International Business: Investment, Production, and Taxation, Quizzes of International Finance and Trade

Download International Business: Investment, Production, and Taxation and more Quizzes International Finance and Trade in PDF only on Docsity! TERM 1 Why do firms invest overseas? DEFINITION 1 1. Trade Barriers 2. Labor market imperfections 3. Intangible Assets (e.g., FDI over licensing coke formula) 4. Vertical integration (stabilize price or parts of VC) 5. Product life cycle (FDI occuring when cost r critical @ maturity) 6. Shareholder diversification (not significant) TERM 2 Factors of production DEFINITION 2 Land, labor, and entrepreneurial ability TERM 3 Impact of restrictions on labor? DEFINITION 3 If restrictions (immigration or social prefs) exist, labor services can be underpriced relative to productivity TERM 4 Average wealth gains from M & A DEFINITION 4 Canada and Japan experience positive gains for A & TUK & all as a whole target experiences negative gains TERM 5 Why don't most acquisitions work? DEFINITION 5 1. Excessive premium to acquire stock2. Unrealized synergies TERM 6 Transfer risk DEFINITION 6 Uncertainty regarding cross-border capital flows TERM 7 Operational risk DEFINITION 7 Uncertainty regarding host country's policies on firm's operations TERM 8 Control risk DEFINITION 8 Uncertainty regarding expropriation TERM 9 Political risk hedging strats DEFINITION 9 1. Geographic diversification2. Minimize exposure (e.g., JVs, FDI consortiums, finance with local borrowing)3. Insurance - Overseas Private Investment Corp. (OPIC) TERM 10 OPIC insures against? DEFINITION 10 1. Non-convertibility of foreign currencies2. Expropriation of US owned assets3. Destruction of US physical assets due to violence4. Loss of business income due to violence TERM 21 CF equation for domestic cap. bud. DEFINITION 21 CF = (R - OC - D - I)(1-T) + D + I(1-T)Ignore interest expense? TERM 22 When use APV? DEFINITION 22 Special circumstances:1. Below mkt rate loan2. Tax holiday3. Inability to remit profits TERM 23 Usefuleness of APV? DEFINITION 23 The APV model is useful for a domestic firm analyzing a domestic capital expenditure or for a foreign subsidiary of a MNC analyzing a proposed capital expenditure from the subsidiarys viewpoint.The APV model is NOT useful for a MNC in analyzing a foreign capital expenditure from the parent firms perspective. TERM 24 Cap. bud. strat for intl dec. mkrs DEFINITION 24 1. Estimate FCF in FOREIGN CURRENCY2. Convert to home currency @ predicted xr3. Calculate NPV using HOME CURRENCY WACC TERM 25 Sensitivity analysis DEFINITION 25 Different estimates are used for expected inflation rates, cost and price estimates, etc. to give a more complete picture of the planned capital investment. TERM 26 Types of real options? DEFINITION 26 1. Timing option2. Growth option3. Suspension option4. Abandonment option TERM 27 Objs of taxation? DEFINITION 27 1. Tax neutrality 2. Tax equity TERM 28 Capital Export Neutrality DEFINITION 28 Criteria for tax neutrality; the tax system does not incentivise citizens to move their money (i.e., K) abroad TERM 29 National Neutrality DEFINITION 29 Taxable income is taxed in the same manner by the the taxpayer's national authorities regardless of where in the world it is earned TERM 30 Capital import neutrality DEFINITION 30 The tax burden on a MNC sub. should be the same regardless of where in the world it is incorporated *This is not the case in the U.S. worldwide tax system TERM 31 Tax equity DEFINITION 31 the principle that all similarly situated taxpayers should participate in the cost of operating the government according to the same rules; regardless of the country in which an affiliate of a MNC earns taxable income, the same tax rate and tax due date should apply TERM 32 Passive income DEFINITION 32 Passive income is an income received on a regular basis, with little effort required to maintain it; includes: 1. Dividends 2. Interest income 3. Income from royalties, patents, or copyrights TERM 33 Types of taxes DEFINITION 33 1. Income (direct, active) 2. Withholding (indirect, passive) 3. VAT (indirect, VA) 4. Other (e.g., Wealth, Poll) TERM 34 Worldwide taxation DEFINITION 34 National residents of a country are taxed on their worldwide income no matter where (or in what country) the income was earned E.g., US tax system TERM 35 Territorial Method DEFINITION 35 A country taxes all income earned within its territorial bounds, whether the earner (taxpayer) is domestic or foreign Common in some European countries