Created n By:n An Solution
Solution Manual For International Financial Management, 14
n n n n n n
th Edition by Jeff Madura | Complete Verified Chapter’s 2024
n n n n n n n n n n
A+
Chaptern 1
Multinationaln Financialn Management:n Ann Overview
Lecturen Outline
Managingn then MNC
How n Businessn Disciplinesn Aren Used n ton Managen then MNCn Agencyn Problems
Management n Structuren of n ann MNC
Whyn Firmsn Pursuen Internationaln Businessn Theoryn of n Comparativen AdvantagenImperfect nMarketsnT
heory
Product n Cyclen Theory
Methodsn ton Conduct n Internationaln Business
Internationaln Traden Licensingn Franchising
Joint n Ventures
Acquisitionsn of n Existingn Operationsn Establishingn New n Foreignn Subsidiariesn Summaryn of n Methods
Valuationn Modeln forn ann MNCn Domesticn Valuationn Modeln Multinationaln Valuationn Model
Uncertaintyn Surroundingn ann MNC’sn CashnFlowsn How nUncertaintynAffectsn then MNC’sn Costn ofnCap
ital
Organizationn of n then Text
n
Chaptern Theme
A+ Pagen1
,Created n By:n An Solution
Thisn chaptern introducesn then multinationaln corporationn asn havingn similarn goalsn ton then purelyn domesti
cn corporation,n but n an widern varietynof nopportunities.n Withnadditionaln opportunitiesn comen potentialn in
creased n returnsn and n othern formsn of nriskn tonconsider.n Then potentialn benefitsnand nrisksn aren introduced.
Topicsn ton Stimulaten Classn Discussion
1. What n isn then appropriaten definitionn of n ann MNC?
2. Whyn doesn ann MNCn expand n internationally?
3. What n aren then risksn of n ann MNCn whichn expandsn internationally?
4. Whyn must n purelyn domesticn firmsn ben concerned n about n then internationaln environment?
POINT/COUNTER-POINT:
Should n ann MNCn Reducen Itsn Ethicaln Standardsn ton Competen Internationally?
POINT:n Yes.n Whenn an U.S.-
based n MNCn competesn inn somen countries,n it n maynencountern somen businessn normsn theren thatn aren not n
allowed n inn then U.S.nForn example,n whenn competingn forn angovernment n contract,n firmsn might n providen
payoffsn ton thengovernment n officialsn whon willn maken then decision.n Yet,n inn thenUnitednStates,n anfirmn w
illn sometimesn taken an client n onn ann expensiven golf n outingn orn providenskyboxn ticketsn ton events.n Thisn isn
non different n thann anpayoff.nIfnthenpayoffsnaren biggern inn somen foreignn countries,n thenMNCn canncompe
ten onlyn byn matchingn then payoffsn provided n byn itsn competitors.
COUNTER-POINT:n No.n An U.S.-
based n MNCn should n maintainn anstandard ncoden ofnethicsn that nappliesn ton anyncountry,n evenn if n it n isn at n an
disadvantagen inn an foreignn countryn that nallowsn activitiesn that nmight n benviewedn asnunethical.n Innthisn w
ay,n then MNCn establishesn moren credibilityn worldwide.
A+ Pagen2
,Created n By:n An Solution
WHOn ISn CORRECT?n Usen then Internet n tonlearnn moren about n thisn issue.n Whichn argument n don youn sup
port?n Offern yourn ownn opinionn onn thisn issue.
ANSWER:n Then issuen isn frequentlyn discussed.n It nisn easyn tonsuggest n that nthenMNCnshould nmaintainn an
standard n codenofn ethics,n but ninn reality,n thatn meansn that nit nwilln not nben ablen ton competen inn somen cases.n
Forn example,n evenn if n it n submitsn then lowest nbid nonnan specificn foreignn government n project,n it n willn not n
receiven then bid n without nan payoff n ton then foreignn government n officials.n Then issuen isn especiallyn an conc
ernn forn largen projectsn that n mayn generaten substantialn cashn flowsnfornthenfirmn thatn isn chosenn ton don then
project.n Ideally,n then MNCncann clearlyn demonstratentonwhoevernoverseesn then decisionn processn that nitn
deservesn ton ben selected.n If n theren isn just n onen decision-
makern withn non oversight,n ann MNCn cannnot nensuren thatnthendecisionn willn ben ethical.n But n if n then decisi
on-
makern must n ben accountablen ton an department n whonoverseesn then decision,n thenMNCnmayn ben ablen tonpr
ompt n then department n ton ensuren that n then processn isn ethical.
n
Answersn ton End n of n Chaptern Questions
1. Agencyn Problemsn of n MNCs.
a. Explainn then agencyn problemn of n MNCs.
