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International Financial Management Final Exam

1570 words - 7 pages

Section 1

a. A Letter of Credit is issued by the bank to guarantee a buyer’s payment. This is used commercially (trade related), standby L/C (bank promised to pay if purchaser does not) and transferable (receivable to a third party). The documentation typically needed is some sort of agreement about collateral, the amount and time of which this payment will be made.
b. BEPS is a tax avoidance strategy where profits are moved from countries with high taxation to tax-havens, thus saving the company money. One example of an aggressive tax planning structure would to have a subsidiary in Barbados, a low taxation business environment, therefore avoiding the taxation of the US or high taxed country. I personally think that as long as there are no specific laws against such actions, it should be accepted for businesses to find legal loopholes and gain as much profit as they can.
c. One specifically strong theme from the economic crashes that we discussed was overinvesting and new technology. One example of people overinvesting, then losing all of their money in the economic crashes is during the 20s. Trading was considered an American past time and even those who were unsure of what they were really doing overinvested their assets without full understanding that at some point the market had to drop. A lot of people, organizations and banks lost everything. Going off the other theme of new technology, from the Tulip Bulb crash to the DOTCOM crash, almost all of the crashes had some attribute of exciting new technology that many were overinvesting in. For example, during the DOTCOM boom, many investors were very excited about all of the new advancements that could come from them investing but were unsure of what they really entailed. With so much uncertainty, its almost given that there is going to be a market crash.

Our current situation involved a lot of sovereign debt which raises red flags for investors. The biggest influence on the corporate bond market is the official interest rate which is currently very cheap. It seems almost too good to be true, which means a crash could be in the future of the US Market.

Section 2
a. Country Risk Analysis

Location
Political Risks
Mitigation
Currency Risk
Mitigation
Technology
Mitigation

African
Rule of law, expropriation, war/civil disturbance, and compliance with contracts. Many of these risks are found in developing markets. There is a high degree of variability depending on countries.
Careful choice of partners, good diligence, structure and contingency planning, strong investment agreement and clear government commitments and political risk insurance
There are many volatile local currencies that my not provide a long term certainty for investors.
Use long-term FX hedging techniques
No prior use for this technology, and no supporting infrastructure, could pose a risk.
Assess individual countries and their adequacy of infrastructure.

Asian
GDP growth in...

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