Exam 20: Financial Management and Accounting in the Global Firm

Equity financing comes from either of two sources: (i) loans from banks and other financial intermediaries, or (ii) the sale of corporate bonds to individuals or institutions.

Transaction exposure refers to the impact of exchange rate fluctuations on long-term profitability resulting from miscalculated expenses and revenues.

The sale of corporate bonds to individuals or institutions, to raise capital is called ________.

The global capital market has grown rapidly due to widespread ________ of financial instruments, which results in the conversion of illiquid financial instruments, such as bank loans, into tradable securities, such as bonds.

Describe four factors responsible for the fast paced growth of the global capital market.

________ are currency traders who seek to minimize their risk of exchange-rate fluctuations, often by entering into forward contracts or similar financial instruments.

Financing Corporate Expansion (Scenario) Intensity Games is an MNE based in San Francisco that manufactures a popular line of video game consoles and accessories. Intensity owns manufacturing facilities in China and Russia where the components of the game consoles are manufactured and assembled before being shipped around the world. Intensity also owns numerous subsidiaries that manufacture game cartridges for Intensity game platforms. Intensity managers have determined that the firm needs to expand its Chinese facility to accommodate the increasing demand. The firm needs to raise several million dollars to finance the expansion. The financial managers of Intensity are discussing the various financing options available to the firm. -Which of the following, if true, supports Intensity raising funds through intracorporate financing to expand its Chinese facility?

Debt financing comes from ________.

Indirect taxes are typically imposed on income from profits, capital gains, intracorporate transactions, royalties, interest, and dividends.

Firms that have to make debt service payments incur ________ costs.

Explain why emerging markets have become appealing destinations for investors. Provide examples that illustrate the risk involved with investing in emerging markets.

EZ Lawn Currency Risk (Scenario) The EZ Lawn Corporation manufactures lawn equipment such as lawn mowers, blowers, and trimmers. The lawn equipment is assembled in the U.S. at a facility in Florida, but the firm outsources inputs from a number of countries, each with varying degrees of economic stability. Given the importance of the firm's sourcing activities, EZ Lawn managers are discussing methods which might reduce the currency risk faced by EZ Lawn. -Contracting with secondary suppliers outside the U.S. for critical input components would most likely enable EZ Lawn to ________.

Arbitragers are currency traders who seek to minimize their risk of exchange-rate fluctuations, often by entering into forward contracts or similar financial instruments.

Debt financing can add value to a firm because ________.

What are four advantages to large firms lending funds to their foreign subsidiaries?

How has technology affected foreign exchange trading?

Which of the following would most likely be an effective currency risk strategy for EZ Lawn management?

Which of the following is applied when an American tourist exchanges dollars for Japanese yen at a Tokyo bank?

A firm in need of short-term financing will most likely turn to the global money market instead of the global capital market.

Financing Corporate Expansion (Scenario) Intensity Games is an MNE based in San Francisco that manufactures a popular line of video game consoles and accessories. Intensity owns manufacturing facilities in China and Russia where the components of the game consoles are manufactured and assembled before being shipped around the world. Intensity also owns numerous subsidiaries that manufacture game cartridges for Intensity game platforms. Intensity managers have determined that the firm needs to expand its Chinese facility to accommodate the increasing demand. The firm needs to raise several million dollars to finance the expansion. The financial managers of Intensity are discussing the various financing options available to the firm. -Which of the following is most likely a disadvantage of Intensity raising funds through equity financing?