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

©MCGRAW ssHILL ssLLC. ssALL ssRIGHTS ssRESERVED. ssNO ssREPRODUCTION ssOR ssDISTRIBUTION ssWITHOUT ssTHE ssPRIOR ssWRITTEN ssCONSENT ssOF
MCGRAW HILL LLC

,SOLUTION MANUAL FOR ss ss




International Financial Management, 10th Edition EUN ss ss ss ss ss




ss Chapter 1-21 ss




CHAPTER 1 ss




GLOBALIZATION AND THE MULTINATIONAL FIRM ss ss ss ss




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




QUESTIONS

1. Why is it important to study international financial management?
ss ss ss ss ss ss ss ss




Answer: s s We are now living in a world where all the major economic functions, such as
ss ss ss ss ss ss ss ss ss ss ss ss ss ss




ss consumption, production, investment, and financing, are highly globalized.
ss ss ss ss ss ss ss s s It is thusss ss




ss essential for financial managers to fully understand vital international dimensions of financial
s s ss ss ss ss ss ss ss ss ss ss




ss management. s s This global shift is in marked contrast to a situation that existed when the
ss ss ss ss ss ss ss ss ss ss ss ss ss




ss authors of this book were learning finance a few decades ago. At that time, most professors
ss ss ss ss ss ss ss ss ss ss s s ss ss ss ss




ss customarily (and safely, to some extent) ignored international aspects of finance.
ss ss ss ss ss ss ss ss ss ss s s This
ss mode of operation has become untenable since then.
ss ss ss ss ss ss ss




2. How is international financial management different from domestic financial management?
ss ss ss ss ss ss ss ss ss




Answer: There are three major dimensions that set apart international finance from domestic
s s ss ss ss ss ss ss ss ss ss ss ss




ss finance. They are:
ss ss




1. foreign exchange and political risks, ss ss ss ss




2. market imperfections, and ss ss




3. expanded opportunity set. ss ss




3. Discuss the major trends that have prevailed in international business during the last
ss ss ss ss ss ss ss ss ss ss ss ss




ss two decades.
ss




Answer: The 2000s brought a rapid integration of international capital and financial markets.
s s ss ss ss ss ss ss ss ss ss ss ss




ss Impetus for globalized financial markets initially came from the governments of major
ss ss ss ss ss ss ss ss ss ss ss




ss countries that had begun to deregulate their foreign exchange and capital markets. The
ss ss ss ss ss ss ss ss ss ss ss s s




ss economic


©MCGRAW ssHILL ssLLC. ssALL ssRIGHTS ssRESERVED. ssNO ssREPRODUCTION ssOR ssDISTRIBUTION ssWITHOUT ssTHE ssPRIOR ssWRITTEN ssCONSENT ssOF
MCGRAW HILL LLC

,integration and globalization that began in the eighties and nineties are picking up speed in
ss ss ss ss ss ss ss ss ss ss ss ss ss ss




ss the 2000s. Trade liberalization and economic integration continued to proceed at both the
ss ss ss ss ss ss ss ss ss ss ss ss




ss regional and global levels. Despite sovereign debt crisis in Europe, more EU member
ss ss ss ss ss ss ss ss ss ss ss ss




ss countries have adopted the common currency, the euro, that effectively became the second
ss ss ss ss ss ss ss ss ss ss ss ss




ss global currency after the U.S. dollar. In the last few years, however, economic nationalism
ss ss ss ss ss ss ss ss ss ss ss ss ss




ss has been gaining some popularity, as exemplified by the Brexit decision of the United
ss ss ss ss ss ss ss ss ss ss ss ss ss




Kingdom and the so-called
ss ss ss ss




―America First‖ policies of the Trump Administration. To the extent that economic nationalism
ss ss ss ss ss ss ss ss ss ss ss ss




ss is a populist response to the global financial crisis and Great Recession, it may subside as
ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss




ss the world economy continues to recover.
ss ss ss ss ss




4. How is a country‘s economic well-being enhanced through free international trade in
ss ss ss ss ss ss ss ss ss ss ss




ss goods and services? ss ss




Answer: According to David Ricardo, with free international trade, it is mutually beneficial
s s ss ss ss ss ss ss ss ss ss ss ss




ss for two countries to each specialize in the production of the goods that it can produce
ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss




ss relatively most efficiently and then trade those goods. By doing so, the two countries can
ss ss ss ss ss ss ss s s ss ss ss ss ss ss




ss increase their combined production, which allows both countries to consume more of both
ss ss ss ss ss ss ss ss ss ss ss ss




ss goods. This argument remains valid even if a country can produce both goods more
ss ss ss ss ss ss ss ss ss ss ss ss ss




ss efficiently in absolute terms than the other country. International trade is not a ‗zero-sum‘
ss ss ss ss ss ss ss s s ss ss ss ss ss




game in which one country benefits at the expense of another country. Rather, international
ss ss ss ss ss ss ss ss ss ss ss ss ss ss




ss trade could be an ‗increasing- sum‘ game from which all players become winners.
ss ss ss ss ss ss ss ss ss ss ss ss




