International-Financial-Management---Bekaert-2e---Solutions---Ch01.doc
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International-Financial-Management---Bekaert-2e---Solutions---Ch01.doc
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Chapter1GlobalizationandtheMultinationalCorporation5
Chapter 1
GlobalizationandtheMultinationalCorporation
QUESTIONS
1.Defineglobalization.Howhasitproceededintradeingoodsandservicesversuscapitalmarkets?
Answer:
Globalizationreferstotheincreasingconnectivityandintegrationofcountriesandcorporationsandthepeoplewithinthemintermsoftheireconomic,political,andsocialactivities.Becauseofglobalization,multinationalcorporationsdominatethecorporatelandscape.
2.Describefourswaysthatacompanycansupplyitsproductstoaforeigncountry.Howdotheydiffer?
Answer:
AnMNCcansupplyaforeignmarketthroughexports,bylicensinglocalfirmsabroadtomanufacturethecompany’sproducts,bysettingupajointventurewithaforeigncompany,orbyforeigndirectinvestment.
3.Whatisagreenfieldinvestment?
Answer:
MNCsengageingreenfieldinvestmentswhentheyenterforeignmarketsbysimplyestablishingnewoperationsinthesecountrieswithouthavingalocalpartnerandwithoutacquiringalocalcompany.
4.WhatpercentageownershiptypicallydefinesFDI?
Answer:
Foreigndirectinvestment(FDI)occurswhenacompanyfromonecountrymakesasignificantinvestmentthatleadstoatleasta10%ownershipinterestinafirminanothercountry.
5.Whatisagencytheory?
Howdoescorporategovernancetheissuesraisedbyagencytheory?
Answer:
Agencytheoryexplorestheproblemsthatarisebecausetheownersofthefirmdonottypicallymanagethefirm,anditdeviseswaystoresolvetheseproblems.Thisisoftencalledtheseparationofowneshipandcontrol.Amanagerofafirm,inparticularthechiefexecutiveofficer(CEO),isviewedasanagentwhocontractswithvariousprincipals—mostimportantlythefirm’sshareholdersbutalsothefirm’screditors,suppliers,clients,andemployees.Theprincipalsmustdesigncontractsthatmotivatetheagenttoperformactionsandmakedecisionsthatareinthebestinterestsoftheprincipals.
6.Whyisownershipmoreconcentratedindevelopingcountriesthanindevelopedcountries?
Answer:
Inmanydevelopedcountries,theruleoflawisstrongenoughtodisciplinemanagersthroughlegalmeans,forexamplebytakeoversandproxycontestsorthroughcontractualcompensationplans.Concentratedownershipisonewayinwhichagencyproblemsaremitigatedindevelopingcountries.Ablockofstockisheldbyeitherawealthyinvestor,afamily,orafinancialintermediary,whichmightbeabank,aholdingcompany,ahedgefundorapensionfund.Thelargeshareholderclearlyhasavestedinterestinmonitoringmanagementandhasthepowertoimplementchangesinmanagement.Negativeaspectsofthisapproachincludepossiblecollusionbetweenthelargeshareholderandthemanagementtoexpropriatewealthfromsmallershareholdersandthefactthatthestockmaybemoredifficulttotradeonthestockmarketifasubstantialblockofsharesiswithdrawnfromthemarketbutisstillavailabletobesoldshouldthelargeshareholderwanttosell.
7.WhatistheIMF?
Whatisitsroleintheworldeconomy?
Answer:
TheInternationalMonetaryFund(IMF)isaninternationalorganizationof187membercountries,basedinWashington,DC,whichwasconceivedataUnitedNationsconferenceconvenedinBrettonWoods,NewHampshire,in1944.ThemaingoaloftheIMFistoensurethestabilityoftheinternationalmonetaryandfinancialsystem—thesystemofinternationalpaymentsandexchangeratesamongnationalcurrenciesthatenablestradetotakeplacebetweencountries,tohelpresolvecriseswhentheyoccur,andtopromotegrowthandalleviatepoverty.Tomeettheseobjectives,theIMFofferssurveillanceandtechnicalassistance.Surveillanceistheregulardialogueaboutacountry’seconomicconditionandpolicyadvicethattheIMFofferstoeachofitsmembers.Technicalassistanceandtrainingareofferedtohelpmembercountriesstrengthentheircapacitytodesignandimplementeffectivepolicies,includingfiscalpolicy,monetaryandexchangeratepolicies,bankingandfinancialsystemsupervisionandregulation,andstatistics.
8.WhatistheWorldBank?
Whatisitsroleintheworldeconomy?
Answer:
TheWorldBankisaninternationalinstitutioncreatedin1944,astheInternationalBankforReconstructionandDevelopment(IBRD)tofacilitatepostwarreconstructionanddevelopment.Overtime,theIBRD’sfocusshiftedtowardpovertyreduction,andin1960,theInternationalDevelopmentAssociation(IDA)wasestablishedasanintegralpartoftheWorldBank.WhereastheIBRDfocusesonmiddle-incomecountries,theIDAfocusesonthepoorestcountriesintheworld.Togethertheyprovidelow-interestloans,interest-freecredits,andgrantstodevelopingcountriesforinvestmentsineducation,health,infrastructure,communications,andotheractivities.TheWorldBankalsoprovid
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- International Financial Management Bekaert Solutions Ch01
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