©MCGRAW f f f f HILL LLC. f f f f ALL f f f f RIGHTS RESERVED. NO REPRODUCTION f f f f OR ff f f DISTRIBUTION WITHOUT
THE PRIOR WRITTEN f f f f CONSENT
,SOLUTION MANUAL FOR f f f f
International Financial Management, 10th Edition EUN ff ff ff ff ff
ff Chapter 1-21 f f
CHAPTER 1 f f
GLOBALIZATION f f AND THE f f f f MULTINATIONAL f f FIRM
ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS
ssss ssss ssss ssss ssss ssss ssss
QUESTIONS
1. Why is it f f f f f f important f f to study international financial management?
f f f f f f f f
Answer: f f f f We f f are f f now f f living f f in f f a f f world f f where f f all f f the f f major
f f economic f f functions, f f such as ff f f consumption, f f production, f f investment, f f and
f f financing, f f are f f highly f f globalized. f f f f f f It f f is thus
ff f f essential f f f f for f f financial
f f managers f f to f f fully f f understand f f vital f f international dimensions ff f f of f f financial
f f management. f f f f This global f f f f shift f f is f f in f f marked f f contrast f f to f f a situation
ff
f f that f f existed f f when f f the f f authors f f of f f this f f book f f were f f learning f f finance
f f a f f few decades ago. ff f f f f f f At that time, most professors customarily (and safely,
f f f f f f f f f f f f f f
f f to f f some f f extent) ignored ff f f international f f aspects f f of f f finance. f f f f This f f mode
f f of f f operation f f has f f become untenable since then. ff f f f f
2. How is international financial management different from domestic financial management?
ff f f ff ff f f ff f f ff ff
Answer: f f There are three major dimensions that set apart international finance from
ff ff ff ff ff ff ff ff ff ff
f f domestic finance. They are: f f f f f f
1. foreign exchange and political risks, ff f f ff f f
2. market imperfections, and f f f f
3. expanded opportunity set. f f ff
3. Discuss the major trends that f f f f f f f f f f have prevailed f f f f in f f international f f business
f f during the last two decades.
f f ff f f f f
Answer: f f The f f 2000s brought ff f f a f f rapid f f integration f f of f f international f f capital f f and
f f financial markets. ff f f Impetus f f for f f globalized f f financial f f markets f f initially f f came
f f from the governments of major countries that had begun to deregulate their
f f f f ff f f f f f f f f f f f f f f f f
©MCGRAW f f f f HILL LLC. f f f f ALL f f f f RIGHTS RESERVED. NO REPRODUCTION f f f f OR ff f f DISTRIBUTION WITHOUT
THE PRIOR WRITTEN f f f f CONSENT
,f f foreign exchange and capital markets.
f f f f f f ff f f f f The economic
f f
©MCGRAW f f f f HILL LLC. f f f f ALL f f f f RIGHTS RESERVED. NO REPRODUCTION f f f f OR ff f f DISTRIBUTION WITHOUT
THE PRIOR WRITTEN f f f f CONSENT
, integration f f and globalization f f f f that f f began f f in f f the f f eighties f f and f f nineties
f f are f f picking f f up speed in ff f f f f the f f 2000s. f f Trade f f liberalization f f and f f economic
f f integration f f continued f f to proceed ff f f at f f both f f the f f regional f f and f f global
f f levels. f f Despite f f sovereign f f debt f f crisis f f in Europe, ff f f more f f EU f f member
f f countries f f have f f adopted f f the f f common f f currency, f f the f f euro, that ff f f effectively
f f became f f the f f second f f global f f currency f f after f f the f f U.S. f f dollar. f f In f f the
f f last few ff f f years, f f however, economic f f f f nationalism f f has f f been f f gaining f f some
f f popularity, as exemplified by the f f ff f f f f f f Brexit f f decision f f of f f the United Kingdom f f f f
f f and the so-called
f f f f
―America First‖ policies of the Trump Administration. To the extent that
f f f f f f f f f f f f f f f f f f f f
f f economic nationalism ff f f is f f a f f populist f f response f f to f f the f f global f f financial
f f crisis f f and f f Great f f Recession, it ff f f may f f subside f f as f f the f f world f f economy
f f continues f f to f f recover.
