Solutions Manual For
Fundamentals of Corporate
Finance, 5th Edition By Robert
Parrino, David Kidwell, Thomas
Bates, Stuart Gillan (All
Chapters 1-21, 100% Original
Verified, A+ Grade)
All Chapters Arranged Reverse:
21-1
This is The Original Solutions
Manual For 5th Edition, All other
Files in The Market are
Fake/Old/Wrong Edition.
Supplement Files Download
Link at The End Of PDF
, Fundamentals of Corporate Finance, 5th edition Solutions Manual
Chapter 21
International Financial Management
Before You Go On Questions and Answers
Section 21.1
1. What is globalization?
Globalization refers to the removal of barriers to free trade and the closer integration of
national economies. Consumers in many countries buy goods that are purchased from a
number of countries, other than just their own. The production of goods and services has
also become highly globalized. Like product markets, the financial system has also
become highly integrated.
2. What are multinational corporations?
Multinational corporations are business firms that have their operations in at least one
other country than their home country where they are headquartered. These firms are
headquartered all over the world and are owned by a mixture of domestic and foreign
stockholders.
3. Explain the difference between American and European business executives’ views on
wealth maximization.
American business executives embrace shareholder wealth maximization as their number
one goal, whereas in most parts of Europe, the main goal of business executives is to
maximize corporate wealth. This means that shareholders are treated on par with other
stakeholders, such as management, employees, creditors, or the government.
Section 21.2
1. What is foreign exchange rate risk?
Copyright © 2022 John Wiley & Sons, Inc. SM 21-1
, Fundamentals of Corporate Finance, 5th edition Solutions Manual
Foreign exchange risk is the risk of a change in investment’s value due to changes in
currency exchange rates. This risk usually affects firms that import/export goods as well
as investors that make international investments.
2. How is the equilibrium exchange rate determined?
The equilibrium exchange rate is the point of intersection between the currencies’ supply
and demand curves. It is the point at which the quantity of the currency demanded equals
the quantity of currency supplied.
3. What does it mean to hedge a financial transaction?
To hedge a financial transaction with foreign exchange means to reduce the potential
gains or losses caused by fluctuations in the price of foreign exchange. Many instruments
can be used to hedge this risk, such as foreign currency options.
Section 21.3
1. What difficulties do firms face in estimating cash flows from an overseas project?
Estimating cash flows from an overseas project is difficult because of the various ways a
firm is likely to get cash flows from a subsidiary – dividends, royalty or license
payments, debt repayment, management, or consulting fees. It is also difficult to precisely
time the cash flows or estimate the magnitude because of restrictions and controls a
country is likely to put on the transfer of funds from the overseas project back to the
home country.
2. Why is the repatriation of cash flows from an overseas project considered critical to
the project’s value?
From a parent firm’s point of view, the cash flows expected from the subsidiary are the
basis for undertaking a project or rejecting it. Any delays in receiving the cash flows will
affect the NPV of the project. Parent companies often rely on the cash flows from foreign
operations to be repatriated and to fund projects in other countries.
3. When do companies have to consider country or political risk?
Copyright © 2022 John Wiley & Sons, Inc. SM 21-2
, Fundamentals of Corporate Finance, 5th edition Solutions Manual
Any company doing business in a foreign country has to consider political or country
risks. Especially if the target country has a relatively unstable political environment,
financial managers must incorporate the potential risk into the cost of the project.
Section 21.4
1. Which currency is the preferred currency of exchange in global financial markets?
Why?
The U.S. dollar is the preferred currency of exchange on the global financial markets, as
it is perceived to be the most stable currency. This is mainly due to the size and strength
of the U.S. economy, the long history of political stability, and the strength of military
forces.
2. What is the difference between foreign bonds and Eurobonds?
Both foreign bonds and Eurobonds are types of international bonds. However, foreign
bonds are long-term debt instruments sold by a foreign firm to investors in another
country, and they are denominated in that country’s currency. On the other hand,
Eurobonds are long-term debt instruments sold by a firm in one country but are
denominated in the currency of another country.
Section 21.5
1. Why is credit risk higher in international markets?
In international markets, the credit risk of borrowers is higher, as it is more difficult to
obtain credit information abroad. It is mainly the issue of familiarity with foreign
economic conditions and business practices. Thus, the cost of gathering all this necessary
information is higher, which is then being passed onto the customer in terms of higher
premium.
