International Business
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In your own words based on your experience and education, please respond to the following questions.
A. What special problems arise in financing and arranging payment for international transactions?
B. What is the impact of differing accounting standards on the international capital market?
C. How do organizations establish prices for goods sold by one subsidiary to another?
D. Is the use of transfer pricing in order to reduce an organization's taxes ethical? Why or why not?
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Solution Summary
This solution is comprised of a detailed explanation to answer what special problems arise in financing and arranging payment for international transactions, what is the impact of differing accounting standards on the international capital market, how do organizations establish prices for goods sold by one subsidiary to another, and is the use of transfer pricing in order to reduce an organization's taxes ethical.
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A. What special problems arise in financing and arranging payment for international transactions?
The international transactions are the transactions occurred between two parties of different countries. Each party will prefer to accept or pay the money in their own currency. However, as some of the countries' currency is not worldwide accepted, we will usually use U.S. dollars as the trading currency. Moreover, as the movement of goods between countries takes time, inventory in transit must be financed, the foreign exchange market provides a source of credit via specialized instruments such as letters of credit. Due to the fluctuation in foreign currencies, the problems that arise will include the foreign exchange rate risk, the additional costs of hedging, and the requirement for special credit line with the bank for opening letters of credit. As we know that the foreign exchange rate fluctuates depending on many ...
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