Solution Manual for International Financial Management 10th Edition Cheol Eun – Complete Chapter 1-10 Answers & Problems

SOLUTION MANUAL FOR M M




International Financial Management, 10th Edition EU
M M M M M




N Chapter 1-21
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CHAPTER 1 M



GLOBALIZATIONMANDMTHEMMULTINATIONALMFIRM
ANSWERSM&MSOLUTIONSMTOMEND-OF-CHAPTERMQUESTIONSMANDMPROBLEMS

QUESTIONS

1. WhyMisMitMimportantMtoMstudyMinternationalMfinancialMmanagement?

Answer:MWeMareMnowMlivingMinMaMworldMwhereMallMtheMmajorMeconomicMfunctions,MsuchMasMconsu
mption,Mproduction,Minvestment,MandMfinancing,MareMhighlyMglobalized.MMMItMisMthusMessentialMforMf
inancialMmanagersMtoMfullyMunderstandMvitalMinternationalMdimensionsMofMfinancialMmanagement.M
ThisMglobalMshiftMisMinMmarkedMcontrastMtoMaMsituationMthatMexistedMwhenMtheMauthorsMofMthisMboo
kMwereMlearningMfinanceMaMfewMdecadesMago.MAtMthatMtime,MmostMprofessorsMcustomarilyM(andMsa
fely,MtoMsomeMextent)MignoredMinternationalMaspectsMofMfinance.M ThisMmodeMofMoperationMhasMbe
comeMuntenableMsinceMthen.

2. HowMisMinternationalMfinancialMmanagementMdifferentMfromMdomesticMfinancialMmanagement?

Answer:MThereMareMthreeMmajorMdimensionsMthatMsetMapartMinternationalMfinanceMfromMdomesti
cMfinance.MTheyMare:
1. foreignMexchangeMandMpoliticalMrisks,
2. marketMimperfections,Mand
3. expandedMopportunityMset.

3. DiscussMtheMmajorMtrendsMthatMhaveMprevailedMinMinternationalMbusinessMduringMtheMlastMt
woMdecades.

Answer:MTheM2000sMbroughtMaMrapidMintegrationMofMinternationalMcapitalMandMfinancialMmarkets.
M ImpetusMforMglobalizedMfinancialMmarketsMinitiallyMcameMfromMtheMgovernmentsMofMmajorMcount
riesMthatMhadMbegunMtoMderegulateMtheirMforeignMexchangeMandMcapitalMmarkets.M TheMeconomic




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,integrationMandMglobalizationMthatMbeganMinMtheMeightiesMandMninetiesMareMpickingMupMspeedMin
M theM2000s.MTradeMliberalizationMandMeconomicMintegrationMcontinuedMtoMproceedMatMbothMtheMr
egionalMandMglobalMlevels.MDespiteMsovereignMdebtMcrisisMinMEurope,MmoreMEUMmemberMcountri
esMhaveMadoptedMtheMcommonMcurrency,MtheMeuro,MthatMeffectivelyMbecameMtheMsecondMglobal
M currencyMafterMtheMU.S.Mdollar.MInMtheMlastMfewMyears,Mhowever,MeconomicMnationalismMhasMbe
enMgainingMsomeMpopularity,MasMexemplifiedMbyMtheMBrexitMdecisionMofMtheMUnitedMKingdomMan
dMtheMso-called
―AmericaMFirst‖MpoliciesMofMtheMTrumpMAdministration.MToMtheMextentMthatMeconomicMnationalism
M isMaMpopulistMresponseMtoMtheMglobalMfinancialMcrisisMandMGreatMRecession,MitMmayMsubsideMas
M theMworldMeconomyMcontinuesMtoMrecover.

4. HowMisMaMcountry‘sMeconomicMwell-
beingMenhancedMthroughMfreeMinternationalMtradeMinMgoodsMandMservices?

Answer:MAccordingMtoMDavidMRicardo,MwithMfreeMinternationalMtrade,MitMisMmutuallyMbeneficialMfor
M twoMcountriesMtoMeachMspecializeMinMtheMproductionMofMtheMgoodsMthatMitMcanMproduceMrelativel
yMmostMefficientlyMandMthenMtradeMthoseMgoods.MByMdoingMso,MtheMtwoMcountriesMcanMincreaseMt
heirMcombinedMproduction,MwhichMallowsMbothMcountriesMtoMconsumeMmoreMofMbothMgoods.MThi
sMargumentMremainsMvalidMevenMifMaMcountryMcanMproduceMbothMgoodsMmoreMefficientlyMinMabso
luteMtermsMthanMtheMotherMcountry.M InternationalMtradeMisMnotMaM‗zero-
sum‘MgameMinMwhichMoneMcountryMbenefitsMatMtheMexpenseMofManotherMcountry.MRather,Minternati
onalMtradeMcouldMbeManM‗increasing-Msum‘MgameMfromMwhichMallMplayersMbecomeMwinners.

