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
Which of the following is an example of managing economic exposure by flexible sourcing policy?
An American company sells its products in Brazil and Portugal. Reduced sales in Brazil due to the dollar appreciation against the “real” can be compensated by increased sales in Portugal due to the dollar depreciation against the euro.
If yen is strong, it is preferable for a Japanese company to open a manufacturing subsidiary in the U.S. to produce and sell its products there.
An American IT company hires software developers in Ukraine because of the weak position of grivna against dollar.
A Canadian company spends a lot of money for research & development activities to improve its reputation and gain more customers.
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
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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.
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