Business studies is one of the most crucial subjects a student pursuing a career in the commercial sector can do. Especially the Class 12 Business Studies, which is a much more advanced version of the 11th class Business Studies. The BST NCERT solutions Class 12 is largely based on topics such as business environment and the types of operations, and the various planning phases a business needs to undergo just to carry on their activities. A lot of crucial topics such as management and markets will be explored in these solutions.
Let us take a brief look into the chapters that form the syllabus for this subject. This chapter provides basic insight on the definition of management and the concepts of management, which include the traditional and modern concepts. The second chapter begins by talking about what exactly the principles of management follow. It also includes plenty of examples to illustrate these principles. The third chapter is a rather interesting one, which talks about what a business environment looks like and how exactly it operates.
It also describes the characteristics of a business environment. In this chapter, we learn about planning, the definition by Fayol and the importance and features of planning. Another key chapter that talks about the meaning of organising, the process and importance, the structure of an organisation and the various structures that exist. This chapter covers the meaning and the importance of staffing. It talks in depth about human resources.
Students might also find the process of staffing and recruitment interesting. The chapter on directing talks about the meaning and characteristics of direction. It covers the importance and the various principles of directing as well. This chapter is a bit more interesting than the others as it talks about the connection between controlling and planning.
It also touches the topic of deviation. What to Upload to SlideShare. A few thoughts on work life-balance. Is vc still a thing final. The GaryVee Content Model. Mammalian Brain Chemistry Explains Everything. Related Books Free with a 30 day trial from Scribd. Related Audiobooks Free with a 30 day trial from Scribd. Multinational Finance Solutions 1.
Butler 1 2. Kirt C. Butler, Multinational Finance, 2nd edition Second Edition 2 3. Multinational financial management is conducted in an environment that is influenced by more than one cultural, social, political, or economic environment. Describe several types of country risk one might face when conducting business in another country.
Country risks refer to the political and financial risks of conducting business in a particular foreign country. Country risks include foreign exchange risk, political risk, and cultural risk. Foreign exchange or currency risk is the risk of unexpected changes in foreign currency exchange rates. Political risk is the risk that a sovereign host government will unexpectedly change the rules of the game under which businesses operate. Because they define the rules of the game, national business and popular cultures impact each of the functional disciplines of business from research and development right through to marketing, production, and distribution.
How might this goal be different in different countries? How might the goal of financial management be different for the multinational corporation than for the domestic corporation? The goal of financial management is to make decisions that maximize the value of the enterprise to some group of stakeholders. The society in which business is conducted determines who these stakeholders are. The relative importance of stakeholders varies by country.
Equity shareholders are important in every free-market country. Commercial banks are more important in some countries e. In socialist countries, the welfare of employees and the general population assume a more prominent role.
How does each have a stake in the MNC? Stakeholders narrowly defined include shareholders, debtholders, and management. More broadly defined, stakeholders also would include employees, suppliers, customers, host governments, and residents of host countries.
Do these trade pacts affect all residents of your country in the same way? On balance, are these trade pacts good or bad for residents of your country? Figure 2. Trade pacts are designed to promote trade, but industries that have been protected by local governments can find that they are uncompetitive when forced to compete in global markets.
What are the reasons for this trend? Most countries export more of their gross national product today than in years past. Reasons include: a the global trend toward free market economies, b the rapid industrialization of some developing countries, c the breakup of the former Soviet Union and the entry of China into international trade, d the rise of regional trade pacts and the General Agreement on Tariffs and Trade, and e advances in communication and in transportation.
The demise of capital flow barriers in international financial markets has had several consequences including: a an increase in cross-border financing as multinational corporations raise capital in whichever market and in whatever currency offers the most attractive rates, b an increasing number of cross-border partnerships including many international mergers, acquisitions, and joint ventures, and c increasingly interdependent national financial markets.
Developed economies have a well-developed manufacturing base. Less developed countries LDCs lack this industrial base. Countries that have seen recent growth in their industrial base are called newly industrializing countries NICs. Solutions to End-of-Chapter Questions and Problems 2. How would the IMF make this classification? In what ways are these the same? How are they different? Economists have traditionally classified exchange rate systems as either fixed rate or floating rate systems.
The IMF has adapted this system to the plethora of systems in practice today. How long did the agreement last? What forced its collapse? The Bretton Woods fixed exchange rate system lasted until , when high U. In each instance, the government tried to maintained the value of the local currency at artificially high levels.
This depleted foreign currency reserves. Local businesses and governments were also borrowing in non-local currencies primarily the dollar , which heavily exposed them to a drop in the value of the local currency.
Moral hazard occurs when the existence of a contract changes the behaviors of parties to the contract. When the IMF assists countries in defending their currencies, it changes the expectations and hence the behaviors of lenders, borrowers, and governments. For example, lenders might underestimate the risks of lending to struggling economies if there is an expectation that the IMF will intervene during difficult times.
