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

SOLUTION MANUAL FOR
International Financial Management, 10th Edition EUN
Chapter 1-21


CHAPTER 1
GLOBALIZATION AND THE MULTINATIONAL FIRM
ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS

QUESTIONS

1. Why59is59it59important59to59study59international59financial59management?

Answer:5 9 We59are59now59living59in59a59world59where59all59the59major59economic59functions,59
such59as59consumption,59production,59investment,59and59financing,59are59highly59globalized.5
9 It59is59thus59essential5 9 for59financial59managers59to59fully59understand59vital59international59
dimensions59of59financial59management.5 9 This59global59shift59is59in59marked59contrast59to59a5
9situation59that59existed59when59the59authors59of59this59book59were59learning59finance59a59few

59decades59ago.5 9 At59that59time,59most59professors59customarily59(and59safely,59to59some59ex

tent)59ignored59international59aspects59of59finance.5 9 This59mode59of59operation59has59becom
e59untenable59since59then.

2. How59is59international59financial59management59different59from59domestic59financial59management?

Answer:5 9 There59are59three59major59dimensions59that59set59apart59international59finance59fro
m59domestic59finance.59They59are:
1. foreign59exchange59and59political59risks,
2. market59imperfections,59and
3. expanded59opportunity59set.

3. Discuss59the59major59trends59that59have59prevailed59in59international59business59during
59the59last59two59decades.


Answer:5 9 The592000s59brought59a59rapid59integration59of59international59capital59and59financi
al59markets.59Impetus59for59globalized59financial59markets59initially59came59from59the59govern
ments59of59major59countries59that59had59begun59to59deregulate59their59foreign59exchange59an
d59capital59markets.5 9 The59economic

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,integration59and59globalization59that59began59in59the59eighties59and59nineties59are59picking59u
p59speed59in59the592000s.59Trade59liberalization59and59economic59integration59continued59to5
9proceed59at59both59the59regional59and59global59levels.59Despite59sovereign59debt59crisis59in5

9Europe,59more59EU59member59countries59have59adopted59the59common59currency,59the59eu

ro,59that59effectively59became59the59second59global59currency59after59the59U.S.59dollar.59In59t
he59last59few59years,59however,59economic59nationalism59has59been59gaining59some59popula
rity,59as59exemplified59by59the59Brexit59decision59of59the59United59Kingdom59and59the59so-
called
―America59First‖59policies59of59the59Trump59Administration.59To59the59extent59that59economic59
nationalism59is59a59populist59response59to59the59global59financial59crisis59and59Great59Recess
ion,59it59may59subside59as59the59world59economy59continues59to59recover.

4. How59is59a59country‘s59economic59well-
being59enhanced59through59free59international59trade59in59goods59and59services?

Answer:5 9 According59to59David59Ricardo,59with59free59international59trade,59it59is59mutually59
beneficial59for59two59countries59to59each59specialize59in59the59production59of59the59goods59th
at59it59can59produce59relatively59most59efficiently59and59then59trade59those59goods.5 9 By59doi
ng59so,59the59two59countries59can59increase59their59combined59production,59which59allows59b
oth59countries59to59consume59more59of59both59goods.59This59argument59remains59valid59even
59if59a59country59can59produce59both59goods59more59efficiently59in59absolute59terms59than59th

e59other59country.5 9 International59trade59is59not59a59‗zero-
sum‘59game59in59which59one59country59benefits59at59the59expense59of59another59country.59Rat
her,59international59trade59could59be59an59‗increasing-
59sum‘59game59from59which59all59players59become59winners.