4. How is f f f f a country‘s f f f f economic f f well-being f f enhanced through free f f f f
f f international f f trade in goods and services? ff f f f f f f
Answer: According f f to f f David f f Ricardo, f f with f f free f f international f f trade, it f f f f is
f f mutually beneficial ff f f for f f two f f countries f f to f f each f f specialize f f in f f the
f f production f f of f f the f f goods f f that f f it can produce relatively most efficiently and
ff f f f f f f f f f f
f f then trade those goods.
f f f f f f By doing so, f f f f
the
ff f f two f f countries f f can f f increase f f their f f combined f f production, f f which
f f allows f f both countries ff f f to f f consume f f more f f of f f both f f goods. f f This
f f argument f f remains f f valid f f even f f if f f a country
ff f f can f f produce f f both f f goods
f f more f f efficiently f f in f f absolute f f terms than the other country. f f f f f f ff
International f f trade f f is f f not f f a f f ‗zero-sum‘ game in f f f f f f which f f one
f f country f f benefits at ff f f the f f expense f f of f f another f f country. f f Rather,
f f international f f trade f f could f f be f f an
‗increasing- f f sum‘ f f game f f from f f which f f all f f players f f become f f winners.
5. What considerations might
f f f f f f limit f f the extent to which f f f f f f f f the theory of f f f f
f f comparative advantage is realistic? ff f f f f
Answer: The theory of f f f f f f comparative f f advantage f f was originally f f f f advanced f f by
f f the nineteenth
ff f f century f f economist f f David f f Ricardo f f as f f an f f explanation f f for
f f why f f nations f f trade with ff f f one f f another. f f The theory claims f f f f f f that f f economic
f f well-being f f is f f enhanced f f if f f each country produces ff f f f f what f f it f f has a f f
f f comparative f f advantage f f in f f producing f f relative f f to f f other countries, and then ff f f f f
©MCGRAW f f f f HILL LLC. f f f f ALL f f f f RIGHTS RESERVED. NO REPRODUCTION f f f f OR ff f f DISTRIBUTION WITHOUT
THE PRIOR WRITTEN f f f f CONSENT
THE PRIOR WRITTEN f f f f CONSENT
,SOLUTION MANUAL FOR f f f f
International Financial Management, 10th Edition EUN ff ff ff ff ff
ff Chapter 1-21 f f
CHAPTER 1 f f
GLOBALIZATION f f AND THE f f f f MULTINATIONAL f f FIRM
ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS
ssss ssss ssss ssss ssss ssss ssss
QUESTIONS
1. Why is it f f f f f f important f f to study international financial management?
f f f f f f f f
Answer: f f f f We f f are f f now f f living f f in f f a f f world f f where f f all f f the f f major
f f economic f f functions, f f such as ff f f consumption, f f production, f f investment, f f and
f f financing, f f are f f highly f f globalized. f f f f f f It f f is thus
ff f f essential f f f f for f f financial
f f managers f f to f f fully f f understand f f vital f f international dimensions ff f f of f f financial
f f management. f f f f This global f f f f shift f f is f f in f f marked f f contrast f f to f f a situation
ff
f f that f f existed f f when f f the f f authors f f of f f this f f book f f were f f learning f f finance
f f a f f few decades ago. ff f f f f f f At that time, most professors customarily (and safely,
f f f f f f f f f f f f f f
f f to f f some f f extent) ignored ff f f international f f aspects f f of f f finance. f f f f This f f mode
f f of f f operation f f has f f become untenable since then. ff f f f f
2. How is international financial management different from domestic financial management?
ff f f ff ff f f ff f f ff ff
Answer: f f There are three major dimensions that set apart international finance from
ff ff ff ff ff ff ff ff ff ff
f f domestic finance. They are: f f f f f f
1. foreign exchange and political risks, ff f f ff f f
2. market imperfections, and f f f f
3. expanded opportunity set. f f ff
3. Discuss the major trends that f f f f f f f f f f have prevailed f f f f in f f international f f business
f f during the last two decades.
