A national market is segmented if the required rate of return on securities in that market differs from the required rate of return on securities of comparable expected return and risk that are traded on other national securities markets. If the markets are integrated, the securities of comparable expected return and risk should have the same required rate of return in each national market after adjusting for foreign exchange risk and political risk.
Required
i. Discuss the main causes of market segmentation drawing examples from developed and developing markets.
ii. Evaluate Difficulties and Importance of International Capital Budgeting Decisions.
iii. Discuss with examples of your choice three steps are involved in the evaluation of an investment proposal in relation to international capital budgeting
b) A multinational corporation operates in multi economic environment comprising of international, host country, and domestic financial environment. Therefore, the cost of capital for a multinational firm can be affected by any of the factors present in these environments
Required
i. Discuss the factors that can affect cost of capital in a multi economic environment comprising of international, host country and domestic financial environment.
ii. Compare and contrast Capital Structure of MNC versus Domestic Firm.
iii. What are the advantages and disadvantages of adapting local capital structure for a multinational firm?
c) After a decision has been made regarding the appropriate mix of debt and equity for the entire corporation, questions about individual operations can be raised. How should MNCs arrange the capital structures of their foreign affiliates? And what factors are relevant in making this decision?
d) Because many MNCs participate in joint ventures, either by choice or necessity, establishing an appropriate financing mix for this form of investment is an important consideration. Discuss.
e) Multinational companies usually enjoy a lower cost of capital than purely domestic companies for a number of reasons. Discuss.