CreatedhBy:hAhSolution
Solution Manual For International Financial Management, 14
h h h h h h
th Edition by Jeff Madura | Complete Verified Chapter’s 2024
h h h h h h h h h h
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Chapterh1
MultinationalhFinancialhManagement:hAnhOverview
LecturehOutline
ManaginghthehMNC
HowhBusinesshDisciplineshArehUsedhtohManagehthehMNChAgencyhProblems
ManagementhStructurehofhanhMNC
WhyhFirmshPursuehInternationalhBusinesshTheoryhofhComparativehAdvantagehImperfecthMarketshT
heory
ProducthCyclehTheory
MethodshtohConducthInternationalhBusiness
InternationalhTradehLicensinghFranchising
JointhVentures
AcquisitionshofhExistinghOperationshEstablishinghNewhForeignhSubsidiarieshSummaryhofhMethods
ValuationhModelhforhanhMNChDomestichValuationhModelhMultinationalhValuationhModel
UncertaintyhSurroundinghanhMNC’shCashhFlowshHowhUncertaintyhAffectshthehMNC’shCosthofhCap
ital
OrganizationhofhthehText
h
ChapterhTheme
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,CreatedhBy:hAhSolution
Thishchapterhintroduceshthehmultinationalhcorporationhashhavinghsimilarhgoalshtohthehpurelyhdomesti
chcorporation,hbuthahwiderhvarietyhofhopportunities.hWithhadditionalhopportunitieshcomehpotentialhin
creasedhreturnshandhotherhformshofhriskhtohconsider.hThehpotentialhbenefitshandhrisksharehintroduced.
TopicshtohStimulatehClasshDiscussion
1. WhathishthehappropriatehdefinitionhofhanhMNC?
2. WhyhdoeshanhMNChexpandhinternationally?
3. WhatharehthehriskshofhanhMNChwhichhexpandshinternationally?
4. Whyhmusthpurelyhdomestichfirmshbehconcernedhabouththehinternationalhenvironment?
POINT/COUNTER-POINT:
ShouldhanhMNChReducehItshEthicalhStandardshtohCompetehInternationally?
POINT:hYes.hWhenhahU.S.-
basedhMNChcompeteshinhsomehcountries,hithmayhencounterhsomehbusinesshnormshtherehthatharehnoth
allowedhinhthehU.S.hForhexample,hwhenhcompetinghforhahgovernmenthcontract,hfirmshmighthprovideh
payoffshtohthehgovernmenthofficialshwhohwillhmakehthehdecision.hYet,hinhthehUnitedhStates,hahfirmhw
illhsometimeshtakehahclienthonhanhexpensivehgolfhoutinghorhprovidehskyboxhticketshtohevents.hThishish
nohdifferenththanhahpayoff.hIfhthehpayoffsharehbiggerhinhsomehforeignhcountries,hthehMNChcanhcompe
tehonlyhbyhmatchinghthehpayoffshprovidedhbyhitshcompetitors.
COUNTER-POINT:hNo.hAhU.S.-
basedhMNChshouldhmaintainhahstandardhcodehofhethicshthathapplieshtohanyhcountry,hevenhifhithishathah
disadvantagehinhahforeignhcountryhthathallowshactivitieshthathmighthbehviewedhashunethical.hInhthishw
ay,hthehMNChestablisheshmorehcredibilityhworldwide.
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WHOhIShCORRECT?hUsehthehInternethtohlearnhmorehabouththishissue.hWhichhargumenthdohyouhsup
port?hOfferhyourhownhopinionhonhthishissue.
ANSWER:hThehissuehishfrequentlyhdiscussed.hIthisheasyhtohsuggesththaththehMNChshouldhmaintainhah
standardhcodehofhethics,hbuthinhreality,hthathmeanshthathithwillhnothbehablehtohcompetehinhsomehcases.h
Forhexample,hevenhifhithsubmitshthehlowesthbidhonhahspecifichforeignhgovernmenthproject,hithwillhnoth
receivehthehbidhwithouthahpayoffhtohthehforeignhgovernmenthofficials.hThehissuehishespeciallyhahconc
ernhforhlargehprojectshthathmayhgeneratehsubstantialhcashhflowshforhthehfirmhthathishchosenhtohdohtheh
project.hIdeally,hthehMNChcanhclearlyhdemonstratehtohwhoeverhoverseeshthehdecisionhprocesshthathith
deserveshtohbehselected.hIfhtherehishjusthonehdecision-
makerhwithhnohoversight,hanhMNChcanhnothensurehthaththehdecisionhwillhbehethical.hButhifhthehdecisi
on-
makerhmusthbehaccountablehtohahdepartmenthwhohoverseeshthehdecision,hthehMNChmayhbehablehtohpr
ompththehdepartmenthtohensurehthaththehprocesshishethical.
h
AnswershtohEndhofhChapterhQuestions
1. AgencyhProblemshofhMNCs.
a. ExplainhthehagencyhproblemhofhMNCs.
