Strayer Fin 535 International Finance Week 2 Homework Chapter 2 12. International Investments U.S.-based MNCs commonly invest in foreign securities. a. Assume that the dollar is presently weak and is expected to strengthen over time. How will these expectations affect the tendency of U.S. investors to invest in foreign securities? b. Explain how low U.S. interest rates can affect the tendency of U. S.-based MNCs to invest abroad. c. In general terms, what is the attraction of foreign investments to U.S. investors? 14. Impact of Government Policies on Trade Governments of many countries enact policies that can have a major impact on international trade flows. a. Explain how governments might give their local firms a competitive advantage in the international trade arena. b. Why might different tax laws on corporate income across countries allow firms from some countries to have an competitive advantage in the international trade arena? c. If a country imposes lower corporate income tax rates, does that provide an unfair advantage? 15. China-U.S. Balance of Trade There is an ongoing debate between the United States and China regarding whether the Chinese yuanâ€™s value should be revalued upward. The cost of labor in China is substantially lower than that in the United States. a. Would the U.S. balance-of-trade deficit in China be eliminated if the yuan was revalued upward by 20 percent? Or by 40 percent? Or by 80 percent? b. If the yuan was revalued to the extent that it substantially reduced the U.S. demand for Chinese products, would this shift the U.S. demand toward the United States or toward other countries where wage rates are relatively low? In other words, would the correction of the U.S. balance-of-trade deficit have a major impact on U.S. productivity and jobs? Chapter 3 21. Effects of September 11 Why do you think the terrorist attack on the United States was expected to cause a decline in U.S. interest rates? Given the expectations for a decline in U.S. interest rates and stock prices, how were capital flows between the United States and other countries likely affected? 22. International Financial Markets Walmart has established two retail outlets in the city of Shanzen, China, which has a population of 3.7 million. These outlets are massive and contain imports in addition to products purchased locally. As Walmart generates earnings beyond what it needs in Shanzen, it may remit those earnings back to the United States. Walmart is likely to build additional outlets in Shanzen or in other Chinese cities in the future. a. Explain how the Walmart outlets in China would use the spot market in foreign exchange. b. Explain how Walmart might use the international money markets when it is establishing other Walmart stores in Asia. c. Explain how Walmart could use the international bond market to finance the establishment of new outlets in foreign markets. 23. Interest Rates Why do interest rates vary among countries? Why are interest rates normally similar for those European countries that use the euro as their currency? Offer a reason why the government interest rate of one country could be slightly higher than the government interest rate of another country, even though the euro is the currency used in both countries.