Financial test review: Multinational Finance

Financial test review: Multinational finance
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FIRE 316 Test Review Questions - Midterm 1
1- Although Wal-Mart originally entered global markets to source low cost merchandise for sale in the US, other features of global markets are more important to Wal-Mart than is access to cheaper products. Do you agree or disagree with this statement? Explain your opinion.
Having already, been established in North America, Wal-Mart has teemed up with other retail outlets in host countries to expand its business operations. Even though, the low cost model is still important to the company, acquiring other stores in the areas of operations improves the company’s market penetration rate.
2- Apple could not exist in its current state without its extensive involvement in international commerce and would probably face steadily declining stock price as well. Recent in a manner which shows some familiarity with Apple and the benefits of international business operations.
North America is a mature marker, and international business has been vital to the success of Apple, Inc. In Asia, there are many opportunities especially in the Smartphone market. The growing middle class in the emerging market are also more likely to purchase Apple’s premium products as their income levels rises. China is now an important market for Apple, given its population and rising income levels. International business operations improve the company’s brand awareness and image, improving sales in new areas of operations.
3- Briefly explain how corporate legal structure and tax return filing strategy can be used by a US multinational company to postpose US tax liability on the income of a foreign subsidiary.
When multinationals (MNCs) report their earnings of subsidiaries separately rather than consolidating them, they may fail to report deferred income. Hence, the tax liability for the subsidiaries would be delayed. Such foreign subsidiaries would have to be incorporated in a different jurisdiction for this arrangement to be utilized.
4- Briefly explain the factors which determine currency exchange rates. What kinds of factors cause exchange rates to vary over time? How are the international parity conditions involved in exchange rate determination?
Interest rates, inflation, central bank actions, economic outlook, speculation, economic growth and government intervention affect the exchange rate. Over time, inflation, interest rates, market forces and the general economic condition affect the exchange rate. The international parity conditions holds that the differences in the purchasing power affect the extent to which people demand one currency over the other (Taylor, 2013).
5- Company ABC commits to Purchase $5 million of a product from a Japanese supplier to be delivered within 180 days from today with payment to be made 270 days from today in yen. What are the risks faced by ABC? What are the events in the currency markets which would erode the potential profit in selling these products in the US? How can ABC protect itself from the adverse consequences of currency market fluctuations?
There is a currency risk exposure from dealing in the yen, given that the yen may get stronger, ...