5. What considerations might limit the extent to which the theory of comparative advantage
ss ss ss ss ss ss ss ss ss ss ss ss




ss is realistic?
ss




Answer: The theory of comparative advantage was originally advanced by the nineteenth
s s ss ss ss ss ss ss ss ss ss ss




ss century economist David Ricardo as an explanation for why nations trade with one another.
ss ss ss ss ss ss ss ss ss ss ss ss ss




ss The theory claims that economic well-being is enhanced if each country produces what it
ss ss ss ss ss ss ss ss ss ss ss ss ss




ss has a comparative advantage in producing relative to other countries, and then trade
ss ss ss ss ss ss ss ss ss ss ss ss




ss products.
Underlying the theory are the assumptions of free trade between nations and that the factors
ss ss ss ss ss ss ss ss ss ss ss ss ss ss




ss of production (labor, technological know-how, and capital) are relatively immobile. To the
ss ss ss ss ss ss ss ss ss s s ss




ss extent that these assumptions do not hold, the theory of comparative advantage may not
ss ss ss ss ss ss ss ss ss ss ss ss ss




ss realistically describe international trade. In addition, free trade produces winners and losers
ss ss ss s s ss ss ss ss ss ss ss




ss and if the losers are not compensated, free trade may faces political opposition from them.
ss ss ss ss ss ss ss ss ss ss ss ss ss ss




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




©MCGRAW ssHILL ssLLC. ssALL ssRIGHTS ssRESERVED. ssNO ssREPRODUCTION ssOR ssDISTRIBUTION ssWITHOUT ssTHE ssPRIOR ssWRITTEN ssCONSENT ssOF
MCGRAW HILL LLC

, Answer: A multinational corporation (MNC) can be defined as a business firm incorporated
s s ss ss ss ss ss ss ss ss ss ss ss




ss in one country that has production and sales operations in many other countries. Indeed,
ss ss ss ss ss ss ss ss ss ss ss ss ss




ss some MNCs have operations in a few dozens of different countries.
ss ss ss ss ss ss ss ss ss ss s s MNCs obtain ss




ss financing from major money centers around the world in many different currencies to finance
ss ss ss ss ss ss ss ss ss ss ss ss ss




ss their operations. Global operations force the treasurer‘s office to establish international
ss ss ss ss ss ss ss ss ss ss




ss banking relationships, to place short-term funds in several currency denominations, and to
ss ss ss ss ss ss ss ss ss ss ss




ss effectively manage foreign exchange risk. By circumventing and also taking advantage of
ss ss ss ss s s ss ss ss ss ss ss




ss various market imperfections, such as barriers to trade and barriers to flow of people and
ss ss ss ss ss ss ss ss ss ss ss ss ss ss




ss capital across countries, MNCs contribute to greater integration of the world economy and ing
ss ss ss ss ss ss ss ss ss ss ss ss ss




ss more perfect functioning of global markets.
ss ss ss ss ss




7. Ross Perot, a former Presidential candidate of the Reform Party, which was a third
ss ss ss ss ss ss ss ss ss ss ss ss ss




ss political party in the United States, had strongly objected to the creation of the North
ss ss ss ss ss ss ss ss ss ss ss ss ss ss




ss American Trade Agreement (NAFTA), which nonetheless was inaugurated in 1994. Perot
ss ss ss ss ss ss ss ss ss ss




ss feared the loss of American jobs to Mexico where it is much cheaper to hire workers. What
ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss




ss are the merits and demerits of Perot‘s position on NAFTA? Considering the recent economic
ss ss ss ss ss ss ss ss ss ss ss ss ss




ss developments in North America, how would you assess Perot‘s position on NAFTA?
ss ss ss ss ss ss ss ss ss ss ss




Answer: Since the inception of NAFTA, many American companies indeed have invested
ss ss ss ss ss ss ss ss ss ss ss




ss heavily in Mexico, sometimes relocating production from the United States to Mexico.
ss ss ss ss ss ss ss ss ss ss ss




ss Although this might have temporarily caused unemployment of some American workers,
ss ss ss ss ss ss ss ss ss ss




ss they were eventually rehired by other industries often for higher wages. At the same time,
ss ss ss ss ss ss ss ss ss ss ss ss ss ss




ss Mexico has been experiencing a major economic boom. It seems clear that both Mexico and
ss ss ss ss ss ss ss ss ss ss ss ss ss ss




ss the U.S. have benefited from NAFTA. Perot‘s concern appears to have been ill founded.
ss ss ss ss ss ss ss ss ss ss ss ss ss




8. In 1995, a working group of French chief executive officers was set up by the
ss ss ss ss ss ss ss ss ss ss ss ss ss ss




ss Confederation of French Industry (CNPF) and the French Association of Private Companies
ss ss ss ss ss ss ss ss ss ss ss




ss (AFEP) to study the French corporate governance structure. The group reported the
ss ss ss ss ss ss ss ss ss ss ss




ss following, among other things: ―The board of directors should not simply aim at maximizing
ss ss ss s s ss ss ss ss ss ss ss ss ss




ss share values as in the U.K. and the U.S. Rather, its goal should be to serve the company,
ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss




ss whose interests should be clearly distinguished from those of its shareholders, employees,
ss ss ss ss ss ss ss ss ss ss ss




ss creditors, suppliers and clients but still equated with their general common interest, which is
ss ss ss ss ss ss ss ss ss ss ss ss ss




ss to safeguard the prosperity and continuity of the company‖. Evaluate the above
ss ss ss ss ss ss ss ss ss ss ss




ss recommendation of the working group. ss ss ss ss




Answer: The recommendations of the French working group clearly show that shareholder
ss ss ss ss ss ss ss ss ss ss ss




ss wealth maximization is not a universally accepted goal of corporate management, especially
ss ss ss ss ss ss ss ss ss ss ss




©MCGRAW ssHILL ssLLC. ssALL ssRIGHTS ssRESERVED. ssNO ssREPRODUCTION ssOR ssDISTRIBUTION ssWITHOUT ssTHE ssPRIOR ssWRITTEN ssCONSENT ssOF
MCGRAW HILL LLC