ANSWER:n Then agencyn problemn reflectsn an conflict n of n interestsn betweenn decision-
makingn managersn and n then ownersn of n thenMNC.nAgencyncostsn occurn innann effortn ton assuren that n mana
gersn act n inn then best n interest n of n then owners.
b. Whyn might n agencyn costsn ben largern forn ann MNCn thann forn an purelyn domesticn firm?
ANSWER:n Then agencyn costsn aren normallyn largern forn MNCsn thannpurelyn domesticn firmsn forn then foll
owingn reasons.n First,n MNCsn incurn largern agencyn costsn inn monitoringn managersn of n distant nforeignn su
bsidiaries.n Second,n foreignn subsidiaryn managersn raised n inn different n culturesn mayn not n follow n unifor
A+ Pagen3
, Created n By:n An Solution
mn goals,n and n somen managersn mayn focusn onn satisfyingn respectiven employees.n Third,n then sheern sizen o
f n then largern MNCsn would n alson createn largen agencyn problems.
2. Comparativen Advantage.
a.
Explainn hown then theoryn ofn comparativen advantagen relatesn ton then need n forn internationaln busi
ness.
ANSWER:n Then theoryn of ncomparativen advantagenimpliesn that n countriesn should n specializen inn produ
ction,n therebyn relyingn onn othern countriesn forn somen products.n Consequently,n theren isn an need n forn inter
nationaln business.
b. Explainn hown then product n cyclen theoryn relatesn ton then growthn of n ann MNC.
ANSWER:n Then product n cyclen theoryn suggestsn that nat nsomen point ninn time,n then firmn willn attempt n ton c
apitalizen onn itsn perceived n advantagesn inn marketsn othern thann wheren it n wasn initiallyn established.
3. Imperfect n Markets.
a.
Explainn hown then existencen of nimperfect n marketsn hasn ledn tonthenestablishment n of nsubsidiaries
n inn foreignn markets.
ANSWER:n Becausen of n imperfect nmarkets,n resourcesn cannot n ben easilyn andn freelyn retrieved n bynthenM
NC.n Consequently,n then MNCn must nsometimesn gon tonthen resourcesn rathern thannretrieven resourcesn (su
chn asn land,n labor,n etc.).
b.
If n perfect n marketsn existed,nwouldn wages,n prices,n and ninterest n ratesn amongn countriesn ben more
n similarn orn lessn similarn thann undern conditionsn of n imperfect n markets?n Why?
A+ Pagen4
Solution Manual For International Financial Management, 14
n n n n n n
th Edition by Jeff Madura | Complete Verified Chapter’s 2024
n n n n n n n n n n
A+
Chaptern 1
Multinationaln Financialn Management:n Ann Overview
Lecturen Outline
Managingn then MNC
How n Businessn Disciplinesn Aren Used n ton Managen then MNCn Agencyn Problems
Management n Structuren of n ann MNC
Whyn Firmsn Pursuen Internationaln Businessn Theoryn of n Comparativen AdvantagenImperfect nMarketsnT
heory
Product n Cyclen Theory
Methodsn ton Conduct n Internationaln Business
Internationaln Traden Licensingn Franchising
Joint n Ventures
Acquisitionsn of n Existingn Operationsn Establishingn New n Foreignn Subsidiariesn Summaryn of n Methods
Valuationn Modeln forn ann MNCn Domesticn Valuationn Modeln Multinationaln Valuationn Model
Uncertaintyn Surroundingn ann MNC’sn CashnFlowsn How nUncertaintynAffectsn then MNC’sn Costn ofnCap
ital
Organizationn of n then Text
n
Chaptern Theme
A+ Pagen1
,Created n By:n An Solution
Thisn chaptern introducesn then multinationaln corporationn asn havingn similarn goalsn ton then purelyn domesti
cn corporation,n but n an widern varietynof nopportunities.n Withnadditionaln opportunitiesn comen potentialn in
creased n returnsn and n othern formsn of nriskn tonconsider.n Then potentialn benefitsnand nrisksn aren introduced.
Topicsn ton Stimulaten Classn Discussion
1. What n isn then appropriaten definitionn of n ann MNC?
2. Whyn doesn ann MNCn expand n internationally?
3. What n aren then risksn of n ann MNCn whichn expandsn internationally?
4. Whyn must n purelyn domesticn firmsn ben concerned n about n then internationaln environment?
POINT/COUNTER-POINT:
Should n ann MNCn Reducen Itsn Ethicaln Standardsn ton Competen Internationally?
