Capital Structure & Cost of Capital How do MNCs make capital structure decisions? 2 Characteristics Corporate Characteristics Host Country Interest Politics Cost of Capital MNCs VS Fully Domestic, which has a high cost of capital? Explain

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1. Capital Structure & Cost of Capital

   1. How do MNCs make capital structure decisions?

2 Characteristics

1. 1. 1. Corporate Characteristics

      2. Host Country

         1. Interest

         2. Politics

   2. Cost of Capital

      1. MNCs VS Fully Domestic, which has a high cost of capital? Explain.

2. Managing foreign exchange exposures.

   1. Explain 3 types of exchange exposure with using real life example.

      1. Translation

      2. Economics

      3. Transaction

   2. Explain what the types and examples in transaction are.

      1. Future

      2. Forward

      3. Money Market

      4. Options

3. Export / Import Financing

   1. What are the methods of payment?

      1. Letter of Credit (LC)

      2. Consignment

      3. Open Payment (open account)

      4. Prepayment

      5. Draft

   2. How are international trade being paid? (example of payments)

4. Arbitrage

   1. Example the three forms of arbitrage.

      1. Locational Arbitrage

      2. Triangular Arbitrage

      3. Covered Interest Arbitrage

   2. Explain the factors that determine the exchange

      1. Differential in inflation

      2. Differential in interest rate

      3. Differential in income

      4. Government influence

   3. Country with higher inflation, the currency will depreciate. Why? What is the theory behind this?

      1. Use Theory Purchasing power parity to explain

   4. Higher interest rate, currency will also depreciate in the long run. Why? What is the theory behind this?

      1. Use Theory International fisher effect to explain.

         1. Higher income, currency lower. *tips

5. Explain the components of the balance of payment.

   1. Current account

   2. Capital account

   3. Financial Account

5a. Why do we need balance of payment?

• To understand the international flow of funds

• To understand the movement and the influence of the exchange. It can influence Malaysia ringgit (RM).

b. Government want to stabilize the currency. Why?

c. If (RM) Malaysia ringgit is too strong, why is it good and why is it bad?

- Not good because it can affect the country’s export, export will suffer. *tips