Solution Manual For International Financial Management
14th Edition by Jeff Madura
Multinational Corporations - ANSWER: firms that engage in some form of
international business
Agency Problem - ANSWER: conflict of goals between a firm's managers and
shareholders
Comparative Advantages - ANSWER: theory suggesting that specialization by
countries can increase worldwide production - allows firms to penetrate foreign
markets
Imperfect Market - ANSWER: the conditions where, due to the costs to transfer labor
and other resources used for production, firms may attempt to use foreign factors of
production when they are less costly than local factors.
Product Cycle Theory - ANSWER: theory suggesting that a firm initially establishes
itself locally and expands into foreign markets in response to foreign demand for its
product; over time, the MNC will grow in foreign markets, after some point, its
foreign business may decline unless it can differentiate its product from competitors.
Licensing - ANSWER: an arrangement whereby one firm provides its technology in
exchange for fees or other considerations.
Franchising - ANSWER: arrangement, one firm provides a specialized sales or service
strategy, support assistance, and possibly an initial investment in the franchise in
exchange for periodic fees, allowing local residents
Joint venture - ANSWER: venture that is jointly owned and operated by two or more
firms.
Direct Foreign Investment - ANSWER: any method of increasing international
business that requires a direct investment in foreign operations.
Balance of payments - ANSWER: a summary of transactions between domestic and
foreign residents for a specific country over a specified period of time.
Current account - ANSWER: measures the flow of funds between one country and all
other countries due to purchases of goods and services or to income generated by
assets.
Balance of trade - ANSWER: a component of the current account: the difference
between total exports and imports.
, Primary income or Factor income - ANSWER: a component of the current account:
composed of income earned by MNCs on their DFI, and also income earned by
investors on portfolio investment.
Secondary income or Transfer payments - ANSWER: a component of the current
account: represents aid, grants, and gifts from one country to another.
Financial account - ANSWER: measures the flow of funds between countries that are
due to (1) direct foreign investment, (2) portfolio investment, and (3) other capital
investment.
Capital account - ANSWER: measures the flow of funds between one country and all
other countries due to financial assets transferred across country borders by people
who move to a different country, or due to sales of patents and trademarks.
Outsourcing - ANSWER: the process of subcontracting to a third party.
Tariff - ANSWER: when a country's government imposes a tax on imported goods.
Quota - ANSWER: maximum limit imposed by the government on goods allowed to
be imported into a country.
Dumping - ANSWER: the exporting of products that were produced with the help of
government subsidies.
J-curve effect - ANSWER: effect of a weaker dollar on the US trade balance in which
the trade balance initially deteriorates: it only improves once US and non-US
importers respond to the change in purchasing power that is caused by the weaker
dollar.
Intracompany trade - ANSWER: the process that companies adopt to purchase
products that are produced by their subsidiaries.
International Monetary Fund - ANSWER: was established in 1944 to promote
cooperation among countries on international monetary issues, stabilize exchange
rates, and to increase international business.
World Bank - ANSWER: bank established in 1944 to enhance economic development
by providing loans to countries.
World Trade Organization - ANSWER: organization established to provide a forum for
multilateral trade negotiations and to settle trade disputes related to the GATT
accord.
International Finance Corporation - ANSWER: was established in 1956 to promote
private enterprise within countries.
14th Edition by Jeff Madura
Multinational Corporations - ANSWER: firms that engage in some form of
international business
Agency Problem - ANSWER: conflict of goals between a firm's managers and
shareholders
Comparative Advantages - ANSWER: theory suggesting that specialization by
countries can increase worldwide production - allows firms to penetrate foreign
markets
Imperfect Market - ANSWER: the conditions where, due to the costs to transfer labor
and other resources used for production, firms may attempt to use foreign factors of
production when they are less costly than local factors.
Product Cycle Theory - ANSWER: theory suggesting that a firm initially establishes
itself locally and expands into foreign markets in response to foreign demand for its
product; over time, the MNC will grow in foreign markets, after some point, its
foreign business may decline unless it can differentiate its product from competitors.
Licensing - ANSWER: an arrangement whereby one firm provides its technology in
exchange for fees or other considerations.
Franchising - ANSWER: arrangement, one firm provides a specialized sales or service
strategy, support assistance, and possibly an initial investment in the franchise in
exchange for periodic fees, allowing local residents
Joint venture - ANSWER: venture that is jointly owned and operated by two or more
firms.
Direct Foreign Investment - ANSWER: any method of increasing international
business that requires a direct investment in foreign operations.
Balance of payments - ANSWER: a summary of transactions between domestic and
foreign residents for a specific country over a specified period of time.
Current account - ANSWER: measures the flow of funds between one country and all
other countries due to purchases of goods and services or to income generated by
assets.
Balance of trade - ANSWER: a component of the current account: the difference
between total exports and imports.
, Primary income or Factor income - ANSWER: a component of the current account:
composed of income earned by MNCs on their DFI, and also income earned by
investors on portfolio investment.
Secondary income or Transfer payments - ANSWER: a component of the current
account: represents aid, grants, and gifts from one country to another.
Financial account - ANSWER: measures the flow of funds between countries that are
due to (1) direct foreign investment, (2) portfolio investment, and (3) other capital
investment.
Capital account - ANSWER: measures the flow of funds between one country and all
other countries due to financial assets transferred across country borders by people
who move to a different country, or due to sales of patents and trademarks.
Outsourcing - ANSWER: the process of subcontracting to a third party.
Tariff - ANSWER: when a country's government imposes a tax on imported goods.
Quota - ANSWER: maximum limit imposed by the government on goods allowed to
be imported into a country.
Dumping - ANSWER: the exporting of products that were produced with the help of
government subsidies.
J-curve effect - ANSWER: effect of a weaker dollar on the US trade balance in which
the trade balance initially deteriorates: it only improves once US and non-US
importers respond to the change in purchasing power that is caused by the weaker
dollar.
Intracompany trade - ANSWER: the process that companies adopt to purchase
products that are produced by their subsidiaries.
International Monetary Fund - ANSWER: was established in 1944 to promote
cooperation among countries on international monetary issues, stabilize exchange
rates, and to increase international business.
World Bank - ANSWER: bank established in 1944 to enhance economic development
by providing loans to countries.
World Trade Organization - ANSWER: organization established to provide a forum for
multilateral trade negotiations and to settle trade disputes related to the GATT
accord.
International Finance Corporation - ANSWER: was established in 1956 to promote
private enterprise within countries.
