International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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ABC Inc. produces home appliances and sells them in the U.S. It outsources the production of the appliances to a Vietnamese manufacturer, and the imported appliances are priced in dollars. Its major competitor for appliances is located in China. Based on this information, ABC Inc. is subject to ____ exposure.
A. economic
B. translation
C. economic and transaction
D. transaction
Babylon Co. is a Japanese firm. It has a subsidiary in China that produces
computer chips and sells them to European countries. The chips are
invoiced in Japanese Yen. The subsidiary pays wages, rent, and other
operating costs in China's currency (Yuan). Every month, the subsidiary
remits a large amount of earnings to the Japanese parent. This is the only
international business that Babylon Co. has. The subsidiary wants to
borrow funds to expand its facilities, and can borrow Japanese Yen at 9
percent annually or borrow Chinese Yuan at 9 percent annually. Which
currency should the parent tell the subsidiary to borrow, if the parent's
main goal is to minimize exchange rate risk? Explain.
Sola sa is a British company specialized in water supplies. It has a big activity, and wishes to reduce its risks. It operates in a challenging environment, and subject to fluctuations in prices on financial markets. It imports some raw materials from China, and sells to France and other European countries. Its Financial manager gives you the followings :
Loans borrowed : GBP 100,000 at 5%
Loans to employees : GBP 75,000 at 3%
Money at bank: GBP 450,000 at 2%
Calculate the net interest margin for Sola?
What are the major risks facing the company?
Could you identify the related examples?
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