SOLUTION MANUAL FOR ll ll
International Financial Management, 10th Edition EUN Chapter l l l l l ll
ll 1-21
CHAPTER 1 l
GLOBALIZATION AND THE MULTINATIONAL FIRM ll ll ll ll
ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS
ll ll ll ll ll ll ll
QUESTIONS
1. Why is it important to study international financial management?
l ll ll l l l l ll
Answer: We are now living in a world where all the major economic functions, such as
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll consumption, production, investment, and financing, are highly globalized. It is thus essential
ll ll ll ll ll ll ll l l ll ll ll
l l for financial managers to fully understand vital international dimensions of financial
ll ll ll ll ll ll ll ll ll ll
ll management. This global shift is in marked contrast to a situation that existed when the
l l ll ll ll ll ll ll ll ll ll ll ll ll ll
ll authors of this book were learning finance a few decades ago. At that time, most professors
ll ll ll ll ll ll ll ll ll ll l l ll ll ll ll
ll customarily (and safely, to some extent) ignored international aspects of finance. This mode of
ll ll ll ll ll ll ll ll ll ll l l ll ll
ll operation has become untenable since then.
l l ll ll ll ll
2. How is international financial management different from domestic financial management?
l l l l l l l l l
Answer: There are three major dimensions that set apart international finance from domestic
l l ll ll ll ll ll ll ll ll ll ll ll
ll finance. They are:
ll ll
1. foreign exchange and political risks, ll ll ll ll
2. market imperfections, and ll ll
3. expanded opportunity set. ll ll
3. Discuss the major trends that have prevailed in international business during the last two
ll ll ll ll ll ll ll ll ll ll ll ll ll
ll decades.
Answer: The 2000s brought a rapid integration of international capital and financial markets.
l l ll ll ll ll ll ll ll ll ll ll ll
ll Impetus for globalized financial markets initially came from the governments of major countries
ll ll ll ll ll ll ll ll ll ll ll ll
ll that had begun to deregulate their foreign exchange and capital markets. The economic
ll ll ll ll ll ll ll ll ll ll l l ll
,integration and globalization that began in the eighties and nineties are picking up speed in the
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
2000s. Trade liberalization and economic integration continued to proceed at both the regional
ll ll ll ll ll ll ll ll ll ll ll ll ll
and global levels. Despite sovereign debt crisis in Europe, more EU member countries have
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
adopted the common currency, the euro, that effectively became the second global currency
ll ll ll ll ll ll ll ll ll ll ll ll ll
after the U.S. dollar. In the last few years, however, economic nationalism has been gaining
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
some popularity, as exemplified by the Brexit decision of the United Kingdom and the so-called
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
―America First‖ policies of the Trump Administration. To the extent that economic nationalism is a
l ll ll ll l l ll l l ll ll ll ll ll
populist response to the global financial crisis and Great Recession, it may subside as the
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
world economy continues to recover.
ll ll ll ll ll
4. How is a country‘s economic well-being enhanced through free international trade in goods
ll ll ll ll ll ll ll ll ll ll ll ll
and services?
ll ll
Answer: According to David Ricardo, with free international trade, it is mutually beneficial for
l l ll ll ll ll ll ll ll ll ll ll ll ll
two countries to each specialize in the production of the goods that it can produce relatively
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
most efficiently and then trade those goods. By doing so, the two countries can increase their
ll ll ll ll ll ll ll l l ll ll ll ll ll ll ll ll
combined production, which allows both countries to consume more of both goods. This
ll ll ll ll ll ll ll ll ll ll ll ll ll
argument remains valid even if a country can produce both goods more efficiently in absolute
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
terms than the other country. International trade is not a ‗zero-sum‘ game in which one country
ll ll ll l ll l l ll ll ll ll ll l l ll ll ll
benefits at the expense of another country. Rather, international trade could be an ‗increasing-
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
sum‘ game from which all players become winners.
ll ll ll ll ll ll ll ll
5. What considerations might limit the extent to which the theory of comparative advantage is
ll ll ll ll ll ll ll ll ll ll ll ll ll
realistic?
ll
Answer: The theory of comparative advantage was originally advanced by the nineteenth
l l ll ll ll ll ll ll ll ll ll ll
century economist David Ricardo as an explanation for why nations trade with one another.
