Week 14 Flashcards

Question

GLOBE Leadership Styles from Around the World

Answer 1

1. Charismatic/Value-Based Leadership: reflects the ability to inspire, motivate, and expect high performance from others on the basis of firmly held core values 2. Team-Oriented Leadership: emphasizes effective team building and implementation of a common goal among team members 3. Participative Leadership: reflects the degree to which managers involve others in making and implementing decisions 4. Humane Oriented Leadership: reflects supportive and considerate leadership and also includes compassion and generosity 5. Autonomous Leadership: refers to independent and individualistic leadership without group input 6. Self-Protective Leadership: focuses on ensuring the safety and security of a leader and group through status enhancement and face saving

Answer 2

**Psychological Capital** - Passion for Diversity - Quest for Adventure - Self-assurance **Social Capital** - Intercultural Empathy - Interpersonal Impact - Diplomacy **Intellectual Capital** - Global Business Savvy - Cognitive Complexity - Cosmopolitan Outlook

Answer 3

Different transfer-pricing methods produce different operating profits for individual subunits. * In determining transfer prices, management may choose to use the price of a similar product or service publicly listed (market-based transfer price). * Management may choose a transfer price based on the costs of producing the product (cost-based transfer price). * In some cases, the subunits of a company are free to negotiate the transfer price between themselves and then to decide whether to buy and sell internally or deal with outside parties (negotiated transfer prices). **The chosen transfer-pricing method should ideally lead each subunit manager to make optimal decisions for the organisation as a whole.**

Answer 4

- Promote goal congruence, so that division managers acting in their own interest will take actions that are aligned with the objectives of top management. - Help top managers evaluate the performance of individual subunits. - Induce managers to exert a high level of effort. Subunits selling a product or service should be motivated to hold down their costs; subunits buying the product or service should be motivated to acquire and use inputs efficiently. - Preserve autonomy of subunits if top managers favour a high degree of decentralisation. A subunit manager seeking to maximize the operating income of the subunit should have the freedom to transact with other subunits of the company (based on transfer prices) or to transact with external parties. **Minimum transfer price = Incremental costs per unit incurred up to the point of transfer + Opportunity costs per unit to the selling division**

Answer 5

Transfer prices often have tax implications. * Tax factors include not only profit taxes, but also payroll taxes, customs duties, tariffs, sales taxes and other levies on organisations. * Transfer prices can reduce profit tax payments by recognising more profit in low tax rate countries and less profit in high tax rate countries. * Tax regulations of different countries restrict the transfer prices that companies can choose.

Answer 6

By the Law of One Price, this value must be equal to what the U.S. investor paid for the security: Internationally Integrated Capital Markets: - When any investor can exchange currencies in any amount at the spot or forward rates and is free to purchase or sell any security in any amount in any country at its current market prices - With internationally integrated capital markets, the value of an investment does not depend on the currency used.

Answer 7

In an internationally integrated capital market, two equivalent methods are available for calculating the NPV of a foreign project. 1. Calculate the NPV in the foreign country and convert it to the local currency at the spot rate. 2. Convert the cash flows of the foreign project into the local currency and then calculate the NPV of these cash flows

Answer 8

Firms may face differential access to markets if there is any kind of asymmetry concerning information about them. Differential access to national capital markets is common enough that it provides the best explanation for the existence of currency swaps. * Currency Swaps: currency swaps allow firms to mitigate their exchange rate risk exposure while still making investments and raising funds in the most attractive locales. Important macroeconomic reasons for segmented capital markets include capital controls and foreign exchange controls that create barriers to international capital flows and thus segment national markets. * Political, legal, social, and cultural characteristics that differ across countries may require compensation in the form of a country risk premium. Firms may be able to benefit from a segmented international financial market if one country or currency has a higher rate of return than another country or currency when the two rates are compared in the same currency

Answer 9

The final issue that arises when a firm is considering a foreign project is that the cash flows of the project may be affected by exchange rate risk. * The working assumption made thus far is that the project’s free cash flows are uncorrelated with the spot exchange rates