Problem Solutions 2. Places to start include the Russian ruble crisis of and continuing currency troubles in South America. Why is it important? Foreign exchange quotes have a currency in both the numerator and the denominator. Currency markets transfer purchasing power from one currency to another, either today in the spot market or at a future date in the forward market.
When used with Eurocurrency markets, foreign exchange markets allow investors to move value both across currencies and over time. Foreign exchange markets also facilitate hedging and speculation. Allocational efficiency refers to how efficiently a market channels capital toward its most productive uses. Operational efficiency refers to how large an influence transactions costs and other market frictions have on the operation of a market.
Informational efficiency refers to whether or not prices reflect value. A forward discount? Why are forward prices for foreign currency seldom equal to current spot prices? A currency is trading at a forward premium when the nominal value of that currency in the forward market is higher than in the spot market.
A currency is trading at a forward discount when the nominal value of that currency in the forward market is lower than in the spot market. Forward exchange rates will be different than spot exchange rates whenever investors expect currency values to change in nominal terms. Problem Solutions 3. The bid rate is less than the offer rate, so Citicorp is quoting the currency in the denominator. Citicorp is buying dollars at the FF5. Citicorp is buying and selling French francs at these quotes.
Solutions to End-of-Chapter Questions and Problems d. What you lose, Citicorp gains. Percent per annum on the Canadian dollar from the U.
Butler, Multinational Finance, 2nd edition 3. So, FM4. Hence, a bid price for pesetas is an ask price for dollars. This is Solutions to End-of-Chapter Questions and Problems b. The contractual payment is a positive cash flow in Belgian francs, so Dow is positively exposed to the value of the Belgian franc. The negative exposure on the forward contract offsets the positive exposure on the underlying position. The net result is no exposure to the Belgian franc exchange rate.
What does it say about asset prices? The law of one price states that identical assets must have the same price wherever they are bought or sold.
The law of one price is enforced by arbitrage activity between identical assets. In a perfect market without transaction costs, the law of one price must hold for there to be no arbitrage opportunities. Riskless arbitrage is a profitable position obtained with no net investment and no risk.
Riskless arbitrage will drive the prices of identical assets into equilibrium and enforce the law of one price. In practice, forward exchange rates are used to predict future spot rates. Triangular arbitrage would yield a profit of 3. The percentage bid-ask spread depends on which currency is in the denominator. So Ps0. In this problem, we know the spot and forward rates and U.
Butler, Multinational Finance, 2nd edition b. Annualized, this is equivalent to 0. Alternatively, the annual percentage rate is 1. Your obligation on this contract will be FM40,, 1. Solutions to End-of-Chapter Questions and Problems 4. The ratio of interest rates is too high and must fall, so borrow at the relatively low dollar rate and invest at the relatively high austral rate. The forward premium is too low and must rise, so buy australs and sell dollars at the relatively low dollar forward rate and sell dollars and buy australs at the relatively high dollar spot rate.
You have eliminated your exposure to the value of the pound. A money market hedge borrows in one currency, invests in another, and nets the transactions in the spot market. The result is the equivalent of a forward contract. Forward prices are not in equilibrium with the interest rate differential.
In this situation, it is cheaper to hedge through the money markets than through the forward market. These markets are not in equilibrium. Notice that the order of the rates of return does not matter. Either way, your ending value is the same as your beginning value.
These methods are equivalent. Risk exists whenever actual outcomes can deviate from expected outcomes. Currency risk is the risk that currency values will change unexpectedly. Exposure to currency risk refers to change in the value of an asset such as an individual investment portfolio or the stock price of a multinational corporation with unexpected changes in currency values.
What are nonmonetary assets and liabilities? Monetary assets and liabilities have contractual payoffs. Nonmonetary assets e. Monetary contractual assets and liabilities can be exposed to currency risk. Butler, Multinational Finance, 2nd edition 5. Accounting or translation exposure is the exposure of financial statements to currency risk. Accounting exposure is important to shareholders if it is related to economic exposure that is, related to expected future cash flows.
It is also important if managers change their actions and thereby firm cash flow in response to accounting exposure. Solutions to End-of-Chapter Questions and Problems 5. An importer? A nominal appreciation in the domestic currency is likely to have little effect on domestic importers and exporters.
A real appreciation of the domestic currency can hurt domestic exporters by raising the price of domestic goods relative to foreign goods. Domestic importers will see their purchasing power increase relative to foreign competitors, and so are likely to be helped by a real appreciation of the domestic currency.
In an informationally efficient market, assets are correctly priced. It is not possible to consistently earn abnormal returns beyond that obtainable by chance on assets of similar risk. The efficient market hypothesis says that spot and forward exchange rates should be correctly priced, so that it is not possible to consistently make abnormal returns by speculating in foreign exchange.