ANSWER:hThehagencyhproblemhreflectshahconflicthofhinterestshbetweenhdecision-
makinghmanagershandhthehownershofhthehMNC.hAgencyhcostshoccurhinhanhefforthtohassurehthathmana
gershacthinhthehbesthinteresthofhthehowners.
b. WhyhmighthagencyhcostshbehlargerhforhanhMNChthanhforhahpurelyhdomestichfirm?
ANSWER:hThehagencyhcostsharehnormallyhlargerhforhMNCshthanhpurelyhdomestichfirmshforhthehfoll
owinghreasons.hFirst,hMNCshincurhlargerhagencyhcostshinhmonitoringhmanagershofhdistanthforeignhsu
bsidiaries.hSecond,hforeignhsubsidiaryhmanagershraisedhinhdifferenthcultureshmayhnothfollowhunifor
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mhgoals,handhsomehmanagershmayhfocushonhsatisfyinghrespectivehemployees.hThird,hthehsheerhsizeho
fhthehlargerhMNCshwouldhalsohcreatehlargehagencyhproblems.
2. ComparativehAdvantage.
a.
Explainhhowhthehtheoryhofhcomparativehadvantagehrelateshtohthehneedhforhinternationalhbusi
ness.
ANSWER:hThehtheoryhofhcomparativehadvantagehimplieshthathcountrieshshouldhspecializehinhprodu
ction,htherebyhrelyinghonhotherhcountrieshforhsomehproducts.hConsequently,htherehishahneedhforhinter
nationalhbusiness.
b. ExplainhhowhthehproducthcyclehtheoryhrelateshtohthehgrowthhofhanhMNC.
ANSWER:hThehproducthcyclehtheoryhsuggestshthathathsomehpointhinhtime,hthehfirmhwillhattempthtohc
apitalizehonhitshperceivedhadvantageshinhmarketshotherhthanhwherehithwashinitiallyhestablished.
3. ImperfecthMarkets.
a.
Explainhhowhthehexistencehofhimperfecthmarketshhashledhtohthehestablishmenthofhsubsidiaries
h inhforeignhmarkets.
ANSWER:hBecausehofhimperfecthmarkets,hresourceshcannothbeheasilyhandhfreelyhretrievedhbyhthehM
NC.hConsequently,hthehMNChmusthsometimeshgohtohthehresourceshratherhthanhretrievehresourcesh(su
chhashland,hlabor,hetc.).
b.
Ifhperfecthmarketshexisted,hwouldhwages,hprices,handhinteresthrateshamonghcountrieshbehmore
h similarhorhlesshsimilarhthanhunderhconditionshofhimperfecthmarkets?hWhy?
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Solution Manual For International Financial Management, 14
h h h h h h
th Edition by Jeff Madura | Complete Verified Chapter’s 2024
h h h h h h h h h h
A+
Chapterh1
MultinationalhFinancialhManagement:hAnhOverview
LecturehOutline
ManaginghthehMNC
HowhBusinesshDisciplineshArehUsedhtohManagehthehMNChAgencyhProblems
ManagementhStructurehofhanhMNC
WhyhFirmshPursuehInternationalhBusinesshTheoryhofhComparativehAdvantagehImperfecthMarketshT
heory
ProducthCyclehTheory
MethodshtohConducthInternationalhBusiness
InternationalhTradehLicensinghFranchising
JointhVentures
AcquisitionshofhExistinghOperationshEstablishinghNewhForeignhSubsidiarieshSummaryhofhMethods
ValuationhModelhforhanhMNChDomestichValuationhModelhMultinationalhValuationhModel
UncertaintyhSurroundinghanhMNC’shCashhFlowshHowhUncertaintyhAffectshthehMNC’shCosthofhCap
ital
OrganizationhofhthehText
h
ChapterhTheme
A+ Pageh1
,CreatedhBy:hAhSolution
Thishchapterhintroduceshthehmultinationalhcorporationhashhavinghsimilarhgoalshtohthehpurelyhdomesti
chcorporation,hbuthahwiderhvarietyhofhopportunities.hWithhadditionalhopportunitieshcomehpotentialhin
creasedhreturnshandhotherhformshofhriskhtohconsider.hThehpotentialhbenefitshandhrisksharehintroduced.
TopicshtohStimulatehClasshDiscussion
1. WhathishthehappropriatehdefinitionhofhanhMNC?
2. WhyhdoeshanhMNChexpandhinternationally?
3. WhatharehthehriskshofhanhMNChwhichhexpandshinternationally?
4. Whyhmusthpurelyhdomestichfirmshbehconcernedhabouththehinternationalhenvironment?
POINT/COUNTER-POINT:
ShouldhanhMNChReducehItshEthicalhStandardshtohCompetehInternationally?
POINT:hYes.hWhenhahU.S.-
basedhMNChcompeteshinhsomehcountries,hithmayhencounterhsomehbusinesshnormshtherehthatharehnoth
allowedhinhthehU.S.hForhexample,hwhenhcompetinghforhahgovernmenthcontract,hfirmshmighthprovideh
payoffshtohthehgovernmenthofficialshwhohwillhmakehthehdecision.hYet,hinhthehUnitedhStates,hahfirmhw
illhsometimeshtakehahclienthonhanhexpensivehgolfhoutinghorhprovidehskyboxhticketshtohevents.hThishish
nohdifferenththanhahpayoff.hIfhthehpayoffsharehbiggerhinhsomehforeignhcountries,hthehMNChcanhcompe
tehonlyhbyhmatchinghthehpayoffshprovidedhbyhitshcompetitors.
