Multinational Business Finance, 16th Edition by Eiteman, Stonehill, Moffett TEST BANK

Test Bank for Multinational Business Finance, 16E, 16th Edition by David K. Eiteman,Arthur I. Stonehill,Michael H. Moffett TEST BANK ISBN-13: 9780137669561 Full chapters included Part 1 Global Financial Environmen ...

Test Bank for Multinational Business Finance, 16E, 16th Edition by David K. Eiteman,Arthur I. Stonehill,Michael H. Moffett TEST BANK ISBN-13: 9780137669561 Full chapters included Part 1 Global Financial Environment 1 Multinational Financial Management: Opportunities and Challenges Learning Objectives 1.1 The Global Financial Marketplace Assets, Institutions, and Linkages Securities Institutions Linkages The Market for Currencies Currency Symbols Exchange Rate Quotations and Terminology Quotation Conventions Percentage Change in Spot Exchange Rates Foreign Currency Terms Home Currency Terms Financial Globalization and Risk Eurocurrencies and Eurocurrency Interest Rates Eurocurrencies Eurocurrency Interest Rates 1.2 The Theory of Comparative Advantage 1.3 What Is Different About International Financial Management? Market Imperfections: A Rationale for the Existence of the Multinational Firm Why Do Firms Go Global? 1.4 The Globalization Process Global Transition I: Domestic Phase to the International Trade Phase Global Transition II: The International Trade Phase to the Multinational Phase The Multinational Enterprise’s Consolidated Financial Results The Limits to Financial Globalization Summary Points Questions Problems 2 International Monetary System Learning Objectives 2.1 History of the International Monetary System The Classical Gold Standard (1879–1913) The Interwar Years and World War II (1914–1944) Bretton Woods and the International Monetary Fund (1944) Fixed Exchange Rates (1945–1973) Floating Exchange Rates, 1973–1997 The Emerging Era, 1997–Present IMF Classification of Currency Regimes Brief Classification History The IMF’s De Facto System Category 1: Hard Pegs Category 2: Soft Pegs Category 3: Floating Arrangements Category 4: Residual A Global Eclectic 2.2 Fixed versus Flexible Exchange Rates 2.3 The Impossible Trinity 2.4 A Single Currency for Europe: The Euro The Maastricht Treaty and Monetary Union The European Central Bank (ECB) The Launch of the Euro 2.5 Internationalization of the Chinese RMB Renminbi Valuation Two-Market Currency Development Internationalization: Theoretical Principles and Practical Concerns The Triffin Dilemma 2.6 Emerging Markets and Regime Choices Currency Boards Argentina Dollarization Ecuador El Salvador Zimbabwe Currency Regime Choices for Emerging Markets Reserve Currencies and What Lies Ahead Summary Points Questions Problems 3 The Balance of Payments Learning Objectives 3.1 Fundamentals of BOP Accounting Defining International Economic Transactions The BOP as a Flow Statement BOP Accounting 3.2 The Accounts of the Balance of Payments The Current Account The Capital and Financial Accounts Financial Account Direct Investment Portfolio Investment Other Asset Investment Net Errors and Omissions and Official Reserves Accounts Net Errors and Omissions Account Official Reserves Account Breaking the Rules: China’s Twin Surpluses 3.3 BOP Impacts on Key Macroeconomic Rates The BOP and Exchange Rates Fixed Exchange Rate Countries Floating Exchange Rate Countries Managed Floats The BOP and Interest Rates The BOP and Inflation Rates 3.4 Trade Balances and Exchange Rates Trade and Devaluation The J-Curve Adjustment Path Trade Balance Adjustment Path: The Equation 3.5 Capital Mobility Current Account versus Financial Account Capital Flows Historical Patterns of Capital Mobility Classical Gold Standard (1870–1914) Interwar Years (1923–1938) Fixed Exchange Rates (1944–1973) Floating Exchange Rates (1973–1997) The Emerging Era (1997–Present) Capital Controls Globalization of Capital Flows Summary Points Questions Problems Australia’s Current Account India’s Current Account China’s (Mainland) Balance of Payments Russia’s Balance of Payments Iceland Balance