5. WhatMconsiderationsMmightMlimitMtheMextentMtoMwhichMtheMtheoryMofMcomparativeMadvantag
eMisMrealistic?

Answer:MTheMtheoryMofMcomparativeMadvantageMwasMoriginallyMadvancedMbyMtheMnineteenthMce
nturyMeconomistMDavidMRicardoMasManMexplanationMforMwhyMnationsMtradeMwithMoneManother.MT
heMtheoryMclaimsMthatMeconomicMwell-
beingMisMenhancedMifMeachMcountryMproducesMwhatMitMhasMaMcomparativeMadvantageMinMproduci
ngMrelativeMtoMotherMcountries,MandMthenMtradeMproducts.
UnderlyingMtheMtheoryMareMtheMassumptionsMofMfreeMtradeMbetweenMnationsMandMthatMtheMfactor
sMofMproductionM(labor,MtechnologicalMknow-
how,MandMcapital)MareMrelativelyMimmobile.MToMtheMextentMthatMtheseMassumptionsMdoMnotMhold,
M theMtheoryMofMcomparativeMadvantageMmayMnotMrealisticallyMdescribeMinternationalMtrade.MInMad
dition,MfreeMtradeMproducesMwinnersMandMlosersMandMifMtheMlosersMareMnotMcompensated,MfreeMtr
adeMmayMfacesMpoliticalMoppositionMfromMthem.

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,6. WhatMareMmultinationalMcorporationsM(MNCs)MandMwhatMeconomicMrolesMdoMtheyMplay?




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, Answer:MAMmultinationalMcorporationM(MNC)McanMbeMdefinedMasMaMbusinessMfirmMincorporatedMin
M oneMcountryMthatMhasMproductionMandMsalesMoperationsMinMmanyMotherMcountries.MIndeed,Msom
eMMNCsMhaveMoperationsMinMaMfewMdozensMofMdifferentMcountries.M MNCsMobtainMfinancingMfrom
M majorMmoneyMcentersMaroundMtheMworldMinMmanyMdifferentMcurrenciesMtoMfinanceMtheirMoperatio
ns.MGlobalMoperationsMforceMtheMtreasurer‘sMofficeMtoMestablishMinternationalMbankingMrelationshi
ps,MtoMplaceMshort-
termMfundsMinMseveralMcurrencyMdenominations,MandMtoMeffectivelyMmanageMforeignMexchangeMri
sk.MByMcircumventingMandMalsoMtakingMadvantageMofMvariousMmarketMimperfections,MsuchMasMbar
riersMtoMtradeMandMbarriersMtoMflowMofMpeopleMandMcapitalMacrossMcountries,MMNCsMcontributeMto
M greaterMintegrationMofMtheMworldMeconomyMandMingMmoreMperfectMfunctioningMofMglobalMmarkets.

7. RossMPerot,MaMformerMPresidentialMcandidateMofMtheMReformMParty,MwhichMwasMaMthirdMpolit
icalMpartyMinMtheMUnitedMStates,MhadMstronglyMobjectedMtoMtheMcreationMofMtheMNorthMAmericanMT
radeMAgreementM(NAFTA),MwhichMnonethelessMwasMinauguratedMinM1994.MPerotMfearedMtheMlos
sMofMAmericanMjobsMtoMMexicoMwhereMitMisMmuchMcheaperMtoMhireMworkers.MWhatMareMtheMmerits
M andMdemeritsMofMPerot‘sMpositionMonMNAFTA?MConsideringMtheMrecentMeconomicMdevelopment
sMinMNorthMAmerica,MhowMwouldMyouMassessMPerot‘sMpositionMonMNAFTA?

Answer:MSinceMtheMinceptionMofMNAFTA,MmanyMAmericanMcompaniesMindeedMhaveMinvestedMh
eavilyMinMMexico,MsometimesMrelocatingMproductionMfromMtheMUnitedMStatesMtoMMexico.MAlthou
ghMthisMmightMhaveMtemporarilyMcausedMunemploymentMofMsomeMAmericanMworkers,MtheyMwere
M eventuallyMrehiredMbyMotherMindustriesMoftenMforMhigherMwages.MAtMtheMsameMtime,MMexicoMha
sMbeenMexperiencingMaMmajorMeconomicMboom.MItMseemsMclearMthatMbothMMexicoMandMtheMU.S.
M haveMbenefitedMfromMNAFTA.MPerot‘sMconcernMappearsMtoMhaveMbeenMillMfounded.

8. InM1995,MaMworkingMgroupMofMFrenchMchiefMexecutiveMofficersMwasMsetMupMbyMtheMConfedera
tionMofMFrenchMIndustryM(CNPF)MandMtheMFrenchMAssociationMofMPrivateMCompaniesM(AFEP)MtoMs
tudyMtheMFrenchMcorporateMgovernanceMstructure.MTheMgroupMreportedMtheMfollowing,MamongMot
herMthings:MM―TheMboardMofMdirectorsMshouldMnotMsimplyMaimMatMmaximizingMshareMvaluesMasMinMth
eMU.K.MandMtheMU.S.MRather,MitsMgoalMshouldMbeMtoMserveMtheMcompany,MwhoseMinterestsMshould
M beMclearlyMdistinguishedMfromMthoseMofMitsMshareholders,Memployees,Mcreditors,MsuppliersMandMcl
ientsMbutMstillMequatedMwithMtheirMgeneralMcommonMinterest,MwhichMisMtoMsafeguardMtheMprosperit
yMandMcontinuityMofMtheMcompany‖.MEvaluateMtheMaboveMrecommendationMofMtheMworkingMgroup.

Answer:MTheMrecommendationsMofMtheMFrenchMworkingMgroupMclearlyMshowMthatMshareholderM
wealthMmaximizationMisMnotMaMuniversallyMacceptedMgoalMofMcorporateMmanagement,Mespecially



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