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INB 205 Wk 8 CheckPoint - Chapter 20 Questions - 25 of 25

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Axia College Material
Appendix D
Your response indicates that you have good knowledge of what organizational
design is and why it is important for companies that do business internationally
as well as options for raising capital in an international business setting. Good
analysis.
GRADE: 25/25.
Chapter 20 Questions
Answer each of the following questions.
1. Why is an exporter that is to be paid in six months in a foreign currency worried
about fluctuating foreign exchange rates?
The exporter would worry about fluctuating foreign exchange rates if they are to be paid
in six month because they could lose money. If the currency they are to receive payment
in drops in value the exporter could face a monetary losses when they convert it back to
their own currency.
2. Are there ways in which this exporter can protect itself? If so, what are they?
Exporters can protect themselves by agreeing to an agreed exchange date with a Spot
Exchange rate, non deliverable forward contracts, forward contract, or window forward
contract. This allows the exporter to freeze the currency at a determined point. This
guarantees that even if the exchange rate fluctuates negatively the exporter will receive
payment at the exchange rate on the day the product was sold.
3. How does the credit or money market hedge work?
This happens when borrowing or lending transactions are in foreign currencies. This
locks the home currency value of a foreign currency transaction.
4. Why is acceleration or delay of payments more useful to an IC than to smaller,
separate companies?
This takes money from the weaker currencies into the stronger currencies and results in a
better rate of return.
5. How would you accomplish exposure netting with currencies to two countries that
tend to go up and down together in value?
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By increasing the hard currency which is likely to appreciate, decreasing soft currency
which is likely to depreciate, and decreasing hard currency liabilities and increasing soft
currency liabilities.
6. Why is the price adjustment device more useful to an IC than to smaller, separate
companies?
Price adjustments are mainly used to anticipate fluctuations in currency exchange rates.
Smaller companies can have trouble trying to manage price adjustments.
7. Some argue that translation gains or losses are not important so long as they have
not been realized and are only accounting entries. What is the other side of that
argument?
Translation gains and loses are important because they directly affect company assets. If
the transaction shows a lower value at a particular moment it directly affects the company
by lowering its value as well.
8. Is the parallel loan a sort of swap? How does it work?
A parallel loan works by taking one specified currency from a Parent Company and
giving it to a Foreign Subsidiary; The Foreign Subsidiaries Parent Company then gives
the same amount to the original Parent Company in exchange. This allows both
companies to not pay foreign exchange expenses.
9. How and why would a seller make a sale to a buyer that has no money the seller
can use?
Sellers always have a way to charge for what they sell. The seller can also find ways to
make an agreement using other goods or currencies.
10. Developed country partners in countertrade contracts have had problems with
quality and timely delivery of goods from the developing country partners. How
are they trying to deal with those problems?
The quality of the goods needs to be checked to ensure that the product is meeting what
the buyer is expecting. This can be done by a subsidiary or a third party checking the
product in the country the product is being exported from. The purchaser can also have a
bank guarantee that the product meets certain standards or purchase an insurance policy.
Reference
Ball, D. A., McCulloch, W. H. Jr., Frantz, P. L., Geringer, & J. M., Minor, M. S. (2006). International
business: The challenge of global competition (10
th
ed.). New York: McGraw-Hill.
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