5. What59considerations59might59limit59the59extent59to59which59the59theory59of59comparative
59advantage59is59realistic?


Answer:5 9 The59theory59of59comparative59advantage59was59originally59advanced59by59the59ni
neteenth59century59economist59David59Ricardo59as59an59explanation59for59why59nations59trad
e59with59one59another.59The59theory59claims59that59economic59well-
being59is59enhanced59if59each59country59produces59what59it59has59a59comparative59advantag
e59in59producing59relative59to59other59countries,59and59then59trade59products.
Underlying59the59theory59are59the59assumptions59of59free59trade59between59nations59and59tha
t59the59factors59of59production59(labor,59technological59know-
how,59and59capital)59are59relatively59immobile.5 9 To59the59extent59that59these59assumptions59
do59not59hold,59the59theory59of59comparative59advantage59may59not59realistically59describe59i
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,nternational59trade.5 9 In59addition,59free59trade59produces59winners59and59losers59and59if59the
59losers59are59not59compensated,59free59trade59may59faces59political59opposition59from59them

.

6. What59are59multinational59corporations59(MNCs)59and59what59economic59roles59do59they59play?




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, Answer:5 9 A59multinational59corporation59(MNC)59can59be59defined59as59a59business59firm59in
corporated59in59one59country59that59has59production59and59sales59operations59in59many59othe
r59countries.59Indeed,59some59MNCs59have59operations59in59a59few59dozens59of59different59co
untries.5 9 MNCs59obtain59financing59from59major59money59centers59around59the59world59in59
many59different59currencies59to59finance59their59operations.59Global59operations59force59the59t
reasurer‘s59office59to59establish59international59banking59relationships,59to59place59short-
term59funds59in59several59currency59denominations,59and59to59effectively59manage59foreign59e
xchange59risk.5 9 By59circumventing59and59also59taking59advantage59of59various59market59imp
erfections,59such59as59barriers59to59trade59and59barriers59to59flow59of59people59and59capital59a
cross59countries,59MNCs59contribute59to59greater59integration59of59the59world59economy59and5
9ing59more59perfect59functioning59of59global59markets.


7. Ross59Perot,59a59former59Presidential59candidate59of59the59Reform59Party,59which59was59
a59third59political59party59in59the59United59States,59had59strongly59objected59to59the59creation5
9of59the59North59American59Trade59Agreement59(NAFTA),59which59nonetheless59was59inaugu

rated59in591994.59Perot59feared59the59loss59of59American59jobs59to59Mexico59where59it59is59m
uch59cheaper59to59hire59workers.59What59are59the59merits59and59demerits59of59Perot‘s59positi
on59on59NAFTA?59Considering59the59recent59economic59developments59in59North59America,5
9how59would59you59assess59Perot‘s59position59on59NAFTA?


Answer:59Since59the59inception59of59NAFTA,59many59American59companies59indeed59have59i
nvested59heavily59in59Mexico,59sometimes59relocating59production59from59the59United59States
59to59Mexico.59Although59this59might59have59temporarily59caused59unemployment59of59some5

9American59workers,59they59were59eventually59rehired59by59other59industries59often59for59high

er59wages.59At59the59same59time,59Mexico59has59been59experiencing59a59major59economic59
boom.59It59seems59clear59that59both59Mexico59and59the59U.S.59have59benefited59from59NAFT
A.59Perot‘s59concern59appears59to59have59been59ill59founded.

8. In591995,59a59working59group59of59French59chief59executive59officers59was59set59up59by59t
he59Confederation59of59French59Industry59(CNPF)59and59the59French59Association59of59Private
59Companies59(AFEP)59to59study59the59French59corporate59governance59structure.59The59grou

p59reported59the59following,59among59other59things:5 9 ―The59board59of59directors59should59not5
9simply59aim59at59maximizing59share59values59as59in59the59U.K.59and59the59U.S.59Rather,59its5

9goal59should59be59to59serve59the59company,59whose59interests59should59be59clearly59distingui

shed59from59those59of59its59shareholders,59employees,59creditors,59suppliers59and59clients59bu
t59still59equated59with59their59general59common59interest,59which59is59to59safeguard59the59pros
perity59and59continuity59of59the59company‖.59Evaluate59the59above59recommendation59of59the5

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9CONSENT59OF59MCGRAW59HILL59LLC