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Solution Manual for International Financial Management, 10th Edition By Cheol Eun, Bruce Resnick and Tuugi Chuluun Chapter 1-21

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International Financial Management, 10th Edition

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International Financial Management

Solution Manual for International Financial Management, 10th Edition EUN Chapter 1-21 Solution Manual International Financial Management, 10th Edition By Cheol Eun, Bruce Resnick and Tuugi Chuluun Chapter 1-21 TABLE OF CONTENTS: PART ONE:Foundations of International Financial Management Chapter 1:G...

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solution manual for international financial manage
international financial management 10th edition
by cheol eun bruce resnick and tuugi chuluun chap

Instelling International Financial Management, 10th Edition
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SOLUTION i l MANUAL i l FOR
International ilFinancial ilManagement, il10th ilEdition
EUNC
il il hapter il1-21

CHAPTER il1
GLOBALIZATION ilAND ilTHE ilMULTINATIONAL ilFIRM
ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS

QUESTIONS

1. Why ilis ilit ilimportant ilto ilstudy ilinternational ilfinancial ilmanagement?

Answer: ilWe ilare ilnow illiving ilin ila ilworld ilwhere ilall ilthe ilmajor ileconomic ilfunctions, ilsuch ilas
ilconsumption, ilproduction, ilinvestment, iland ilfinancing, ilare ilhighly ilglobalized. il il ilIt ilis ilthus

ilessential ilfor ilfinancial ilmanagers ilto ilfully ilunderstand ilvital ilinternational ildimensions ilof

il financial ilmanagement. ilThis ilglobal ilshift ilis ilin ilmarked ilcontrast ilto ila ilsituation ilthat ilexisted
ilwhen ilthe ilauthors ilof ilthis ilbook ilwere illearning ilfinance ila ilfew ildecades ilago. ilAt ilthat iltime,

ilmost ilprofessors ilcustomarily il(and ilsafely, ilto ilsome ilextent) ilignored ilinternational ilaspects ilof

ilfinance. il il ilThis ilmode ilof iloperation ilhas ilbecome iluntenable ilsince ilthen.

2. How ilis ilinternational ilfinancial ilmanagement ildifferent ilfrom ildomestic ilfinancial ilmanagement?

Answer: ilThere ilare ilthree ilmajor ildimensions ilthat ilset ilapart ilinternational ilfinance ilfrom
ildomesticfil inance. ilThey ilare:

1. foreign ilexchange iland ilpolitical ilrisks,
2. market ilimperfections, iland
3. expanded ilopportunity ilset.

3. Discuss ilthe ilmajor iltrends ilthat ilhave ilprevailed ilin ilinternational ilbusiness ilduring ilthe
illast iltwod
il ecades.

Answer: ilThe il2000s ilbrought ila ilrapid ilintegration ilof ilinternational ilcapital iland ilfinancial
ilmarkets. ilImpetus ilfor ilglobalized ilfinancial ilmarkets ilinitially ilcame ilfrom ilthe ilgovernments

ilof ilmajor ilcountriestil hat ilhad ilbegun ilto ilderegulate iltheir ilforeign ilexchange iland ilcapital

ilmarkets. ilThe ileconomic

©MCGRAW ilHILL ilLLC. ilALL ilRIGHTS ilRESERVED. ilNO ilREPRODUCTION ilOR ilDISTRIBUTION ilWITHOUT ilTHE ilPRIOR ilWRITTEN ilCONSENT
ilOF ilMCGRAW ilHILL ilLLC

,integration iland ilglobalization ilthat ilbegan ilin ilthe ileighties iland ilnineties ilare ilpicking ilup
ilspeed ilin ilthe2
il 000s. ilTrade illiberalization iland ileconomic ilintegration ilcontinued ilto ilproceed

ilat ilboth ilthe ilregional iland ilglobal illevels. ilDespite ilsovereign ildebt ilcrisis ilin ilEurope, ilmore

ilEU ilmember ilcountries ilhave iladopted ilthe ilcommon ilcurrency, ilthe ileuro, ilthat ileffectively

ilbecame ilthe ilsecond ilglobal ilcurrency ilafter ilthe ilU.S. ildollar. ilIn ilthe illast ilfew ilyears,

ilhowever, ileconomic ilnationalism ilhas ilbeen ilgaining ilsome ilpopularity, ilas ilexemplified ilby

ilthe ilBrexit ildecision ilof ilthe ilUnited ilKingdom iland ilthe ilso-called

―America ilFirst‖ ilpolicies ilof ilthe ilTrump ilAdministration. ilTo ilthe ilextent ilthat ileconomic
ilnationalism ilisa
il ilpopulist ilresponse ilto ilthe ilglobal ilfinancial ilcrisis iland ilGreat ilRecession, ilit

ilmay ilsubside ilas ilthe ilworld ileconomy ilcontinues ilto ilrecover.

