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    Stocks and foreign exchange rates

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    1. Many companies grant stocks or stock options to the managers. Discuss the benefits and possible costs of using this kind of incentive compensation scheme.
    2. It has been shown that foreign companies listed in the U.S. stock exchange are valued more than those from the same countries that are not listed in the U.S. Explain the reasons why U.S. listed foreign firms are valued more than those which are not. Also explain why not every foreign firm wants to list stocks in the United States.
    3. Explain "free cash flows." Why do managers like to retain free cash flows instead of distributing it to shareholders? Discuss what mechanisms may be used to solve this problem?
    4. How are foreign exchange transactions between international banks settled?
    5. What is meant by a currency trading at a discount or at a premium in the forward market?
    6. Any company seeking to issue securities in the US should face uniform requirements for disclosure. Some assume that more transparency can give rise to competitive disadvantage. Do you agree regarding the disclosure?

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    Solution Preview

    http://www.investopedia.com/articles/optioninvestor/07/evolvingoptions.asp
    http://www.referenceforbusiness.com/encyclopedia/Eco-Ent/Employee-Stock-Options-and-Ownership-ESOP.html

    1. Many companies to the managers. Discuss the benefits and possible costs of granting stocks or stock options for an incentive compensation scheme.

    The benefits associated with providing employees' with stocks or stock options as incentive compensation schemes are that they provide the ability to elicit loyalty and organizational commitment from employees as they have a financial stake in the company's performance because they own stock or stock options. Therefore, the company is able to attract talented employees that are inclined to remain committed to the company because of the potential to reap future rewards through their stock options, which also offer the company the advantage of receiving tax breaks.

    Because stock ownership provides an employee with the potential to obtain significant financial rewards, it is desired by many employees. The costs associated with offering stocks or stock options have been debated for decades as there is no specific method for valuing options grants established by the FASB, but the FASB will enable ...

    Solution Summary

    Stocks and foreign exchange rates are examined.

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