POINT:n Yes.n Whenn an U.S.-
based n MNCn competesn inn somen countries,n it n maynencountern somen businessn normsn theren thatn aren not n
allowed n inn then U.S.nForn example,n whenn competingn forn angovernment n contract,n firmsn might n providen
payoffsn ton thengovernment n officialsn whon willn maken then decision.n Yet,n inn thenUnitednStates,n anfirmn w
illn sometimesn taken an client n onn ann expensiven golf n outingn orn providenskyboxn ticketsn ton events.n Thisn isn
non different n thann anpayoff.nIfnthenpayoffsnaren biggern inn somen foreignn countries,n thenMNCn canncompe
ten onlyn byn matchingn then payoffsn provided n byn itsn competitors.
COUNTER-POINT:n No.n An U.S.-
based n MNCn should n maintainn anstandard ncoden ofnethicsn that nappliesn ton anyncountry,n evenn if n it n isn at n an
disadvantagen inn an foreignn countryn that nallowsn activitiesn that nmight n benviewedn asnunethical.n Innthisn w
ay,n then MNCn establishesn moren credibilityn worldwide.
A+ Pagen2
,Created n By:n An Solution
WHOn ISn CORRECT?n Usen then Internet n tonlearnn moren about n thisn issue.n Whichn argument n don youn sup
port?n Offern yourn ownn opinionn onn thisn issue.
ANSWER:n Then issuen isn frequentlyn discussed.n It nisn easyn tonsuggest n that nthenMNCnshould nmaintainn an
standard n codenofn ethics,n but ninn reality,n thatn meansn that nit nwilln not nben ablen ton competen inn somen cases.n
Forn example,n evenn if n it n submitsn then lowest nbid nonnan specificn foreignn government n project,n it n willn not n
receiven then bid n without nan payoff n ton then foreignn government n officials.n Then issuen isn especiallyn an conc
ernn forn largen projectsn that n mayn generaten substantialn cashn flowsnfornthenfirmn thatn isn chosenn ton don then
project.n Ideally,n then MNCncann clearlyn demonstratentonwhoevernoverseesn then decisionn processn that nitn
deservesn ton ben selected.n If n theren isn just n onen decision-
makern withn non oversight,n ann MNCn cannnot nensuren thatnthendecisionn willn ben ethical.n But n if n then decisi
on-
makern must n ben accountablen ton an department n whonoverseesn then decision,n thenMNCnmayn ben ablen tonpr
ompt n then department n ton ensuren that n then processn isn ethical.
n
Answersn ton End n of n Chaptern Questions
1. Agencyn Problemsn of n MNCs.
a. Explainn then agencyn problemn of n MNCs.
ANSWER:n Then agencyn problemn reflectsn an conflict n of n interestsn betweenn decision-
makingn managersn and n then ownersn of n thenMNC.nAgencyncostsn occurn innann effortn ton assuren that n mana
gersn act n inn then best n interest n of n then owners.
b. Whyn might n agencyn costsn ben largern forn ann MNCn thann forn an purelyn domesticn firm?
ANSWER:n Then agencyn costsn aren normallyn largern forn MNCsn thannpurelyn domesticn firmsn forn then foll
owingn reasons.n First,n MNCsn incurn largern agencyn costsn inn monitoringn managersn of n distant nforeignn su
bsidiaries.n Second,n foreignn subsidiaryn managersn raised n inn different n culturesn mayn not n follow n unifor
A+ Pagen3
, Created n By:n An Solution
mn goals,n and n somen managersn mayn focusn onn satisfyingn respectiven employees.n Third,n then sheern sizen o
f n then largern MNCsn would n alson createn largen agencyn problems.
2. Comparativen Advantage.
a.
Explainn hown then theoryn ofn comparativen advantagen relatesn ton then need n forn internationaln busi
ness.
ANSWER:n Then theoryn of ncomparativen advantagenimpliesn that n countriesn should n specializen inn produ
ction,n therebyn relyingn onn othern countriesn forn somen products.n Consequently,n theren isn an need n forn inter
nationaln business.
b. Explainn hown then product n cyclen theoryn relatesn ton then growthn of n ann MNC.
ANSWER:n Then product n cyclen theoryn suggestsn that nat nsomen point ninn time,n then firmn willn attempt n ton c
apitalizen onn itsn perceived n advantagesn inn marketsn othern thann wheren it n wasn initiallyn established.
3. Imperfect n Markets.
a.
Explainn hown then existencen of nimperfect n marketsn hasn ledn tonthenestablishment n of nsubsidiaries
n inn foreignn markets.
ANSWER:n Becausen of n imperfect nmarkets,n resourcesn cannot n ben easilyn andn freelyn retrieved n bynthenM
NC.n Consequently,n then MNCn must nsometimesn gon tonthen resourcesn rathern thannretrieven resourcesn (su
chn asn land,n labor,n etc.).
b.
If n perfect n marketsn existed,nwouldn wages,n prices,n and ninterest n ratesn amongn countriesn ben more
n similarn orn lessn similarn thann undern conditionsn of n imperfect n markets?n Why?
A+ Pagen4
