international finance

At the end of time period tt, the cash flow expected from the local business is expected to be $300,000 while the cash flow expected from the subsidiary in Mexico is expected to be 1,200,000 pesos, which is equivalent to $84,000 at the exchange rate of $0.07 per peso. If the expected cash flow from the UK subsidiary is 1,000,000 euros, and the exchange rate is forecasted to be $1.00 per euro, then the total expected cash flows for California Co., in dollars, are

$1,384,000 ($300,000+(1,200,000 pesos×$0.07 per peso)+(1,000,000 euros ×$1.00 per euro))

This means that Triloo will now have an estimated _______ in cash flows from French subsidiaries, which represents a decrease of _______ from the company's original forecast.

$14,800,000 (12,000,000 x $1.20 per euro)

Suppose that Triloo Inc. expects cash flows from its French subsidiaries of 12,000,000 euros at the end of the current time period. Management at Triloo forecasts the exchange rate to be $1.40 per euro at the end of this time period. This means that Triloo will have an estimated _______ in cash flows from French subsidiaries at the end of the current time period.

$16,800,000 (12,000,000 euros x $1.40 per euro)

Agency problems arise when there is an alignment of interest between the shareholders and the actions of managers of an multinational corporation (MNC).

False

Under a centralized management style, the MNC parent managers usually make more informed local business decisions than the managers of their foreign subsidiaries.

False

Consider a U.S.-based MNC parent owns subsidiaries in the France, Mexico, and Australia. Suppose that recent investment decisions by the MNC parent in its local businesses has caused the cost of capital in Australia to increase. This increase in the forecasted cost of capital will ____________ the value (VV) of the MNC, all else equal.

decrease

Suppose that the Mexican government increases corporate taxes in Mexico, which includes Mexican Triloo subsidiaries. This increase in corporate taxes in Mexico will most likely ________ the expected cash flows denoted in pesos, leading to a _________ in the value of Triloo Inc. This example is best classified as a case of exposure to ________ .

decrease; decrease; international political conditions

Firms use a variety of methods to conduct business internationally. Consider the case of an MNC conducting international business via the use of investment in foreign subsidiaries. When this method of conducting international business is used, cash inflows come from __________ while cash outflows flow to ___________.

foreign subsidiaries; foreign subsidiaries

Suppose that Dakota Co., a U.S.-based technology MNC, has recently decided to conduct much of their software development in India. Dakota Co. management has cited strict domestic immigration laws and lower labor costs abroad as the reason for hiring software developers in India as opposed to the United States. This reasoning for expanding their business internationally is best explained by the ______ theory

imperfect markets theory

The theory that costs for factors of production vary across countries, due to the immobility of these resources.

imperfect markets theory

Suppose that the firm's cost of capital decreases. According to the previous formula, this decrease in the cost of capital will cause the value of the firm to ____

increase

Suppose that an MNC attempts to alleviate agency problems by more closely monitoring managers of their foreign subsidiaries. This is an example of ___________ control of agency problems.

parent

The theory that costs for factors of production vary across countries, due to the immobility of these resources.

product cycle theory

The theory that countries are better off by specializing in the production of a particular good, while trading for other necessary goods.

theory of comparative advantage