f f ff f f f f
Answer: f f The f f 2000s brought ff f f a f f rapid f f integration f f of f f international f f capital f f and
f f financial markets. ff f f Impetus f f for f f globalized f f financial f f markets f f initially f f came
f f from the governments of major countries that had begun to deregulate their
f f f f ff f f f f f f f f f f f f f f f f
©MCGRAW f f f f HILL LLC. f f f f ALL f f f f RIGHTS RESERVED. NO REPRODUCTION f f f f OR ff f f DISTRIBUTION WITHOUT
THE PRIOR WRITTEN f f f f CONSENT
,f f foreign exchange and capital markets.
f f f f f f ff f f f f The economic
f f
©MCGRAW f f f f HILL LLC. f f f f ALL f f f f RIGHTS RESERVED. NO REPRODUCTION f f f f OR ff f f DISTRIBUTION WITHOUT
THE PRIOR WRITTEN f f f f CONSENT
, integration f f and globalization f f f f that f f began f f in f f the f f eighties f f and f f nineties
f f are f f picking f f up speed in ff f f f f the f f 2000s. f f Trade f f liberalization f f and f f economic
f f integration f f continued f f to proceed ff f f at f f both f f the f f regional f f and f f global
f f levels. f f Despite f f sovereign f f debt f f crisis f f in Europe, ff f f more f f EU f f member
f f countries f f have f f adopted f f the f f common f f currency, f f the f f euro, that ff f f effectively
f f became f f the f f second f f global f f currency f f after f f the f f U.S. f f dollar. f f In f f the
f f last few ff f f years, f f however, economic f f f f nationalism f f has f f been f f gaining f f some
f f popularity, as exemplified by the f f ff f f f f f f Brexit f f decision f f of f f the United Kingdom f f f f
f f and the so-called
f f f f
―America First‖ policies of the Trump Administration. To the extent that
f f f f f f f f f f f f f f f f f f f f
f f economic nationalism ff f f is f f a f f populist f f response f f to f f the f f global f f financial
f f crisis f f and f f Great f f Recession, it ff f f may f f subside f f as f f the f f world f f economy
f f continues f f to f f recover.
4. How is f f f f a country‘s f f f f economic f f well-being f f enhanced through free f f f f
f f international f f trade in goods and services? ff f f f f f f
Answer: According f f to f f David f f Ricardo, f f with f f free f f international f f trade, it f f f f is
f f mutually beneficial ff f f for f f two f f countries f f to f f each f f specialize f f in f f the
f f production f f of f f the f f goods f f that f f it can produce relatively most efficiently and
ff f f f f f f f f f f
f f then trade those goods.
f f f f f f By doing so, f f f f
the
ff f f two f f countries f f can f f increase f f their f f combined f f production, f f which
f f allows f f both countries ff f f to f f consume f f more f f of f f both f f goods. f f This
f f argument f f remains f f valid f f even f f if f f a country
ff f f can f f produce f f both f f goods
f f more f f efficiently f f in f f absolute f f terms than the other country. f f f f f f ff
International f f trade f f is f f not f f a f f ‗zero-sum‘ game in f f f f f f which f f one
f f country f f benefits at ff f f the f f expense f f of f f another f f country. f f Rather,
f f international f f trade f f could f f be f f an
‗increasing- f f sum‘ f f game f f from f f which f f all f f players f f become f f winners.
5. What considerations might
f f f f f f limit f f the extent to which f f f f f f f f the theory of f f f f
f f comparative advantage is realistic? ff f f f f
Answer: The theory of f f f f f f comparative f f advantage f f was originally f f f f advanced f f by
f f the nineteenth
ff f f century f f economist f f David f f Ricardo f f as f f an f f explanation f f for
f f why f f nations f f trade with ff f f one f f another. f f The theory claims f f f f f f that f f economic
f f well-being f f is f f enhanced f f if f f each country produces ff f f f f what f f it f f has a f f
f f comparative f f advantage f f in f f producing f f relative f f to f f other countries, and then ff f f f f
©MCGRAW f f f f HILL LLC. f f f f ALL f f f f RIGHTS RESERVED. NO REPRODUCTION f f f f OR ff f f DISTRIBUTION WITHOUT
THE PRIOR WRITTEN f f f f CONSENT