Real exchange rates show large and persistent deviations from purchasing power parity. These deviations can last for several years. A real appreciation of the domestic currency increases the wealth and purchasing power of domestic residents relative to foreign residents.
It can also hurt the economy by raising the price of domestic goods relative to foreign goods. For daily measurement intervals, both nominal and real exchange rate changes are random with a nearly equal probability of rising or falling. As the forecast horizon is lengthened, the correlation between interest and inflation differentials and nominal spot rate changes rises. Eventually, the international parity conditions exert themselves and the forward rate begins to dominate the current spot rate as a predictor of future nominal exchange rates.
Finally, exchange rate volatility is not constant. Instead, volatility comes in waves. Although real exchange rates tend to revert to their long run average, in the short run there can be substantial deviations from purchasing power parity and from the long run average. Market-based forecasts are obtained from forward exchange rates or from interest rate parity when forward prices are unavailable. These forward predictions can be slightly improved by adjusting them for persistent deviations from forward parity or from interest rate parity.
Forecasts can also be based on econometric models. Model-based forecasts 17 Butler, Multinational Finance, 2nd edition can be generated from technical analysis analyzing patterns in exchange rates or from fundamental analysis from a larger set of economic relationships. Problem Solutions 5. Alternatively, from equation 5. The deutsche mark depreciated by 2.
Because the DM fell by 2. Note that price elasticity is unlikely to be constant across such a wide range of price changes. Solutions to End-of-Chapter Questions and Problems c. Without some sort of product or factor market imperfection, the multinational corporation cannot enjoy an advantage over local firms. For the MNC to add value to the marketplace, it must bring something that local firms cannot. These competitive advantages are protected by market imperfections.
What does the eclectic paradigm attempt to do? The eclectic paradigm attempts to categorize the types of advantages enjoyed by the multinational corporation that give it a competitive advantage over local firms. The major categories are ownership-specific advantages, location-specific advantages, and market internalization advantages. Ownership-specific advantages are firm-specific property rights or intangible assets including patents, trademarks, organizational and marketing expertise, production technology and management, and the general organizational abilities of employees.
Market internalization advantages allow the multinational corporation to internalize or exploit the failure of an arms-length market to efficiently accomplish a task. That is, contracting to accomplish a task is more effective or less expensive when conducted within the firm than through the markets.
The MNC attempts to extend the lucrative mature stage by enhancing revenues through access to new product markets and reducing operating costs through access to new factor markets. Which of these modes requires the most resource commitment on the part of the MNC? Which has the greatest risks?
Which offers the greatest growth potential? Export entry, contract-based entry, and investment entry. Investment entry requires the most resource commitment and exporting the least. The other side of the coin is that expected returns are often higher with investment-based entry than with exporting so long as the project is positive-NPV and the MNC can pull it off.
The advantages and disadvantages of contract-based entry depend on the particular contract. The resource commitments of FDI and foreign acquisition are generally higher than joint ventures.
The cost of a new investment in an unfamiliar business culture can be high, however. Acquisitions of stock or of assets may be difficult or impossible in countries with investment restrictions or ownership structures such as the German banking system or the Japanese keiretsu industrial structure that impede foreign acquisitions. Acquisition premiums can also be prohibitive. Joint ventures can allow the MNC to gain quick access to foreign markets and to new production technologies.
Strategies to preserve and enhance revenues include preservation of market share, follow the leader, follow the customer, and lead the customer. Strategies to reduce operating costs include seeking low-cost raw materials and labor, economies of scale, economies of vertical integration, reduction of operating inefficiencies process efficiency seekers , knowledge seekers, and political safety seekers. Financial considerations include the possibility of obtaining financial economies of scale, access to new capital markets, new sources of low-cost financing, indirect diversification benefits, financial strength and lower risk through international asset diversification, and reduced taxes through multinational operations.
The most important of these protections lies in finding the right partner. Other ways that the MNC can protect itself include: i limit the scope of the technology 20 Solutions to End-of-Chapter Questions and Problems transfer to include only non-essential parts of the production process, ii limit the transferability of the technology by contract, iii limit dependence on any single partner, iv use only assets near the end of their product life cycle, v use only assets with limited growth options, vi trade one technology for another, vii remove the threat by acquiring the stock or assets of the foreign partner.
Problem Solutions 6. In the s, Motorola established sales agencies in Japan and Hong Kong as its initial entry mode. In the early s, Motorola decided that it needed direct investment in the region in order to diversify its design and manufacturing capabilities. Development costs are high in the semiconductor industry and economies of scale on a successful product can be substantial.
For this reason, Motorola and other semiconductor manufacturers have favored the international joint venture as a way to enter new markets and reduce the costs and risks of product innovation.
Joint ventures help Motorola to keep research and development costs down while keeping an eye on their Japanese competitors. These low-orbit satellites will provide hand-held mobile telephone service around the globe.
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