4. How ilis ila ilcountry‘s ileconomic ilwell-being ilenhanced ilthrough ilfree ilinternational iltrade ilin
ilgoodsa
il nd ilservices?

Answer: ilAccording ilto ilDavid ilRicardo, ilwith ilfree ilinternational iltrade, ilit ilis ilmutually
ilbeneficial ilfor iltwo ilcountries ilto ileach ilspecialize ilin ilthe ilproduction ilof ilthe ilgoods ilthat ilit

ilcan ilproduce ilrelatively ilmost ilefficiently iland ilthen iltrade ilthose ilgoods. ilBy ildoing ilso, ilthe

iltwo ilcountries ilcan ilincrease iltheir ilcombined ilproduction, ilwhich ilallows ilboth ilcountries ilto

ilconsume ilmore ilof ilboth ilgoods. ilThis ilargument ilremains ilvalid ileven ilif ila ilcountry ilcan

ilproduce ilboth ilgoods ilmore ilefficiently ilin ilabsolute ilterms ilthan ilthe ilother ilcountry.

ilInternational iltrade ilis ilnot ila il‗zero-sum‘ ilgame ilin ilwhich ilone ilcountryb
il enefits ilat ilthe

ilexpense ilof ilanother ilcountry. ilRather, ilinternational iltrade ilcould ilbe ilan il‗increasing- ilsum‘

ilgame ilfrom ilwhich ilall ilplayers ilbecome ilwinners.

5. What ilconsiderations ilmight illimit ilthe ilextent ilto ilwhich ilthe iltheory ilof ilcomparative
iladvantage ilisril ealistic?

Answer: ilThe iltheory ilof ilcomparative iladvantage ilwas iloriginally iladvanced ilby ilthe
ilnineteenth ilcentury ileconomist ilDavid ilRicardo ilas ilan ilexplanation ilfor ilwhy ilnations iltrade

ilwith ilone ilanother. ilThe iltheory ilclaims ilthat ileconomic ilwell-being ilis ilenhanced ilif ileach

ilcountry ilproduces ilwhat ilit ilhas ilac
il omparative iladvantage ilin ilproducing ilrelative ilto ilother

ilcountries, iland ilthen iltrade ilproducts.

Underlying ilthe iltheory ilare ilthe ilassumptions ilof ilfree iltrade ilbetween ilnations iland ilthat ilthe
ilfactors ilofp
il roduction il(labor, iltechnological ilknow-how, iland ilcapital) ilare ilrelatively ilimmobile.

ilTo ilthe ilextent ilthat ilthese ilassumptions ildo ilnot ilhold, ilthe iltheory ilof ilcomparative iladvantage

ilmay ilnot ilrealistically ildescribe ilinternational iltrade. ilIn iladdition, ilfree iltrade ilproduces

ilwinners iland illosers iland ilif ilthe illosers ilare ilnot ilcompensated, ilfree iltrade ilmay ilfaces

ilpolitical ilopposition ilfrom ilthem.
©MCGRAW ilHILL ilLLC. ilALL ilRIGHTS ilRESERVED. ilNO ilREPRODUCTION ilOR ilDISTRIBUTION ilWITHOUT ilTHE ilPRIOR ilWRITTEN ilCONSENT
ilOF ilMCGRAW ilHILL ilLLC

,6. What ilare ilmultinational ilcorporations il(MNCs) iland ilwhat ileconomic ilroles ildo ilthey ilplay?

©MCGRAW ilHILL ilLLC. ilALL ilRIGHTS ilRESERVED. ilNO ilREPRODUCTION ilOR ilDISTRIBUTION ilWITHOUT ilTHE ilPRIOR ilWRITTEN ilCONSENT
ilOF ilMCGRAW ilHILL ilLLC

, Answer: ilA ilmultinational ilcorporation il(MNC) ilcan ilbe ildefined ilas ila ilbusiness ilfirm
ilincorporated ilin ilone ilcountry ilthat ilhas ilproduction iland ilsales iloperations ilin ilmany ilother

ilcountries. ilIndeed, ilsome ilMNCs ilhave iloperations ilin ila ilfew ildozens ilof ildifferent ilcountries.

