct mInternationalmBusinessmIn
ternationalmTrademLicensingmFranchisingmJoint
Ventures
m



Acquisitionsmof mExistingmOperationsmEstablishingmNew mForeignmSubsidiariesmSummarym
of mMethods


ValuationmModelmformanmMNCmDomesticmValuationmModelmMultinationalmValuationmModel
UncertaintymSurroundingmanmMNC’smCashmFlowsmHow mUncertaintymAffectsmthemMNC’smCost mof m
Capital


Organizationmof mthemText


ChaptermTheme

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Thismchaptermintroducesmthemmultinationalmcorporationmasmhavingm similarmgoalsmtomthempurelymdo
mesticmcorporation,mbut mamwidermvarietymof mopportunities.mWithmadditionalmopportunitiesmcomemp
otentialmincreased mreturnsmand mothermformsmof mriskmtomconsider.mThempotentialmbenefitsmand mrisksm
aremintroduced.




TopicsmtomStimulatemClassmDiscussion


1. What mismthemappropriatemdefinitionmof manmMNC?


2. WhymdoesmanmMNCmexpand minternationally?


3. What maremthemrisksmof manmMNCmwhichmexpandsminternationally?


4. Whymmust mpurelymdomesticmfirmsmbemconcerned mabout mtheminternationalmenvironment?




POINT/COUNTER-POINT:
Should manmMNCmReducemItsmEthicalmStandardsmtomCompetemInternationally?


POINT:mYes.mWhenmamU.S.-
based mMNCmcompetesminmsomemcountries,mit mmaymencountermsomembusinessmnormsmtheremthat mare
not mallowed minmthemU.S.mFormexample,mwhenmcompetingmformamgovernment mcontract,mfirmsmmight
m



providempayoffsmtomthemgovernment mofficialsmwhomwillmmakemthemdecision.mYet,minmthemUnited mSt
m



ates,mamfirmmwillmsometimesmtakemamclient monmanmexpensivemgolf moutingmormprovidemskyboxmtickets
tomevents.mThismismnomdifferent mthanmampayoff.mIf mthempayoffsmarembiggerminmsomemforeignmcountri
m



es,mthemMNCmcanmcompetemonlymbymmatchingmthempayoffsmprovided mbymitsmcompetitors.




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COUNTER-POINT:mNo.mAmU.S.-
based mMNCmshould mmaintainmamstandard mcodemof methicsmthat mappliesmtomanymcountry,mevenmif mit mis
at mamdisadvantageminmamforeignmcountrymthat mallowsmactivitiesmthat mmight mbemviewed masmunethical.
m


Inmthismway,mthemMNCmestablishesmmoremcredibilitymworldwide.
m




WHOmISmCORRECT?mUsemthemInternet mtomlearnmmoremabout mthismissue.mWhichmargument mdomyoum
support?mOffermyourmownmopinionmonmthismissue.


ANSWER:mThemissuemismfrequentlymdiscussed.mIt mismeasymtomsuggest mthat mthemMNCmshould mmaint
ainmamstandard mcodemof methics,mbut minmreality,mthat mmeansmthat mit mwillmnot mbemablemtomcompeteminms
omemcases.mFormexample,mevenmif mit msubmitsmthemlowest mbid monmamspecificmforeignmgovernment mpr
oject,mit mwillmnot mreceivemthembid mwithout mampayoff mtomthemforeignmgovernment mofficials.mThemissu
emismespeciallymamconcernmformlarge mprojectsmthat mmaymgeneratemsubstantialmcashmflowsmformthemfir
mmthat mismchosenmtomdomthemproject.mIdeally,mthemMNCmcanmclearlymdemonstratemtomwhoevermover
seesmthemdecisionmprocessmthat mit mdeservesmtombemselected.mIf mtheremismjust monemdecision-
makermwithmnomoversight,manmMNCmcanmnot mensuremthat mthemdecisionmwillmbemethical.mBut mif mthemd
ecision-
makermmust mbemaccountablemtomamdepartment mwhomoverseesmthemdecision,mthemMNCmmaymbemablem
tomprompt mthemdepartment mtomensuremthat mthemprocessmismethical.


AnswersmtomEnd mof mChaptermQuestions


1. AgencymProblemsmof mMNCs.


a. Explainmthemagencymproblemmof mMNCs.


ANSWER:mThemagencymproblemmreflectsmamconflict mof minterestsmbetweenmdecision-
makingmmanagersmand mthemownersmof mthemMNC.mAgencymcostsmoccurminmanmeffort mtomassuremthat m
managersmact minmthembest minterest mof mthemowners.


b. Whymmight magencymcostsmbemlargermformanmMNCmthanmformampurelymdomesticmfirm?


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ANSWER:mThemagencymcostsmaremnormallymlargermformMNCsmthanmpurelymdomesticmfirmsmformthe
followingmreasons.mFirst,mMNCsmincurmlargermagencymcostsminm monitoring mmanagersmof mdistant mf
m



oreignmsubsidiaries.mSecond,mforeignmsubsidiarymmanagersmraised minmdifferent mculturesmmaymnot mf
ollow muniformmgoals,mand msomemmanagersmmaymfocusmonmsatisfyingmrespectivememployees.mThird,
themsheermsizemof mthemlargermMNCsmwould malsomcreatemlargemagencymproblems.
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2. ComparativemAdvantage.


a. Explainmhow mthemtheorymof mcomparativemadvantagemrelatesmtomthemneed mforminternation
almbusiness.


ANSWER:mThemtheorymof mcomparativemadvantagemimpliesmthat mcountriesmshould mspecializeminmpr
oduction,mtherebymrelyingmonmothermcountriesmformsomemproducts.mConsequently,mtheremismamneed mf
orminternationalmbusiness.


b. Explainmhow mthemproduct mcyclemtheorymrelatesmtomthemgrowthmof manmMNC.


ANSWER:mThemproduct mcyclemtheorymsuggestsmthat mat msomempoint minmtime,mthemfirmmwillmattempt m
tomcapitalizemonmitsmperceived madvantagesminmmarketsmothermthanmwheremit mwasminitiallymestablishe
d.


3. Imperfect mMarkets.


a. Explainmhow mthemexistencemof mimperfect mmarketsmhasmled mtomthemestablishment m
of msubsidiariesminmforeignmmarkets.


ANSWER:mBecausemof mimperfect mmarkets,mresourcesmcannot mbemeasilymand mfreelymretrieved mbymth
emMNC.mConsequently,mthemMNCmmust msometimesmgomtomthemresourcesmrathermthanmretrievemresou
rcesm(suchmasmland,mlabor,metc.).


b. If mperfect mmarketsmexisted,mwould mwages,mprices,mand minterest mratesmamongmcountriesm
bemmoremsimilarmormlessmsimilarmthanmundermconditionsmof mimperfect mmarkets?mWhy?
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