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
The theory claims that economic well-being is enhanced if each country produces what it has a
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
comparative advantage in producing relative to other countries, and then trade products.
ll ll ll ll ll ll ll ll ll ll ll ll
Underlying the theory are the assumptions of free trade between nations and that the factors of
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
production (labor, technological know-how, and capital) are relatively immobile. To the extent
ll ll ll ll ll ll ll ll ll l l ll ll
that these assumptions do not hold, the theory of comparative advantage may not realistically
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
describe international trade. In addition, free trade produces winners and losers and if the
ll ll ll l l ll ll ll ll ll ll ll ll ll ll
ll losers are not compensated, free trade may faces political opposition from them.
ll ll ll ll ll ll ll ll ll ll ll
6. What are multinational corporations (MNCs) and what economic roles do they play?
l l l l ll l ll l l l l
,Answer: A multinational corporation (MNC) can be defined as a business firm incorporated in
l l ll ll ll ll ll ll ll ll ll ll ll ll
one country that has production and sales operations in many other countries. Indeed, some
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
MNCs have operations in a few dozens of different countries.
ll ll ll ll ll ll ll ll ll ll l l MNCs obtain financing from ll ll ll
major money centers around the world in many different currencies to finance their operations.
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
Global operations force the treasurer‘s office to establish international banking relationships, to
ll ll ll ll ll ll ll ll ll ll ll ll
place short-term funds in several currency denominations, and to effectively manage foreign
ll ll ll ll ll ll ll ll ll ll ll ll
exchange risk. By circumventing and also taking advantage of various market imperfections,
ll ll l l ll ll ll ll ll ll ll ll ll
such as barriers to trade and barriers to flow of people and capital across countries, MNCs
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
contribute to greater integration of the world economy and ing more perfect functioning of global
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
markets.
ll
7. Ross Perot, a former Presidential candidate of the Reform Party, which was a third political
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
party in the United States, had strongly objected to the creation of the North American Trade
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
Agreement (NAFTA), which nonetheless was inaugurated in 1994. Perot feared the loss of
ll ll ll ll ll ll ll ll ll ll ll ll ll
American jobs to Mexico where it is much cheaper to hire workers. What are the merits and
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
demerits of Perot‘s position on NAFTA? Considering the recent economic developments in
ll ll ll ll ll ll ll ll ll ll ll ll
North America, how would you assess Perot‘s position on NAFTA?
ll ll ll ll ll ll ll ll ll ll
Answer: Since the inception of NAFTA, many American companies indeed have invested
ll ll ll ll ll ll ll ll ll ll ll
heavily in Mexico, sometimes relocating production from the United States to Mexico. Although
ll ll ll ll ll ll ll ll l ll l ll ll
this might have temporarily caused unemployment of some American workers, they were
ll ll ll ll ll ll ll ll ll ll ll ll
eventually rehired by other industries often for higher wages. At the same time, Mexico has
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
been experiencing a major economic boom. It seems clear that both Mexico and the U.S. have
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
benefited from NAFTA. Perot‘s concern appears to have been ill founded.
ll ll ll ll ll ll ll ll ll ll ll
8. In 1995, a working group of French chief executive officers was set up by the Confederation
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
of French Industry (CNPF) and the French Association of Private Companies (AFEP) to study
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
the French corporate governance structure. The group reported the following, among other
ll ll ll ll ll ll ll ll ll ll ll ll
things: ―The board of directors should not simply aim at maximizing share values as in the
ll l l ll ll ll ll ll ll ll ll ll ll ll ll ll ll
U.K. and the U.S. Rather, its goal should be to serve the company, whose interests should be
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
clearly distinguished from those of its shareholders, employees, creditors, suppliers and clients
ll ll ll ll ll ll ll ll ll ll ll ll
but still equated with their general common interest, which is to safeguard the prosperity and
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
continuity of the company‖. Evaluate the above recommendation of the working group.
ll ll ll ll ll ll ll ll ll ll ll ll
Answer: The recommendations of the French working group clearly show that shareholder
ll ll ll ll ll ll ll ll ll ll ll
wealth maximization is not a universally accepted goal of corporate management, especially
ll ll ll ll ll l ll ll ll ll l ll
, outside the United States and possibly a few other Anglo-Saxon countries including the United
ll ll ll ll ll ll ll ll ll ll ll ll ll
ll Kingdom and Canada. To some extent, this may reflect the fact that share ownership is not wide
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll spread in most other countries. ll ll ll ll
9. Emphasizing the importance of voluntary compliance, as opposed to enforcement, in the ll ll ll ll ll ll ll ll ll ll ll
ll aftermath of such corporate scandals as those involving Enron and WorldCom, U.S. President
ll ll ll ll ll ll ll ll ll l ll ll
ll George W. Bush stated that while tougher laws might help, ―ultimately, the ethics of American
l ll ll ll ll ll ll ll ll ll ll ll ll ll
ll business depends on the conscience of America‘s business leaders.‖ Describe your view on
ll ll ll ll ll ll ll ll l l ll ll ll
ll this statement. ll
Answer: There can be different answers to this question. If business leaders always behave
l l ll ll ll ll ll ll ll ll ll ll ll ll
l l with a high ethical standard, many of the corporate scandals we have seen lately might not
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll have happened. Since we cannot fully depend on the ethical behavior on the part of individual
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll business leaders, the society should protect itself by adopting the rules/regulations and
ll ll ll ll ll ll ll ll ll ll ll
ll governance structure that would induce business leaders to behave in the interest of the society
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll at large. But at the same time, we need to make sure that excessive regulations do not stymy
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll free enterprises, an important engine of economic growth. It is important to strike the right
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll balance.
