International Financial Management
Exam #1 correctly answered to pass
Chapter 1 - correct answer ✔✔Introduction
3 major dimensions that set international finance apart from 'domestic' finance - correct answer
✔✔1. Foreign Exchange and Political Risks
2. Market Imperfections
3. Expanded Opportunity Set
Exchange Rate Risk - correct answer ✔✔The risk that a company's profits and value may be
affected due to unanticipated unfavorable exchange rate movements
Political Risk - correct 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 o 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
Market Imperfections - correct 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 - correct 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 - correct 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 - correct answer ✔✔Factors that help
globalize:
Deregulation, advances in computer and telecommunication technology (fast access to info &
lower transaction cost), financial innovations (derivatives)
2. The emergence of the euro as a global currency - correct answer ✔✔Launched in 1999, 19
countries currently using
3. Continued trade liberalization and economic integration - correct answer ✔✔World Trade
Organization (WTO): Enforce the rules of international trade, lower trade barriers around the
world, promote free trade between developed and developing countries
European Union: Eliminate barriers to free flow of goods, capital, and people
NAFTA: Free trade zone among US, Canada, and Mexico
4. Large-scale privatization of state-owned enterprises - correct answer ✔✔A country divests
itself of the ownership and operation of a business venture by turning it over to the free market
system
Benefits: It brings to the national treasury hard-currency foreign reserves, increases the
efficiency, reduces the cost
Exam #1 correctly answered to pass
Chapter 1 - correct answer ✔✔Introduction
3 major dimensions that set international finance apart from 'domestic' finance - correct answer
✔✔1. Foreign Exchange and Political Risks
2. Market Imperfections
3. Expanded Opportunity Set
Exchange Rate Risk - correct answer ✔✔The risk that a company's profits and value may be
affected due to unanticipated unfavorable exchange rate movements
Political Risk - correct 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 o 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
Market Imperfections - correct 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 - correct 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 - correct 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 - correct answer ✔✔Factors that help
globalize:
Deregulation, advances in computer and telecommunication technology (fast access to info &
lower transaction cost), financial innovations (derivatives)
2. The emergence of the euro as a global currency - correct answer ✔✔Launched in 1999, 19
countries currently using
3. Continued trade liberalization and economic integration - correct answer ✔✔World Trade
Organization (WTO): Enforce the rules of international trade, lower trade barriers around the
world, promote free trade between developed and developing countries
European Union: Eliminate barriers to free flow of goods, capital, and people
NAFTA: Free trade zone among US, Canada, and Mexico
4. Large-scale privatization of state-owned enterprises - correct answer ✔✔A country divests
itself of the ownership and operation of a business venture by turning it over to the free market
system
Benefits: It brings to the national treasury hard-currency foreign reserves, increases the
efficiency, reduces the cost
