02 Jul Financial Management of a Multinational Enterprise
Question Description
Part 1
Deliverable Length: 6-8 paragraphs
Joseph Ingle, an overseas sales manager, has been dealing with a serious issue that is affecting Axetem’s foreign sales. Joseph has told Axetem’s CEO, Brian Tobias, that his sales team seems to be at a distinct disadvantage in the local markets of several countries. This is because other local competitors are using monetary incentives, favors, and expensive gifts to persuade the purchasing managers at major companies in those countries to place their orders with them as opposed to Axetem. It is also despite the fact that Axetem’s product lines are both competitively priced and also of better quality.
As a result, several of Joseph’s salespeople are now putting pressure on him to arrange for gifts to the purchasing agents of these companies because this seems to be an accepted way of doing business in those cultures. Joseph has also told Mr. Tobias that, in some instances, there are not even specific laws addressing this issue in these countries.
Brian Tobias has asked you to complete the following task for him:
. Compose an e-mail to Joseph explaining the U.S. Foreign Corrupt Practices Act and its control objectives related to all transactions and accounts. Include any recent changes to the FCPA and provide examples of current cases involving the act.
. Also, explain the penalties of noncompliance with this law.
Use the library and Web resources to conduct research on the Foreign Corrupt Practices Act (FCPA) before composing your e-mail to Joseph Ingle.
Part 2
Deliverable Length: 1 page
Axetem’s training program includes various training rotations in which executive trainees spend some time in various departments to receive training that is more specific and gain additional international market experience.
This week, you have been assigned to Axetem’s trading department to gain additional knowledge about various financing and investment tools in international trade. One of the characteristics of international markets is that stocks and bonds cannot simply be traded, but a convenient way to invest is through using American Depository Receipts (ADRs). Axetem’s trading department invests some of the company’s excess cash in ADRs and foreign-denominated debt securities.
As part of your training, you are presented with the following 2 assignments:
. Describe the advantages of investing using American Depository Receipts (ADRs).
. Help Mike Jones, one of Axetem’s investment managers, with the following calculations:
In the London market, EEC Inc.’s stock closed at £0.875 per share on Thursday, April 1, 2005. EEC trades in ADRs in the over-the-counter market in the United States. Four underlying EEC shares are packaged into one ADR. On April 10, 2005, the spot exchange rate for the British pound sterling to the U.S. dollar was £0.7366 to $1.00. Determine the no-arbitrage U.S. price of 1 ADR.
Mike Jones is also interested in a 10-year floating-rate note (FRN) with coupons referenced to a 6-month London Interbank Offered Rate (LIBOR). The note pays interest on a semiannual basis. Assume that the current 6-month LIBOR is 3%. If the risk premium above LIBOR that the issuer must pay is 1/4 percent, calculate the next period’s coupon rate on a £1,000 face-value FRN.
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