INTERNATIONAL FINANCE
INTERNATIONAL FINANCE EXAM QUESTIONS AND ANSWERS %
CORRECT.
Why is it important to study international financial management? answer
>>>>>We are now living in a world where all the major economic functions, such
as consumption, production, investment and financing, are highly globalized. It is
thus essential for financial managers to fully understand vital international
dimensions of financial management. This global shift is in marked contrast to a
situation that existed when the authors of this book were learning finance a few
decades ago. At that time, most professor customarily ignored international
aspects of finance. This mode of operation has become untenable since then.
How is international financial management different from domestic financial
management? answer >>>>>There are three major dimensions that set apart
international finance from domestic finance. They are:
1. foreign exchange and political risks
2. market imperfections
3. expanded opportunity set
Discuss the major trends that have prevailed in international business during the
last two decades. answer >>>>>The 1990s brought a rapid integration of
international capital and financial markets. Impetus for globalized financial
markets initially came from the governments of major countries that had begun
to deregulate their foreign exchange and capital markets. The economic
integration and globalization that began in the eighties is picking up speed in the
1990s via privatization. Privatization is the process is the process by which a
country divests itself of the ownership and operation of a business venture by
turning it over to the free market system. Trade liberalization and economic
, INTERNATIONAL FINANCE
integration continued to proceed at both the regional and global levels. Despite
sovereign debt crisis in Europe, more EU member countries have adopted the
common currency, the euro, that effectively became the second global currency
after the US dollar. In the last few years, however, economic nationalism has been
gaining some popularity, as exemplified by the Bruit decision of the UK and the
so-called "America First" policies of the Trump Administration. To the extent that
economic nationalism is a populist response to the global financial crisis and
Great Recession, it may subside as the world economy continues to recover.
How is a country's economic well-being enhanced through free international
trade in goods and services? answer >>>>>According to David Ricardo, with free
international trade, it is mutually beneficial for two countries to each specialize in
the production of the goods that is can produce relatively most efficiently and
then trade those goods. By doing, so the two countries can increase their
combined production, which allows both countries to consume more of both
goods. This argument remains valid even if a country can produce both goods
more efficiently in absolute terms than the other country. International trade is
not a 'zero-sum' game in which one country benefits at the expense of another
country. Rather, international trade could be an 'increasing-sum' game from
which all players become winners.
What considerations might limit the extent to which the theory of comparative
advantage is realistic? answer >>>>>The theory of comparative advantage was
originally advanced by the nineteenth century economist David Ricardo as an
explanation for why nations trade with one another. They theory claims that
economic well-being is enhanced if each country's citizens produce what they
have a comparative advantage in producing relative to the citizens of other
countries, and then trade products. Underlying the theory are the assumptions of
free trade between nations and that the factors of production (land, building,
labor, technology, and capital) are relatively immobile. To the extent that these
assumptions do not hold, they theory of comparative advantage may not
realistically describe international trade. In addition, free trade produces
INTERNATIONAL FINANCE EXAM QUESTIONS AND ANSWERS %
CORRECT.
Why is it important to study international financial management? answer
>>>>>We are now living in a world where all the major economic functions, such
as consumption, production, investment and financing, are highly globalized. It is
thus essential for financial managers to fully understand vital international
dimensions of financial management. This global shift is in marked contrast to a
situation that existed when the authors of this book were learning finance a few
decades ago. At that time, most professor customarily ignored international
aspects of finance. This mode of operation has become untenable since then.
How is international financial management different from domestic financial
management? answer >>>>>There are three major dimensions that set apart
international finance from domestic finance. They are:
1. foreign exchange and political risks
2. market imperfections
3. expanded opportunity set
Discuss the major trends that have prevailed in international business during the
last two decades. answer >>>>>The 1990s brought a rapid integration of
international capital and financial markets. Impetus for globalized financial
markets initially came from the governments of major countries that had begun
to deregulate their foreign exchange and capital markets. The economic
integration and globalization that began in the eighties is picking up speed in the
1990s via privatization. Privatization is the process is the process by which a
country divests itself of the ownership and operation of a business venture by
turning it over to the free market system. Trade liberalization and economic
, INTERNATIONAL FINANCE
integration continued to proceed at both the regional and global levels. Despite
sovereign debt crisis in Europe, more EU member countries have adopted the
common currency, the euro, that effectively became the second global currency
after the US dollar. In the last few years, however, economic nationalism has been
gaining some popularity, as exemplified by the Bruit decision of the UK and the
so-called "America First" policies of the Trump Administration. To the extent that
economic nationalism is a populist response to the global financial crisis and
Great Recession, it may subside as the world economy continues to recover.
How is a country's economic well-being enhanced through free international
trade in goods and services? answer >>>>>According to David Ricardo, with free
international trade, it is mutually beneficial for two countries to each specialize in
the production of the goods that is can produce relatively most efficiently and
then trade those goods. By doing, so the two countries can increase their
combined production, which allows both countries to consume more of both
goods. This argument remains valid even if a country can produce both goods
more efficiently in absolute terms than the other country. International trade is
not a 'zero-sum' game in which one country benefits at the expense of another
country. Rather, international trade could be an 'increasing-sum' game from
which all players become winners.
What considerations might limit the extent to which the theory of comparative
advantage is realistic? answer >>>>>The theory of comparative advantage was
originally advanced by the nineteenth century economist David Ricardo as an
explanation for why nations trade with one another. They theory claims that
economic well-being is enhanced if each country's citizens produce what they
have a comparative advantage in producing relative to the citizens of other
countries, and then trade products. Underlying the theory are the assumptions of
free trade between nations and that the factors of production (land, building,
labor, technology, and capital) are relatively immobile. To the extent that these
assumptions do not hold, they theory of comparative advantage may not
realistically describe international trade. In addition, free trade produces