10. Suppose you are interested in investing in shares of Samsung Electronics of Korea, which ll ll ll ll ll ll ll ll ll ll ll ll ll
ll is a world leader in mobile phones, TVs, and home appliances. But before you make investment
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll decision, you would like to learn about the company. and collect information about Samsung
ll ll ll ll ll ll ll ll ll ll ll ll ll
ll Electronics, including the recent stock price history and analysts‘ views of the company. Discuss
ll ll ll ll ll ll ll ll ll ll ll ll ll
ll what you learn about the company. Also discuss how the instantaneous access to information
ll ll ll ll ll ll ll ll ll ll ll ll ll
ll via internet would affect the nature and workings of financial markets.
ll ll ll l l ll ll ll ll ll ll
Answer: As students might have learned from visiting the website, information is readily
ll ll ll ll ll ll ll ll ll ll ll ll
ll available even for foreign companies like Samsung Electronics. Ready access to international
ll ll ll ll ll ll ll ll ll ll ll
ll information helps integrate financial markets, dismantling barriers to international investment
ll ll ll ll ll ll ll ll ll
ll and financing. Integration, however, may help a financial shock in one market to be quickly
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll transmitted to other markets. ll ll ll
11. Most companies make corporate decisions to maximize their profits, without taking into
ll ll ll ll ll ll ll ll ll ll ll
ll consideration the possibly negative effects of corporate activities on the environments, thereby
ll ll ll ll ll ll ll ll ll ll ll
International Financial Management, 10th Edition EUN Chapter l l l l l ll
ll 1-21
CHAPTER 1 l
GLOBALIZATION AND THE MULTINATIONAL FIRM ll ll ll ll
ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS
ll ll ll ll ll ll ll
QUESTIONS
1. Why is it important to study international financial management?
l ll ll l l l l ll
Answer: We are now living in a world where all the major economic functions, such as
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll consumption, production, investment, and financing, are highly globalized. It is thus essential
ll ll ll ll ll ll ll l l ll ll ll
l l for financial managers to fully understand vital international dimensions of financial
ll ll ll ll ll ll ll ll ll ll
ll management. This global shift is in marked contrast to a situation that existed when the
l l ll ll ll ll ll ll ll ll ll ll ll ll ll
ll authors of this book were learning finance a few decades ago. At that time, most professors
ll ll ll ll ll ll ll ll ll ll l l ll ll ll ll
ll customarily (and safely, to some extent) ignored international aspects of finance. This mode of
ll ll ll ll ll ll ll ll ll ll l l ll ll
ll operation has become untenable since then.
l l ll ll ll ll
2. How is international financial management different from domestic financial management?
l l l l l l l l l
Answer: There are three major dimensions that set apart international finance from domestic
l l ll ll ll ll ll ll ll ll ll ll ll
ll finance. They are:
ll ll
1. foreign exchange and political risks, ll ll ll ll
2. market imperfections, and ll ll
3. expanded opportunity set. ll ll
3. Discuss the major trends that have prevailed in international business during the last two
ll ll ll ll ll ll ll ll ll ll ll ll ll
ll decades.
Answer: The 2000s brought a rapid integration of international capital and financial markets.
l l ll ll ll ll ll ll ll ll ll ll ll
ll Impetus for globalized financial markets initially came from the governments of major countries
ll ll ll ll ll ll ll ll ll ll ll ll
ll that had begun to deregulate their foreign exchange and capital markets. The economic
ll ll ll ll ll ll ll ll ll ll l l ll
,integration and globalization that began in the eighties and nineties are picking up speed in the
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
2000s. Trade liberalization and economic integration continued to proceed at both the regional
ll ll ll ll ll ll ll ll ll ll ll ll ll
and global levels. Despite sovereign debt crisis in Europe, more EU member countries have
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
adopted the common currency, the euro, that effectively became the second global currency
ll ll ll ll ll ll ll ll ll ll ll ll ll
after the U.S. dollar. In the last few years, however, economic nationalism has been gaining
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
some popularity, as exemplified by the Brexit decision of the United Kingdom and the so-called
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
―America First‖ policies of the Trump Administration. To the extent that economic nationalism is a
l ll ll ll l l ll l l ll ll ll ll ll
populist response to the global financial crisis and Great Recession, it may subside as the
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
world economy continues to recover.
