Solution Manual for International Financial Management, 10th Edition, By Cheol Eun, Bruce G. Resnick, All Chapters 1 to 21 complete Verified editon ISBN:9781264413096

Solution Manual for International Financial Management,
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10th Edition by Cheol Eun, Bruce Resnick and Tuugi Chuluun
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Chapter 1-21
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, SOLUTION MANUAL FOR ty ty




International Financial Management, 10th Edition EUN Chapter 1-21
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CHAPTER 1 ty




GLOBALIZATION AND THE MULTINATIONAL FIRM ty ty ty ty




ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS
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QUESTIONS

1. Why is it important to study international financial management?
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Answer: We are now living in a world where all the major economic functions, such as consumption,
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t y production, investment, and financing, are highly globalized. It is thus essential for financial managers
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ty to fully
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ty ty ty ty ty ty t y This global shift is in
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ty marked contrast to aty ty ty t y situation that existed when the authors of this book were learning finance a few
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ty decades ago. At that time, most
ty t y ty ty ty t y professors customarily (and safely, to some extent) ignored
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ty international aspects of finance. This mode of t y t y ty ty t y ty t y operation has become untenable since then.
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2. How is international financial management different from domestic financial management?
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Answer: There are three major dimensions that set apart international finance from domestic finance.
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ty They t y are:
1. foreign exchange and political risks,
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2. market imperfections, and ty ty



3. expanded opportunity set. ty ty




3. Discuss the major trends that have prevailed in international business during the last two decades.
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Answer: The 2000s brought a rapid integration of international capital and financial markets. Impetus
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ty for t y globalized financial markets initially came from the governments of major countries that had begun
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ty to t y deregulate their foreign exchange and capital markets. The economic
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, integration and globalization that began in the eighties and nineties are picking up speed in the 2000s.
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Trade
ty t y liberalization and economic integration continued to proceed at both the regional and global
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ty levels. Despite ty t y sovereign debt crisis in Europe, more EU member countries have adopted the common
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currency, the euro,
ty ty ty t y that effectively became the second global currency after the U.S. dollar. In the last
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few years, however,
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Brexit decision of the United
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―America First‖ policies of the Trump Administration. To the extent that economic nationalism is a
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ty populist t y response to the global financial crisis and Great Recession, it may subside as the world
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economy continues to
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4. How is a country‘s economic well-being enhanced through free international trade in goods and
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services?
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Answer: According to David Ricardo, with free international trade, it is mutually beneficial for two
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ty countries t y to each specialize in the production of the goods that it can produce relatively most
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efficiently and then trade
ty ty ty ty t y those goods. By doing so, the two countries can increase their combined
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ty production, which allows both ty ty ty t y countries to consume more of both goods. This argument remains valid
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even if a country can produce both
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t y International trade is not a ‗zero-sum‘ game ty ty ty ty ty ty t y in which one country benefits at the expense of another
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ty country. Rather, international trade could be an
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‗increasing- sum‘ game from which all players become winners.
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5. What considerations might limit the extent to which the theory of comparative advantage is realistic?
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Answer: The theory of comparative advantage was originally advanced by the nineteenth century
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ty economist t y David Ricardo as an explanation for why nations trade with one another. The theory claims
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ty that economic
ty t y well-being is enhanced if each country produces what it has a comparative advantage in
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producing relative to
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Underlying the theory are the assumptions of free trade between nations and that the factors of
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ty production t y (labor, technological know-how, and capital) are relatively immobile. To the extent that
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ty these assumptions do
ty ty t y not hold, the theory of comparative advantage may not realistically describe
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ty international trade. In addition, ty t y ty t y free trade produces winners and losers and if the losers are not
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ty compensated, free trade may faces political ty ty ty ty ty t y opposition from them. ty ty




6. What are multinational corporations (MNCs) and what economic roles do they play?
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ty

, Answer: A multinational corporation (MNC) can be defined as a business firm incorporated in one
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ty country that ty t y has production and sales operations in many other countries. Indeed, some MNCs have
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ty operations in a few dozens of different countries.
ty ty ty t y ty ty ty ty t y MNCs obtain financing from major money centers
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ty around the world in manyty ty ty ty t y different currencies to finance their operations. Global operations force the
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ty treasurer‘s office to establish ty ty ty t y international banking relationships, to place short-term funds in several ty ty ty ty ty ty ty ty



ty currency denominations, and to ty ty ty t y effectively manage foreign exchange risk. By circumventing and also
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ty taking advantage of various market
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ty people and capital across countries, MNCs
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ty ing more perfect functioning of global markets.
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7. Ross Perot, a former Presidential candidate of the Reform Party, which was a third political party in
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the
ty t y United States, had strongly objected to the creation of the North American Trade Agreement
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(NAFTA), which
ty ty t y nonetheless was inaugurated in 1994. Perot feared the loss of American jobs to
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Mexico where it is much
ty ty ty ty ty t y cheaper to hire workers. What are the merits and demerits of Perot‘s
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ty position on NAFTA? Considering the
ty ty ty ty t y recent economic developments in North America, how would you
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ty assess Perot‘s position on NAFTA?
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Answer: Since the inception of NAFTA, many American companies indeed have invested heavily in
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Mexico,
ty t y sometimes relocating production from the United States to Mexico. Although this might have
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ty temporarily t y caused unemployment of some American workers, they were eventually rehired by other
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ty industries often for ty ty t y higher wages. At the same time, Mexico has been experiencing a major economic
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boom. It seems clear that
ty ty ty ty ty t y both Mexico and the U.S. have benefited from NAFTA. Perot‘s concern
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appears to have been ill founded.
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8. In 1995, a working group of French chief executive officers was set up by the Confederation of French
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t y Industry (CNPF) and the French Association of Private Companies (AFEP) to study the French corporate
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t y governance structure. The group reported the following, among other things: ―The board of directors
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should
ty t y not simply aim at maximizing share values as in the U.K. and the U.S. Rather, its goal should be
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ty to serve the
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employees, creditors,
ty ty t y suppliers and clients but still equated with their general common interest, which
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ty is to safeguard the prosperity
ty ty ty ty t y and continuity of the company‖. Evaluate the above recommendation of
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ty the working group.
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Answer: The recommendations of the French working group clearly show that shareholder wealth
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t y maximization is not a universally accepted goal of corporate management, especially
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