Exercise 15.1
The following are nine global business terms used in this chapter: Hedging, Foreign exchange risk, International Accounting, Foreign Corrupt, Planned economy, Standards Board, Practices Act, International licensing, Harmonization, Globalization, and exporting. Indicate the global term described in each of the following statements.
a. The amount it costs to purchase one unit of currency with another currency. None. This describes exchange rate.
Delegate your assignment to our experts and they will do the rest.
b. Selling goods or service to a foreign customer. Exporting.
c. A cross-border contractual agreement allowing one company to use the trademarks, patents, or technology of another company. International licensing.
d. Distinguishes between illegal influence peddling and legal facilitating payments. Foreign Corrupt Practices Act.
e. The practice of minimizing or eliminating risk of loss associated with foreign currency fluctuations. Hedging.
f. Markets dictate the allocation of resources and output among segments of the economy . None.
g. The group charged with responsibility of creating and encouraging the use of international financial reporting standards. International Accounting Standards Board.
Exercise 15.6
The following table summarizes the facts of five independent cases (Labeled a through e) of U.S. companies engaging in credit transactions with foreign corporations while the foreign exchange rate is fluctuating. The information on each blank space was filled considering the given information as follows.
|
Column |
||||
| Case | Type of credit transaction 1 | Currency used in contract 2 | Exchange rate direction 3 | Effect on income 4 |
| a | Sales | Foreign currency | Falling | Loss |
| b | Purchases | U.S. dollars | Rising | No effect |
| c | Purchases | Foreign currency | Rising | Loss |
| d | Sales | U.S. dollars | Falling | No effect |
| e | Purchases | Foreign currency | Falling | Gain |
Problem 15.7A
Company A, a U.S. company, has a subsidiary located in Country Z, where various forms of bribery are accepted and expected. To oversee the operations of the subsidiary, Company A sent one of its top U.S. managers to Country Z. Manager M engaged in some activities during recent months of operation.
Under the Foreign Corrupt Practices Act, as amended, which of the activities do you think would be considered illegal?
Based on the amended Foreign Corrupt Practices Act, activity C will be the only one that is considered illegal as it is intended to help the firm win a business contract it could not have otherwise obtained. Activities a, b, and d would not be considered illegal as they involve payments to speed up the provision of government services and result in higher and better level of service.
From an operations standpoint, which of the above activities would be considered bad management practice?
All activities from a to d would be considered bad management practices. A bad management practice encourages an environment where one expects extra payments in order to complete a job that should have otherwise been paid for by the government.
Are there any other solutions other than briber?
Another solution that does not involve briber will involve Company A working with government officials in order to prevent government workers from accepting payments. Company A should also encourage the government to pay workers an adequate living wage so as to ensure that they can do their job effectively and maintain a proper standard of living.
Exercise 15.2
With a group of two or three students, choose a publicly trade global company that you think you might want to invest in some time in the future. Use the internet or annual report data to answer the following questions.
IBM (I nternational Business Machines Corporation)
a. In which geographical regions does the company operate?
The company operates in different parts of the world such as North America, Europe, South America, Asia and Australia.
b. What is the proportion of total sales represented by foreign sales? How has this changed over the past five to ten years?
55.15% of IBM’s total sales are represented by foreign sales. There has been a negative change over the past ten years of 5.6% largely due to rapid development of technology in the United States and market capitalization in the country.
c. What efforts has the company recently undertaken to increase or decrease globalization (e.g., joint ventures, licensing agreements, etc.)?
The company has increased its globalization endeavors through various acquisitions. The company made over 30 acquisitions in the past 5 years. The company made acquisitions of companies in Germany and Australia in 2017. Each acquisition complements with the company’s portfolio and increases its products and services offering.
d. What are the company's hedging practices and policies?
IBM operates in multiple functional currencies and lends or borrows actively in the global markets. The company’s global operations has it exposed to foreign currency fluctuations and interest rate changes. The company limits such risks through the use of risk management procedures and policies like that of derivatives. For interest rate changes, derivatives are predominantly used to align rate movements associated with the company’s financial assets and lease since interest rates are aligned with its financial debts.
e. Have any overseas activities been unsuccessful, discontinued, or resulted in asset losses? If so, what happened?
One of the recent acquisitions made by IBM was on June 1, 2016 where it acquired EZSource, a hybrid cloud based system. The acquisition has since been successful as 80% of companies using cloud strategy adopted the technology used by the firm to record digital information. The acquisition has seen a growth in revenue made by the company.
f. Overall, how aggressively do you feel this company is pursuing globalization?
While IBM has made several acquisitions in the recent past, it has not been aggressive enough in pursuing globalization. Most of the acquisitions made in the recent years were done in order to acquire the trademarks, patents, and intellectual property. This ensured that the company achieved its research and development products and technological objectives.