of Payments 4 Financial Goals, Corporate Governance, and the Market for Corporate Control Learning Objectives 4.1 Business Ownership Types of Ownership The Corporation Separation of Ownership and Management 4.2 The Corporate Objective? Shareholder Capitalism Market Efficiency Risk Agency Theory Long-Term versus Short-Term Value Maximization Stakeholder Capitalism Market Efficiency Risk Single versus Multiple Goals The Scorecard Operational Goals Returns to Investors in Publicly Traded Firms The Case of Apple Returns to Owners of Privately Held Firms Operational Goals for MNEs Consolidated Profits Public/Private Hybrids Activist Investors 4.3 Corporate Governance The Structure of Governance Comparative Corporate Governance Financial Market Development Separation of Management and Ownership Disclosure and Transparency Historical Development of the Legal System Good Governance and Corporate Reputation 4.4 The Market for Corporate Control Cross-Border Takeovers and Defenses Dual Class Stock Poison Pills Staggered Boards White Knights Pac-Man Defense Asset Divestment and Debt Corporate Responsibility and Sustainability Summary Points Questions Problems Part 2 Foreign Exchange Theory and Markets 5 The Foreign Exchange Market Learning Objectives 5.1 Functions of the Foreign Exchange Market 5.2 Structure of the Foreign Exchange Market The Global Trading Day Market Participants—The Players Bank and Nonbank Dealers Commercial and Investment Transactors Speculators and Arbitragers Central Banks and Treasuries Foreign Exchange Brokers Evolution of the Market The Evolution of FX Trading 1985 1990s 2010 - Today The Three Components of FX Trades FX Market Manipulation: Fixing the Fix The FX Global Code of Conduct 2016 5.3 Transactions in the Foreign Exchange Market Spot Transactions Forward Transactions Swap Transactions Spot Against Forward Forward-Forward Swaps Nondeliverable Forwards (NDFs) Size of the Foreign Exchange Market Geographical Distribution Currency Composition 5.4 Foreign Exchange Rates and Quotations Currency Symbols Exchange Rate Quotes Market Conventions European Terms American Terms Currency Nicknames Direct and Indirect Quotations Bid and Ask Rates Cross Rates Intermarket Arbitrage Forward Quotations Summary Points Questions Problems 6 International Parity Conditions Learning Objectives 6.1 Prices and Exchange Rates Purchasing Power Parity and the Law of One Price Relative Purchasing Power Parity Empirical Tests of Purchasing Power Parity Exchange Rate Indices: Real and Nominal Exchange Rate Pass-Through Complete versus Partial Pass-Through Price Elasticity of Demand Pass-Through and Emerging Market Currencies 6.2 Interest Rates and Exchange Rates The Fisher Effect The International Fisher Effect The Forward Rate Calculation of Forward Premiums Foreign Currency Terms Interest Rate Parity (IRP) Covered Interest Arbitrage (CIA) Rule of Thumb Uncovered Interest Arbitrage (UIA) Equilibrium between Interest Rates and Exchange Rates 6.3 Forward Rate as an Unbiased Predictor of the Future Spot Rate 6.4 Prices, Interest Rates, and Exchange Rates in Equilibrium Summary Points Questions Problems Chapter 6 Appendix An Algebraic Primer to International Parity Conditions The Law of One Price Purchasing Power Parity Forward Rates Covered Interest Arbitrage (CIA) and Interest Rate Parity (IRP) Fisher Effect International Fisher Effect 7 Foreign Currency Derivatives: Futures and Options Learning Objectives 7.1 Foreign Currency Futures Contract Specifications Using Foreign Currency Futures Short Positions Long Positions Foreign Currency Futures versus Forward Contracts 7.2 Foreign Currency Options Option Fundamentals Foreign Currency Options Markets Options on the Over-the-Counter Market Options on Organized Exchanges Digital Trading Currency Option Quotations and Prices Buyer of a Call Writer of a Call Buyer of a Put Writer of a Put 7.3 Option Pricing and Valuation 7.4 Currency Option Pricing Sensitivity Forward Rate Sensitivity Spot Rate Sensitivity (delta) Time to Maturity: Value and