foreign exchange and portfolio

Discussion 2
Direct versus Portfolio Investments. Clearly identify the differences between a direct foreign investment
and a portfolio foreign investment? Give an example of each. Which type of investment is a multinational
industrial company more likely to make and support your position?
Discussion 3
Forward Rate as an Unbiased Predictor of the Future Spot Rate. Some forecasters believe that
foreign exchange markets for the major floating by “unbiased predictor” in terms of how the forward rate
performs in estimating future spot exchange rates. Do you think that the foreign exchange market is an
unbiased indicator? Give examples to support you answer.
Discussion 4
Managing Operating Exposure.
The key to managing operating exposure at the strategic level is for management to
recognize a disequilibrium in parity conditions when it occurs and to be pre-positioned to
react most appropriately. How can this task be accomplished in a multinational
company.
Discussion 5
Argentina. In January 2002, the government of Argentina broke away from its currency board system
that had tied the peso to the U.S. dollar and devalued the peso from APs 1.0000/$ to APs 1.4000/$. This
caused some Argentine firms with dollar-denominated debt to go bankrupt. Should a U.S. or European
parent in good financial health “rescue” its Argentine subsidiary that would otherwise go bankrupt
because of the inept nature of Argentine political and economic management in the four or five years prior
to January 2002? Assume the parent has not entered into a formal agreement to guarantee the debt of its
Argentine subsidiary.
Discussion 6
Value-Added Tax. Answer the following questions:
a. What is a value-added tax (VAT)? And how many countries have adopted VAT?
b. Although the value-added tax has been proposed numerous times, the United States
has never adopted one. Why do you think the United States is opposed to the value-
added tax when it is so widely used outside the United States?
Discussion 7
Evolving into Nationalism. As a firm evolves from purely domestic into a true multinational enterprise, it
must consider 1) its competitive advantages, 2) its production location, 3) the type of control it wants to
have over any foreign operations, and 4) how much monetary capital to invest abroad. Explain how each
of these considerations is important to the success of foreign operations.
Discussion 8
Cost of Equity. A foreign subsidiary does not have an independent cost of capital. However, in order to
estimate the discount rate for a comparable host-country firm, the analyst should try to calculate a
hypothetical cost of capital. As part of this process, the analyst can estimate the subsidiary’s proxy cost of
equity by using the traditional equation: Define each variable in this equation and explain how the variable
might be different for a proxy host country form compared to the parent MNE
Requirements
 APA reference style
 Use at least 3 references for each one
 One page only for each one
 Times new roman
 Answer in detail no general
 Write professionally

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