il MNCs ilobtain ilfinancing ilfrom ilmajor ilmoney ilcenters ilaround ilthe ilworld ilin ilmany ildifferent
ilcurrencies ilto ilfinance iltheir iloperations. ilGlobal iloperations ilforce ilthe iltreasurer‘s iloffice ilto

ilestablish ilinternational ilbanking ilrelationships, ilto ilplace ilshort-term ilfunds ilin ilseveral

ilcurrency ildenominations, iland ilto ileffectively ilmanage ilforeign ilexchange ilrisk. ilBy

ilcircumventing iland ilalso iltaking iladvantage ilof ilvarious ilmarket ilimperfections, ilsuch ilas

ilbarriers ilto iltrade iland ilbarriers ilto ilflow ilof ilpeople iland ilcapital ilacross ilcountries, ilMNCs

ilcontribute ilto ilgreater ilintegration ilof ilthe ilworld ileconomy iland iling ilmore ilperfect ilfunctioning

ilof ilglobalm
il arkets.

7. Ross ilPerot, ila ilformer ilPresidential ilcandidate ilof ilthe ilReform ilParty, ilwhich ilwas ila ilthird
ilpoliticalp
il arty ilin ilthe ilUnited ilStates, ilhad ilstrongly ilobjected ilto ilthe ilcreation ilof ilthe ilNorth

ilAmerican ilTrade ilAgreement il(NAFTA), ilwhich ilnonetheless ilwas ilinaugurated ilin il1994.

ilPerot ilfeared ilthe illoss ilof ilAmerican iljobs ilto ilMexico ilwhere ilit ilis ilmuch ilcheaper ilto ilhire

ilworkers. ilWhat ilare ilthe ilmerits iland ildemerits ilof ilPerot‘s ilposition ilon ilNAFTA? ilConsidering

ilthe ilrecent ileconomic ildevelopments ilin ilNorth ilAmerica, ilhow ilwould ilyou ilassess ilPerot‘s

ilposition ilon ilNAFTA?

Answer: ilSince ilthe ilinception ilof ilNAFTA, ilmany ilAmerican ilcompanies ilindeed ilhave
ilinvested ilheavily ilin ilMexico, ilsometimes ilrelocating ilproduction ilfrom ilthe ilUnited ilStates ilto

ilMexico. ilAlthoughtil his ilmight ilhave iltemporarily ilcaused ilunemployment ilof ilsome ilAmerican

ilworkers, ilthey ilwere ileventually ilrehired ilby ilother ilindustries iloften ilfor ilhigher ilwages. ilAt ilthe

ilsame iltime, ilMexico ilhas ilbeen ilexperiencing ila ilmajor ileconomic ilboom. ilIt ilseems ilclear

ilthat ilboth ilMexico iland ilthe ilU.S. ilhaveb
il enefited ilfrom ilNAFTA. ilPerot‘s ilconcern ilappears ilto

ilhave ilbeen ilill ilfounded.

8. In il1995, ila ilworking ilgroup ilof ilFrench ilchief ilexecutive ilofficers ilwas ilset ilup ilby ilthe
ilConfederationo
il f ilFrench ilIndustry il(CNPF) iland ilthe ilFrench ilAssociation ilof ilPrivate

ilCompanies il(AFEP) ilto ilstudy ilthe ilFrench ilcorporate ilgovernance ilstructure. ilThe ilgroup

ilreported ilthe ilfollowing, ilamong ilother ilthings: il―The ilboard ilof ildirectors ilshould ilnot ilsimply

ilaim ilat ilmaximizing ilshare ilvalues ilas ilin ilthe ilU.K. iland ilthe ilU.S. ilRather, ilits ilgoal ilshould ilbe

ilto ilserve ilthe ilcompany, ilwhose ilinterests ilshould ilbe ilclearly ildistinguished ilfrom ilthose ilof ilits

ilshareholders, ilemployees, ilcreditors, ilsuppliers iland ilclients ilbut ilstill ilequated ilwith iltheir

ilgeneral ilcommon ilinterest, ilwhich ilis ilto ilsafeguard ilthe ilprosperity iland ilcontinuity ilof ilthe

ilcompany‖. ilEvaluate ilthe ilabove ilrecommendation ilof ilthe ilworking ilgroup.

©MCGRAW ilHILL ilLLC. ilALL ilRIGHTS ilRESERVED. ilNO ilREPRODUCTION ilOR ilDISTRIBUTION ilWITHOUT ilTHE ilPRIOR ilWRITTEN ilCONSENT
ilOF ilMCGRAW ilHILL ilLLC

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