Deterioration (theta) Sensitivity to Volatility (lambda) Historic Volatility Forward-Looking Volatility Implied Volatility Sensitivity to Changing Interest Rate Differentials (rho and phi ) Alternative Strike Prices and Option Premiums Prudence in Practice Summary Points Questions Problems Chapter 7 Appendix Currency Option Pricing Theory The European Call Option: Numerical Example 8 Interest Rate Risk and Swaps Learning Objectives 8.1 Interest Rate Foundations Interest Rate Calculations The Reference Rate: LIBOR 8.2 The Cost of Debt Credit Ratings and Cost of Funds Credit Risk and Repricing Risk Sovereign Debt Sovereign Spreads European Sovereign Debt 8.3 Interest Rate Risk Debt Structures and Strategies An Illustration: MedStat’s Floating-Rate Loans 8.4 Interest Rate Futures and Forward Rate Agreements Interest Rate Futures Forward Rate Agreements 8.5 Interest Rate Swaps Swap Structures Illustrative Case: MedStat’s Floating-Rate Debt Plain-Vanilla Swap Strategies Debt Structure Debt Cost Cross-Currency Swaps Illustrative Case: MedStat Uses a Cross-Currency Swap Illustrative Case: MedStat Unwinds a Currency Swap Counterparty Risk Summary Points Questions Problems 9 Foreign Exchange Rate Determination and Intervention Learning Objectives 9.1 Exchange Rate Determination: The Theoretical Thread Parity Conditions Approach Balance of Payments Approach Monetary Approach and Asset Market Approach Monetary Approach Asset Market Approach The Asset Market Approach to Forecasting 9.2 Currency Market Intervention Motivations for Currency Market Intervention Intervention Methods Direct Intervention Indirect Intervention Capital Controls When Foreign Currency Intervention Fails Turkey 2014 Japan 2010 9.3 Disequilibrium: Exchange Rates in Emerging Markets The Asian Crisis of 1997 Crisis Causal Complexities The Role of Soros The Argentine Crisis of 2002 Economic Crisis Devaluation 9.4 Currency Forecasting in Practice Technical Analysis Cross-Rate Consistency in Forecasting Forecasting: What to Think? Exchange Rate Dynamics: Making Sense of Market Movements Summary Points Questions Problems Russo-Swiss Cross—2015 Part 3 Foreign Exchange Exposure 10 Transaction Exposure Learning Objectives 10.1 Types of Foreign Exchange Exposure 10.2 Why Hedge? Hedging Defined The Pros and Cons of Hedging 10.3 Transaction Exposure Purchasing and Selling Borrowing and Lending Other Causes of Transaction Exposure 10.4 Transaction Exposure Management Ganado’s Transaction Exposure Unhedged Position Forward Hedge Money Market Hedge (Balance Sheet Hedge) Forward and Money Market Hedges Compared Options Market Hedge Hedging Alternatives Compared Hedging an Account Payable Remain Unhedged Forward Market Hedge Money Market Hedge Option Hedge Strategy Choice 10.5 Transaction Exposure Management in Practice Which Goals Which Transaction Exposures What Levels of Exposure Cover Which Hedging Instruments and Structures Summary Points Questions Problems Chapter 10 Appendix A Complex Option Hedges The Synthetic Forward Second-Generation Currency Risk Management Products Zero-Premium Option Products The Range Forward or Collar The Participating Forward Ratio Spreads The Average Rate Option Chapter 10 Appendix B The Optimal Hedge Ratio and Hedge Effectiveness Hedge Ratio Hedge Symmetry Hedge Effectiveness Hedge Timing 11 Translation Exposure Learning Objectives 11.1 Overview of Translation Concepts and Definitions Reporting Currency Foreign Entity Distinct and Separable Operation Functional Currency Foreign Currency Financial Statements Remeasurement and Translation Foreign Currency Measurement (Remeasurement) Foreign Currency Translation 11.2 Translation Methods Current Rate Method Temporal Method U.S. Translation Procedures International Translation Practices 11.3 Ganado Corporation’s Translation Exposure Translation Exposure: Income Translation Exposure: Balance Sheet Current Rate Method Temporal Method 11.4 Managing Translation Exposure Subsidiary Earnings Net Equity Investment Current Rate Method Temporal Method When Is a Balance