a. Explain how the existence of imperfect markets has led to the establishment of subsidiaries in foreign markets.
b. If perfect markets existed, would wages, prices, and interest rates among countries be more similar or less similar than under conditions of imperfect markets? Why?
7. Benefits and Risks of International Business As an overall review of this chapter, identify possible reasons for growth in international business. Then list the various disadvantages that may discourage international business.
11) Exposure to Exchange Rates McCanna Corp., a U.S. firm, has a French subsidiary that produces wine and exports to various European countries. All of the countries where it sells its wine use the euro as their currency, which is the same currency used in France. Is McCanna Corp. exposed to exchange rate risk?
13) Methods Used to Conduct International Business Duve, Inc., desires to penetrate a foreign market with either a licensing agreement with a foreign firm or by acquiring a foreign firm. Explain the differences in potential risk and return between a licensing agreement with a foreign firm and the acquisition of a foreign firm.
Chapter 2 Questions 1, 5, and 12
1) Balance of Payments What are the main components of the current account? What are the main components of the capital account?
5) Exchange Rate Effect on Trade Balance Would the U.S. balance-of-trade deficit be larger or smaller if the dollar depreciates against all currencies, versus depreciating against some currencies but appreciating against others? Explain.
12) International Investments U.S.-based MNCs commonly invest in foreign securities. Assume that the dollar is presently weak and is expected to strengthen over time. How will these expectations affect the tendency of U.S. investors to invest in foreign securities? Explain how low U.S. interest rates can affect the tendency of U.S.-based MNCs to invest abroad. In general terms, what is the attraction of foreign investments to U.S. investors?
· Chapter 3: Questions 4, 11, and 22
4) Exchange Rate Effects on Borrowing Explain how the appreciation of the Japanese yen against the U.S. dollar would affect the return to a U.S. firm that borrowed Japanese yen and used the proceeds for a U.S. project.
11) Cross Exchange Rate Assume Poland’s currency (the zloty) is worth $.17 and the Japanese yen is worth $.008. What is the cross rate of the zloty with respect to yen? That is, how many yen equal a zloty?
22) International Financial Markets Walmart has established two retail outlets in the city of Shanzen, China, which has a population of 3.7 million. These outlets are massive and contain imports in addition to products purchased locally. As Walmart generates earnings beyond what it needs in Shanzen, it may remit those earnings back to the United States. Walmart is likely to build additional outlets in Shanzen or in other Chinese cities in the future. Explain how the Walmart outlets in China would use the spot market in foreign exchange. Explain how Walmart might use the international money markets when it is establishing other Walmart stores in Asia. Explain how Walmart could use the international bond market to finance the establishment of new outlets in foreign markets.