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