Explain capital structure choices and their potential impact on the MNC.

The firm raises capital through its retained earnings, and then, externally, through either equity, the issuing of shares, or debt (leveraging). Firms may choose to issue stocks in foreign markets, in part to tap into a broader investor pool, which can raise the stock price and reduce the cost of capital. Such local issues also may have a significant marketing advantage. Debt markets are the other source of capital for the firm, and increasingly the tendency is to tap local markets first. Offshore financial centers, where taxation is low and banking regulations are slim, are also a source of debt financing. Debt financing is thought to be less expensive that equity financing, but local practices and taxation are some of the factors that are considered in making decisions about the capital structure of the firm.

Describe the process of multilateral netting and what its contribution is to cash flow management.

Multilateral netting is a centralized approach through which subsidiaries transfer their net cash flows within the company to a cash center that disperses cash to net receivers. It leads to cost savings.

Describe the importance of leading and lagging in cash flow management.

Leading and lagging involve the timing of payments. A lead approach is to collect receivables early when the foreign currency is expected to weaken, and fund payables early when the foreign currency is expected to strengthen. A lag approach is to collect receivables late when the currency is expected to strengthen, and fund payables late when the currency is expected to weaken. It is a helpful technique when there are expectations that host governments may block fund transfers.

Categorize foreign exchange risks into transaction exposure, translation exposure, and economic exposure.

Transaction exposure occurs when the firm has transactions denominated in a foreign currency. The exposure is due to currency exchange rate fluctuations between the time the commitment is made and when it is payable.
    Translation exposure occurs when subsidiary financial statements are consolidated at the corporate level for the companywide financial reports. Since the foreign subsidiaries operate in nondollar currencies, there is a need to translate subsidiary financial reports to the parent company's currency during the corporate consolidation process.
    Economic exposure is at the operations level and results from exchange rate changes on projected cash flows. Unlike transaction exposure, which addresses the individual transaction, economic exposure is firmwide and long-term.

Describe the basic idea of a swap transaction and its various applications.

Swaps invlove matching an exposure with a forward transaction. Spot swaps are at the spot exchange rate at a stipulated time in the future, and forward market swaps are at a forward market rate. Many financial instruments may be matched in these swaps, including parallel loans, bank swaps, and currency swaps.

Explain a currency swap contract and its usefulness to the financial manager.

A currency swap is used to raise money in an environment in which the company raising the funds is not well known. The company finds a local partner, and then each company borrows in its home market at preferred rates. They then swap the loans. This is done to reduce interest rate costs.

Recognize the usefulness and dangers of using derivatives.

Derivatives are contracts whose value changes over time based on the performance of an underlying commodity or financial instrument. The term derivative covers standardized, exchange-traded futures and options contracts as well as over-the-counter swaps, options, and other customized instruments. 18 These contracts can be seen to shift risk from a party that does not want to bear it to one that does, hoping for a large reward. Used unwisely for speculation, derivatives contracts can be as dangerous as the risks against which they are supposed to protect.

Explain the role of and approaches to sales without money.

Non-monetary trade may be a way for countries that don't have hard currency to import goods. There are two main approaches to non-monetary trade, countertrade and industrial cooperation. Countertrade usually involves two basic contracts, one for the purchase of developed country products or services and one for the purchase of developing country products. Industrial cooperation involves long-term relationships, including local production, with part or all of the output sold in the host country.

Identify the major challenges faced in international accounting.

International accounting has to address transactions in foreign currencies, In addition, different needs by varying constituencies in different countries have led to large variations in financial statements across the globe. These cultural differences also have to be bridged in international accounting.

Describe the international accounting standards' convergence process and its importance.

The body that establishes accounting standards in the U.S. is the private organization, the Financial Accounting Standards Board (FASB). The more international body is the International Accounting Standards Board (IASB). The FASB's standards are the U.S. Generally Accepted Accounting Principles (U.S. GAAP), while the IASB's standards are the International Financial Reporting Standards (IFRS). Significant progress has been made towards convergence by a negotiating group, with a target date of 2009. Convergence is important for further integration of global markets.