INTERNATIONAL FINANCIAL MANAGEMENT
COMPREHENSIVE SOLVED QUESTIONS AND
COMPLETE ANSWERS
◉ Firm does not put any of its capital at risk.
Answer: Minimal risk
◉ Agreement to provide its technology (copyrights, patents,
trademarks, or trade names) in exchange for fees or some other
specified benefits.
Allows firms to use their technology in foreign markets without a
major investment and without transportation costs that result from
exporting.
Major disadvantage: difficult to ensure quality control in foreign
production process.
Answer: Licensing
◉ Obligates firm to provide a specialized sales or service strategy,
support assistance, and possibly an initial investment in the
franchise in exchange for periodic fees.
Allows penetration into foreign markets without a major investment
in foreign countries..
Answer: Franchising
,◉ A venture that is jointly owned and operated by tow or more
firms. A firm may enter the foreign market by engaging in a joint
venture with firms that reside in those markets.
Allows two firms to apply their respective cooperative advantages in
a given project..
Answer: Joint Ventures
◉ Acquisitions of firms in foreign countries allows firms to have full
control over their foreign businesses and to quickly obtain a large
portion of foreign market share.
Subject to the risk of large losses because of larger investment.
Liquidation may be difficult if the foreign subsidiary performs
poorly..
Answer: Acquisitions of Existing Operations
◉ Firms can penetrate markets by establishing new operations in
foreign countries.
Requires a large investment.
Acquiring new as opposed to buying existing allows operations to be
tailored exactly to the firms needs.
May require smaller investment than buying existing firm..
Answer: Establishing new foreign subidiaries
,◉ Any method of increasing international business that requires a
direct investment in foreign operations is referred to as.
International trade and licensing: usually not considered to be DFI
as they do not involve direct investment in foreign operations.
Franchising and joint ventures: tend to require some investment in
foreign operations buy to a limited degree.
Foreign acquisitions and the establishment of new foreign
subsidiaries require substantial investment in foreign operations
and represent the largest portion of DFI..
Answer: Direct foreign investment (DFI) or Foreign direct
investment (FDI)
◉ Economic conditions in a foreign country (changes in income and
employment) and their effect on demand for MNC's products.
Answer: Exposure to international economic conditions
◉ Government policies, frictions within and between governments,
and their effects on MNC's sales.
Answer: Exposure to international political risk
◉ Exchange artes fluctuations and their effect on amount of dollar
cash flows.
Answer: Exposure to exchange rate risk
, ◉ Summary of transactions between domestic and foreign residents
for a specific country over a specified period of time.
Represents an accounting of a country international transactions for
a period
Accounts for transactions by businesses, individuals, and the
government.
Answer: Balance of payments
◉ Summary of flow of funds due to purchases of goods or services
or to the cash flows generated by income-producing financial assets..
Answer: Current Account
◉ Summary of flow of funds resulting from the sale of assets
between one specified country and all other countries over a
specified period of time.
Companies the new foreign investments made by a country with the
foreign investments wishing a country.
Answer: Capital account
◉ Refers to special types of investment, including DFI and portfolio
investment.
Answer: Financial Account
◉ Payments for merchandise and services
COMPREHENSIVE SOLVED QUESTIONS AND
COMPLETE ANSWERS
◉ Firm does not put any of its capital at risk.
Answer: Minimal risk
◉ Agreement to provide its technology (copyrights, patents,
trademarks, or trade names) in exchange for fees or some other
specified benefits.
Allows firms to use their technology in foreign markets without a
major investment and without transportation costs that result from
exporting.
Major disadvantage: difficult to ensure quality control in foreign
production process.
Answer: Licensing
◉ Obligates firm to provide a specialized sales or service strategy,
support assistance, and possibly an initial investment in the
franchise in exchange for periodic fees.
Allows penetration into foreign markets without a major investment
in foreign countries..
Answer: Franchising
,◉ A venture that is jointly owned and operated by tow or more
firms. A firm may enter the foreign market by engaging in a joint
venture with firms that reside in those markets.
Allows two firms to apply their respective cooperative advantages in
a given project..
Answer: Joint Ventures
◉ Acquisitions of firms in foreign countries allows firms to have full
control over their foreign businesses and to quickly obtain a large
portion of foreign market share.
Subject to the risk of large losses because of larger investment.
Liquidation may be difficult if the foreign subsidiary performs
poorly..
Answer: Acquisitions of Existing Operations
◉ Firms can penetrate markets by establishing new operations in
foreign countries.
Requires a large investment.
Acquiring new as opposed to buying existing allows operations to be
tailored exactly to the firms needs.
May require smaller investment than buying existing firm..
Answer: Establishing new foreign subidiaries
,◉ Any method of increasing international business that requires a
direct investment in foreign operations is referred to as.
International trade and licensing: usually not considered to be DFI
as they do not involve direct investment in foreign operations.
Franchising and joint ventures: tend to require some investment in
foreign operations buy to a limited degree.
Foreign acquisitions and the establishment of new foreign
subsidiaries require substantial investment in foreign operations
and represent the largest portion of DFI..
Answer: Direct foreign investment (DFI) or Foreign direct
investment (FDI)
◉ Economic conditions in a foreign country (changes in income and
employment) and their effect on demand for MNC's products.
Answer: Exposure to international economic conditions
◉ Government policies, frictions within and between governments,
and their effects on MNC's sales.
Answer: Exposure to international political risk
◉ Exchange artes fluctuations and their effect on amount of dollar
cash flows.
Answer: Exposure to exchange rate risk
, ◉ Summary of transactions between domestic and foreign residents
for a specific country over a specified period of time.
Represents an accounting of a country international transactions for
a period
Accounts for transactions by businesses, individuals, and the
government.
Answer: Balance of payments
◉ Summary of flow of funds due to purchases of goods or services
or to the cash flows generated by income-producing financial assets..
Answer: Current Account
◉ Summary of flow of funds resulting from the sale of assets
between one specified country and all other countries over a
specified period of time.
Companies the new foreign investments made by a country with the
foreign investments wishing a country.
Answer: Capital account
◉ Refers to special types of investment, including DFI and portfolio
investment.
Answer: Financial Account
◉ Payments for merchandise and services
