Multinational Financial Management, 10th solution manual ch_20

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1、2CHAPTER20MANAGINGTHEMULTINATIONALFINANCIALSYSTEMChapter20describesthenatureofthemultinationalfinancialsystemandwhytheabilitytoshiftprofitsandfundsinternallyispotentiallyoffargreatervaluetotheMNCthantothepurelydomesticfirm.Itpointsoutthatthevalueofthemultinationalfinancialsystem

2、arisesoutofthefirm'sabilitytouseittotakeadvantagethrougharbitrageofmarketimperfectionsandtaxdifferences.Thethreeprincipalformsofarbitrageopportunitiesdiscussedinclude:1.Taxarbitrage--Byshiftingprofitsfromunitslocatedinhightaxnationstothoseinlowertaxnationsorfromthoseinataxpayi

3、ngpositiontothosewithtaxlosses,MNCscanreducetheirtaxburden.2.FinancialmarketarbitrageBytransferringfundsamongunits,MNCsmaybeabletocircumventexchangecontrols,earnhigherriskadjustedyieldsonexcessfunds,reducetheirriskadjustedcostofborrowedfunds,andtappreviouslyunavailablecapita

4、lsources.3.RegulatorysystemarbitrageWheresubsidiaryprofitsareafunctionofgovernmentregulations(e.g.,whereagovernmentagencysetsallowablepricesonthefirm'sgoods)orunionpressure,ratherthanthemarketplace,theabilitytodisguisetrueprofitabilitybyreallocatingprofitsamongunitsmayprovidet

5、hemultinationalfirmwithanegotiatingadvantage.ThechapterthenanalyzesatlengththemostimportantconduitsusedbyMNCstotransferfundsandprofitsinternally:transferpricing,feesandroyalties,dividends,loans,leadsandlags,andparentinvestmentasdebtorequity.Italsoillustratesthecloserelationshipb

6、etweenafirm'smarketing,production,andlogisticsdecisions(i.e.,itsrealdecisions)anditsfinancialdecisions.Thegreatertheinternaltransferofgoods,technology,capital,andmaterialsworldwide,thegreaterthescopeforfinancialactivitiestoenhancethevalueoftheMNCglobally.Whenteachingthismaterial

7、,Ialwaysemphasizethepotentialconflictswithhomeandhostcountrygovernmentsinherentintakingadvantageofthevariousarbitrageopportunitiespresented.AnarticlethatillustratesthispointisM.EdgarBarrett,"CaseoftheTangledTransferPrice,"HarvardBusinessReview,MayJune1977,pp.2036.SUGGESTEDANSW

8、ERSTOCHAPTER20QUESTIONS1.a.Whatistheinternalfin