2. List the inputs that are used in calculating a Eurocredit price.
The loan pricing for Eurocredits is similar to the loan pricing that U.S. money center
banks use for their largest domestic customers. The loan rate (k) is equal to a base rate,
Copyright © 2022 John Wiley & Sons, Inc. SM 21-3
Fundamentals of Corporate
Finance, 5th Edition By Robert
Parrino, David Kidwell, Thomas
Bates, Stuart Gillan (All
Chapters 1-21, 100% Original
Verified, A+ Grade)
All Chapters Arranged Reverse:
21-1
This is The Original Solutions
Manual For 5th Edition, All other
Files in The Market are
Fake/Old/Wrong Edition.
Supplement Files Download
Link at The End Of PDF
, Fundamentals of Corporate Finance, 5th edition Solutions Manual
Chapter 21
International Financial Management
Before You Go On Questions and Answers
Section 21.1
1. What is globalization?
Globalization refers to the removal of barriers to free trade and the closer integration of
national economies. Consumers in many countries buy goods that are purchased from a
number of countries, other than just their own. The production of goods and services has
also become highly globalized. Like product markets, the financial system has also
become highly integrated.
2. What are multinational corporations?
Multinational corporations are business firms that have their operations in at least one
other country than their home country where they are headquartered. These firms are
headquartered all over the world and are owned by a mixture of domestic and foreign
stockholders.
3. Explain the difference between American and European business executives’ views on
wealth maximization.
American business executives embrace shareholder wealth maximization as their number
one goal, whereas in most parts of Europe, the main goal of business executives is to
maximize corporate wealth. This means that shareholders are treated on par with other
stakeholders, such as management, employees, creditors, or the government.
Section 21.2
1. What is foreign exchange rate risk?
Copyright © 2022 John Wiley & Sons, Inc. SM 21-1
, Fundamentals of Corporate Finance, 5th edition Solutions Manual
Foreign exchange risk is the risk of a change in investment’s value due to changes in
currency exchange rates. This risk usually affects firms that import/export goods as well
as investors that make international investments.
2. How is the equilibrium exchange rate determined?
The equilibrium exchange rate is the point of intersection between the currencies’ supply
and demand curves. It is the point at which the quantity of the currency demanded equals
the quantity of currency supplied.
3. What does it mean to hedge a financial transaction?
To hedge a financial transaction with foreign exchange means to reduce the potential
gains or losses caused by fluctuations in the price of foreign exchange. Many instruments
can be used to hedge this risk, such as foreign currency options.
Section 21.3
1. What difficulties do firms face in estimating cash flows from an overseas project?
Estimating cash flows from an overseas project is difficult because of the various ways a
firm is likely to get cash flows from a subsidiary – dividends, royalty or license
payments, debt repayment, management, or consulting fees. It is also difficult to precisely
time the cash flows or estimate the magnitude because of restrictions and controls a
country is likely to put on the transfer of funds from the overseas project back to the
home country.
2. Why is the repatriation of cash flows from an overseas project considered critical to
the project’s value?
From a parent firm’s point of view, the cash flows expected from the subsidiary are the
basis for undertaking a project or rejecting it. Any delays in receiving the cash flows will
affect the NPV of the project. Parent companies often rely on the cash flows from foreign
operations to be repatriated and to fund projects in other countries.
3. When do companies have to consider country or political risk?
Copyright © 2022 John Wiley & Sons, Inc. SM 21-2
, Fundamentals of Corporate Finance, 5th edition Solutions Manual
Any company doing business in a foreign country has to consider political or country
risks. Especially if the target country has a relatively unstable political environment,
financial managers must incorporate the potential risk into the cost of the project.
Section 21.4
1. Which currency is the preferred currency of exchange in global financial markets?
Why?
The U.S. dollar is the preferred currency of exchange on the global financial markets, as
it is perceived to be the most stable currency. This is mainly due to the size and strength
of the U.S. economy, the long history of political stability, and the strength of military
forces.
2. What is the difference between foreign bonds and Eurobonds?
Both foreign bonds and Eurobonds are types of international bonds. However, foreign
bonds are long-term debt instruments sold by a foreign firm to investors in another
country, and they are denominated in that country’s currency. On the other hand,
Eurobonds are long-term debt instruments sold by a firm in one country but are
denominated in the currency of another country.
Section 21.5
1. Why is credit risk higher in international markets?
In international markets, the credit risk of borrowers is higher, as it is more difficult to
obtain credit information abroad. It is mainly the issue of familiarity with foreign
economic conditions and business practices. Thus, the cost of gathering all this necessary
information is higher, which is then being passed onto the customer in terms of higher
premium.
2. List the inputs that are used in calculating a Eurocredit price.
The loan pricing for Eurocredits is similar to the loan pricing that U.S. money center
banks use for their largest domestic customers. The loan rate (k) is equal to a base rate,
Copyright © 2022 John Wiley & Sons, Inc. SM 21-3