COUNTER-POINT:hNo.hAhU.S.-
basedhMNChshouldhmaintainhahstandardhcodehofhethicshthathapplieshtohanyhcountry,hevenhifhithishathah
disadvantagehinhahforeignhcountryhthathallowshactivitieshthathmighthbehviewedhashunethical.hInhthishw
ay,hthehMNChestablisheshmorehcredibilityhworldwide.
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WHOhIShCORRECT?hUsehthehInternethtohlearnhmorehabouththishissue.hWhichhargumenthdohyouhsup
port?hOfferhyourhownhopinionhonhthishissue.
ANSWER:hThehissuehishfrequentlyhdiscussed.hIthisheasyhtohsuggesththaththehMNChshouldhmaintainhah
standardhcodehofhethics,hbuthinhreality,hthathmeanshthathithwillhnothbehablehtohcompetehinhsomehcases.h
Forhexample,hevenhifhithsubmitshthehlowesthbidhonhahspecifichforeignhgovernmenthproject,hithwillhnoth
receivehthehbidhwithouthahpayoffhtohthehforeignhgovernmenthofficials.hThehissuehishespeciallyhahconc
ernhforhlargehprojectshthathmayhgeneratehsubstantialhcashhflowshforhthehfirmhthathishchosenhtohdohtheh
project.hIdeally,hthehMNChcanhclearlyhdemonstratehtohwhoeverhoverseeshthehdecisionhprocesshthathith
deserveshtohbehselected.hIfhtherehishjusthonehdecision-
makerhwithhnohoversight,hanhMNChcanhnothensurehthaththehdecisionhwillhbehethical.hButhifhthehdecisi
on-
makerhmusthbehaccountablehtohahdepartmenthwhohoverseeshthehdecision,hthehMNChmayhbehablehtohpr
ompththehdepartmenthtohensurehthaththehprocesshishethical.
h
AnswershtohEndhofhChapterhQuestions
1. AgencyhProblemshofhMNCs.
a. ExplainhthehagencyhproblemhofhMNCs.
ANSWER:hThehagencyhproblemhreflectshahconflicthofhinterestshbetweenhdecision-
makinghmanagershandhthehownershofhthehMNC.hAgencyhcostshoccurhinhanhefforthtohassurehthathmana
gershacthinhthehbesthinteresthofhthehowners.
b. WhyhmighthagencyhcostshbehlargerhforhanhMNChthanhforhahpurelyhdomestichfirm?
ANSWER:hThehagencyhcostsharehnormallyhlargerhforhMNCshthanhpurelyhdomestichfirmshforhthehfoll
owinghreasons.hFirst,hMNCshincurhlargerhagencyhcostshinhmonitoringhmanagershofhdistanthforeignhsu
bsidiaries.hSecond,hforeignhsubsidiaryhmanagershraisedhinhdifferenthcultureshmayhnothfollowhunifor
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mhgoals,handhsomehmanagershmayhfocushonhsatisfyinghrespectivehemployees.hThird,hthehsheerhsizeho
fhthehlargerhMNCshwouldhalsohcreatehlargehagencyhproblems.
2. ComparativehAdvantage.
a.
Explainhhowhthehtheoryhofhcomparativehadvantagehrelateshtohthehneedhforhinternationalhbusi
ness.
ANSWER:hThehtheoryhofhcomparativehadvantagehimplieshthathcountrieshshouldhspecializehinhprodu
ction,htherebyhrelyinghonhotherhcountrieshforhsomehproducts.hConsequently,htherehishahneedhforhinter
nationalhbusiness.
b. ExplainhhowhthehproducthcyclehtheoryhrelateshtohthehgrowthhofhanhMNC.
ANSWER:hThehproducthcyclehtheoryhsuggestshthathathsomehpointhinhtime,hthehfirmhwillhattempthtohc
apitalizehonhitshperceivedhadvantageshinhmarketshotherhthanhwherehithwashinitiallyhestablished.
3. ImperfecthMarkets.
a.
Explainhhowhthehexistencehofhimperfecthmarketshhashledhtohthehestablishmenthofhsubsidiaries
h inhforeignhmarkets.
ANSWER:hBecausehofhimperfecthmarkets,hresourceshcannothbeheasilyhandhfreelyhretrievedhbyhthehM
NC.hConsequently,hthehMNChmusthsometimeshgohtohthehresourceshratherhthanhretrievehresourcesh(su
chhashland,hlabor,hetc.).
b.
Ifhperfecthmarketshexisted,hwouldhwages,hprices,handhinteresthrateshamonghcountrieshbehmore
h similarhorhlesshsimilarhthanhunderhconditionshofhimperfecthmarkets?hWhy?
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