INTERNATIONAL FINANCIAL
INTERNATIONAL FINANCIAL MANAGEMENT EXAM QUESTIONS AND ANSWERS
WELL ILLUSTRATED.
Chapter 1 answer >Introduction
3 major dimensions that set international finance apart from 'domestic'
finance answer >1. Foreign Exchange and Political Risks
2. Market Imperfections
3. Expanded Opportunity Set
Exchange Rate Risk answer >The risk that a company's profits and
value may be affected due to unanticipated unfavorable exchange rate
movements
Political Risk answer >Sovereign governments have the right to
regulate the movement of goods, capital, and people across their
borders. These laws sometimes change in unexpected ways
Ranges from unexpected changes in tax rules or outright expropriation
of assets held by foreigners
Ex.- Bayer (German company) invested in a plant in Taiwan and forced
to exit market due to chemical waste disposal policy
, INTERNATIONAL FINANCIAL
Market Imperfections answer >A variety of barriers hamper free
movements of people, goods, services, and capital cross national
boundaries
Ex.- Legal restrictions, excessive transaction and transportation costs,
information asymmetry, discriminatory taxation
Expanded Opportunity Set answer >MNC's benefit from an expanded
opportunity set in a global market
Firms can locate production in one country or region of the world to
maximize their performance and raise funds in any market where the
cost of capital is the lowest
Ex.- "Made in China"... Cheap labor=>lower production cost=>lower
price=> more competitive
Major Trends in the International Market answer >1. The emergence
of globalized financial markets
2. The emergence of the euro as a global currency
3. Continued trade liberalization and economic integration
4. Large-scale privatization of state-owned enterprises
1. The emergence of globalized financial markets answer >Factors that
help globalize:
Deregulation, advances in computer and telecommunication
technology (fast access to info & lower transaction cost), financial
innovations (derivatives)
INTERNATIONAL FINANCIAL MANAGEMENT EXAM QUESTIONS AND ANSWERS
WELL ILLUSTRATED.
Chapter 1 answer >Introduction
3 major dimensions that set international finance apart from 'domestic'
finance answer >1. Foreign Exchange and Political Risks
2. Market Imperfections
3. Expanded Opportunity Set
Exchange Rate Risk answer >The risk that a company's profits and
value may be affected due to unanticipated unfavorable exchange rate
movements
Political Risk answer >Sovereign governments have the right to
regulate the movement of goods, capital, and people across their
borders. These laws sometimes change in unexpected ways
Ranges from unexpected changes in tax rules or outright expropriation
of assets held by foreigners
Ex.- Bayer (German company) invested in a plant in Taiwan and forced
to exit market due to chemical waste disposal policy
, INTERNATIONAL FINANCIAL
Market Imperfections answer >A variety of barriers hamper free
movements of people, goods, services, and capital cross national
boundaries
Ex.- Legal restrictions, excessive transaction and transportation costs,
information asymmetry, discriminatory taxation
Expanded Opportunity Set answer >MNC's benefit from an expanded
opportunity set in a global market
Firms can locate production in one country or region of the world to
maximize their performance and raise funds in any market where the
cost of capital is the lowest
Ex.- "Made in China"... Cheap labor=>lower production cost=>lower
price=> more competitive
Major Trends in the International Market answer >1. The emergence
of globalized financial markets
2. The emergence of the euro as a global currency
3. Continued trade liberalization and economic integration
4. Large-scale privatization of state-owned enterprises
1. The emergence of globalized financial markets answer >Factors that
help globalize:
Deregulation, advances in computer and telecommunication
technology (fast access to info & lower transaction cost), financial
innovations (derivatives)