Sheet Hedge Justified? Using Cross-Currency Swaps to Hedge Translation: The Case of McDonald’s Hoover Hedges McDonald’s Business Forms The British Subsidiary and Currency Exposure Cross-Currency Swap Hedging Summary Points Questions Problems 12 Operating Exposure Learning Objectives 12.1 A Multinational’s Operating Exposure Static versus Dynamic Operating Exposure Ganado China Ganado Germany Ganado U.S Operating and Financing Cash Flows Expected versus Unexpected Changes in Cash Flow 12.2 Measuring Operating Exposure 12.3 Strategic Management of Operating Exposure Diversifying Operations Diversifying Financing 12.4 Proactive Management of Operating Exposure Matching Currency Cash Flows Risk-Sharing Agreements Back-to-Back or Parallel Loans Cross-Currency Swaps Contractual Approaches: Hedging the Unhedgeable Summary Points Questions Problems Chapter 12 Appendix Measuring Operating Exposure: Ganado Germany The Base Case: Euro Depreciation Case 1: Euro Depreciation—All Variables Remain Constant Case 2: Volume Increases—Other Variables Remain Constant Case 3: Sales Price Increases—Other Variables Remain Constant Case 4: Price, Cost, and Volume Increases Other Possibilities Measurement of Loss Part 4 Financing the Global Firm 13 Global Cost and Availability of Capital Learning Objectives 13.1 Financial Globalization and Strategy Cost of Capital Cost of Equity Cost of Debt 13.2 International Portfolio Theory and Diversification Portfolio Risk Reduction Foreign Exchange Risk International CAPM (ICAPM) Sample Calculation: Ganado’s Cost of Capital ICAPM Considerations Global Betas Equity Risk Premiums 13.3 The Role of International Portfolio Investors The Link between Cost and Availability of Capital Improving Market Liquidity Market Segmentation The Effect of Market Liquidity and Segmentation Globalization of Securities Markets 13.4 The Cost of Capital for MNEs Compared to Domestic Firms Availability of Capital Financial Structure, Systematic Risk, and the Cost of Capital for MNEs The Paradox: Is the Cost of Capital Higher for MNEs? 13.5 Illustrative Case: Novo Industri A/S (Novo) Market Segmentation Asymmetric Information Taxation Feasible Portfolios Financial, Foreign Exchange, and Political Risks The Road to Globalization Closing the Information Gap The Biotechnology Boom Directed Share Issue in the United States Stock Market Reactions Effect on Novo’s Weighted Average Cost of Capital Globalization of Securities Markets Summary Points Questions Problems Genedak-Hogan 14 Funding the Multinational Firm Learning Objectives 14.1 Designing a Strategy to Source Capital Globally Alternative Paths to Globalize the Cost and Availability of Capital 14.2 Optimal Financial Structure Optimal Financial Structure and the Multinational Availability of Capital Diversification of Cash Flows Foreign Exchange Risk and the Cost of Debt Expectations of International Portfolio Investors 14.3 Raising Equity Globally Initial Public Offering (IPO) Euroequity Issue Directed Public/Private Issue 14.4 Depositary Receipts ADR Mechanics ADR Program Structures DR Markets Today: Who, What, and Where The Who Global Registered Shares (GRSs) 14.5 Private Placement SEC Rule 144A Private Equity Funds Foreign Equity Listing and Issuance 14.6 Raising Debt Globally International Debt Instruments Unique Characteristics of Eurobond Markets Absence of Regulatory Interference Less Stringent Disclosure Favorable Tax Treatment Ratings 14.7 Financing Foreign Subsidiaries Internal and External Subsidiary Financing Host Country Norms and Debt Foreign Exchange Concerns Tax Concerns Subsidiary Financing over Time Startup Stage Growth Stage Maturing Stage Summary Points Questions Problems Petrobras of Brazil: Estimating Its Weighted Average Cost of Capital (WACC) 15 Multinational Tax Management Learning Objectives 15.1 Tax Principles and Practices Tax Morality Tax Neutrality National Tax Environments Worldwide Approach Territorial Approach Tax Deferral Tax Treaties Controlled Foreign Corporations Tax Types Direct Taxes Indirect Taxes 15.2 Multinational Tax Management Allocation of Debt and Earnings Stripping Foreign Tax Credits and Deferral Transfer Pricing Fund Positioning Effect Income Tax Effect Managerial Incentives and Evaluation Effect on Joint-Venture Partners Cross-Crediting Check-the-Box and Hybrid Entities Tax Havens and International Offshore Financial Centers Basis Erosion and Profit Shifting (BEPS) Corporate Inversion Substantial Business Presence Merger with a Larger Foreign Firm Merger with a Smaller Foreign Firm 15.3 Global Tax Competitiveness The Digital Economy Country Tax Competitiveness Governments and Tax Sources 15.4 U.S. Tax Law Change in 2017–2018 U.S. Taxation of Corporate Income Taxation of Foreign Source Income Summary Points Questions Problems Chinglish Dirk 16 International Trade Finance Learning Objectives 16.1 The Trade Relationship The Fundamental Dilemma Payment Risk Benefits of the Documentary System Protection against Risk of Noncompletion Protection against Foreign Exchange Risk Financing the Trade Noncompletion Risks 16.2 Key Documents Letter of Credit (L/C) Parties to a Letter of Credit (L/C) Irrevocable versus Revocable L/C Confirmed versus Unconfirmed L/C Advantages and Disadvantages of L/Cs Draft Negotiable Instruments Types of Drafts Bankers’ Acceptances Bill of Lading (B/L) Documentation in a Typical Trade Transaction 16.3 Government Programs to Help Finance Exports Export Credit Insurance Export-Import Bank and Export Financing 16.4 Trade Financing Alternatives Bankers’ Acceptances Trade Acceptances Factoring Securitization Bank Credit Lines Commercial Paper 16.5 Forfaiting Role of the Forfaiter A Typical Forfaiting Transaction Step 1. Agreement Step 2. Commitment Step 3. Aval or Guarantee Step 4. Delivery of Notes Step 5. Discounting Step 6. Investment Step 7. Maturity Summary Points Questions Problems Part 5 Foreign Investments and Investment Analysis 17 Foreign Direct Investment and Political Risk Learning Objectives 17.1 The Foreign Direct Investment Decision 17.2 Structural Choices for Foreign Market Entry Selecting Target Markets The Behavioral Approach to FDI MNEs in a Network Perspective Choosing Entry Structures Exporting versus Production Abroad Licensing and Management Contracts Joint Venture versus Wholly Owned Subsidiary Greenfield Investments and Foreign Acquisitions Strategic Alliances 17.3 Political Risk: Definition and Classification 17.4 Financial Impacts of Political Risk Category 1: Losses in Operating Profitability Adverse Regulatory Change Breach of Contract Local Content Requirements Category 2: Transfer and Convertibility Risk Category 3: Expropriation and Nationalization Direct versus Indirect Compensation 17.5 Political Risk Mitigation Stakeholder Engagement Use of Domestic Partners International Investment Agreements Gradual Investing Blocked Funds Management Dispute Resolution Political Risk Insurance Providers Multinational Use Summary Points Questions 18 Multinational Capital Budgeting and Cross-Border Acquisitions Learning Objectives 18.1 Complexities of Budgeting for a Foreign Project Cash Flows Management Expectations Project versus Parent Valuation 18.2 Illustrative Case: Cemex Enters Indonesia2 Overview Capital Investment Financing Revenues Costs Project Viewpoint Capital Budget Parent Viewpoint Capital Budget Sensitivity Analysis: Project Viewpoint Political Risk Foreign Exchange Risk Other Sensitivity Variables Sensitivity Analysis: Parent Viewpoint Adjusting Discount Rates Adjusting Cash Flows Shortcomings of Each Method Repercussions to the Investor MNE Practices Portfolio Risk Measurement 18.3 Real Option Analysis 18.4 Project Financing Separability of the Project from Its Investors Long-Lived and Capital-Intensive Singular Projects Cash Flow Predictability from Third-Party Commitments Finite Projects with Finite Lives 18.5 Cross-Border Mergers and Acquisitions The Cross-Border Acquisition Process Stage 1: Identification and Valuation Stage 2: Completion of the Ownership Change Stage 3: Post-Acquisition Transition Management