ll ll ll ll ll
4. How is a country‘s economic well-being enhanced through free international trade in goods
ll ll ll ll ll ll ll ll ll ll ll ll
and services?
ll ll
Answer: According to David Ricardo, with free international trade, it is mutually beneficial for
l l ll ll ll ll ll ll ll ll ll ll ll ll
two countries to each specialize in the production of the goods that it can produce relatively
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
most efficiently and then trade those goods. By doing so, the two countries can increase their
ll ll ll ll ll ll ll l l ll ll ll ll ll ll ll ll
combined production, which allows both countries to consume more of both goods. This
ll ll ll ll ll ll ll ll ll ll ll ll ll
argument remains valid even if a country can produce both goods more efficiently in absolute
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
terms than the other country. International trade is not a ‗zero-sum‘ game in which one country
ll ll ll l ll l l ll ll ll ll ll l l ll ll ll
benefits at the expense of another country. Rather, international trade could be an ‗increasing-
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
sum‘ game from which all players become winners.
ll ll ll ll ll ll ll ll
5. What considerations might limit the extent to which the theory of comparative advantage is
ll ll ll ll ll ll ll ll ll ll ll ll ll
realistic?
ll
Answer: The theory of comparative advantage was originally advanced by the nineteenth
l l ll ll ll ll ll ll ll ll ll ll
century economist David Ricardo as an explanation for why nations trade with one another.
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
The theory claims that economic well-being is enhanced if each country produces what it has a
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
comparative advantage in producing relative to other countries, and then trade products.
ll ll ll ll ll ll ll ll ll ll ll ll
Underlying the theory are the assumptions of free trade between nations and that the factors of
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
production (labor, technological know-how, and capital) are relatively immobile. To the extent
ll ll ll ll ll ll ll ll ll l l ll ll
that these assumptions do not hold, the theory of comparative advantage may not realistically
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
describe international trade. In addition, free trade produces winners and losers and if the
ll ll ll l l ll ll ll ll ll ll ll ll ll ll
ll losers are not compensated, free trade may faces political opposition from them.
ll ll ll ll ll ll ll ll ll ll ll
6. What are multinational corporations (MNCs) and what economic roles do they play?
l l l l ll l ll l l l l
,Answer: A multinational corporation (MNC) can be defined as a business firm incorporated in
l l ll ll ll ll ll ll ll ll ll ll ll ll
one country that has production and sales operations in many other countries. Indeed, some
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
MNCs have operations in a few dozens of different countries.
ll ll ll ll ll ll ll ll ll ll l l MNCs obtain financing from ll ll ll
major money centers around the world in many different currencies to finance their operations.
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
Global operations force the treasurer‘s office to establish international banking relationships, to
ll ll ll ll ll ll ll ll ll ll ll ll
place short-term funds in several currency denominations, and to effectively manage foreign
ll ll ll ll ll ll ll ll ll ll ll ll
exchange risk. By circumventing and also taking advantage of various market imperfections,
ll ll l l ll ll ll ll ll ll ll ll ll
such as barriers to trade and barriers to flow of people and capital across countries, MNCs
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
contribute to greater integration of the world economy and ing more perfect functioning of global
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
markets.
ll
7. Ross Perot, a former Presidential candidate of the Reform Party, which was a third political
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
party in the United States, had strongly objected to the creation of the North American Trade
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
Agreement (NAFTA), which nonetheless was inaugurated in 1994. Perot feared the loss of
ll ll ll ll ll ll ll ll ll ll ll ll ll
American jobs to Mexico where it is much cheaper to hire workers. What are the merits and
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
demerits of Perot‘s position on NAFTA? Considering the recent economic developments in
ll ll ll ll ll ll ll ll ll ll ll ll
North America, how would you assess Perot‘s position on NAFTA?
ll ll ll ll ll ll ll ll ll ll
Answer: Since the inception of NAFTA, many American companies indeed have invested
ll ll ll ll ll ll ll ll ll ll ll
heavily in Mexico, sometimes relocating production from the United States to Mexico. Although
ll ll ll ll ll ll ll ll l ll l ll ll
this might have temporarily caused unemployment of some American workers, they were
ll ll ll ll ll ll ll ll ll ll ll ll
eventually rehired by other industries often for higher wages. At the same time, Mexico has
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
been experiencing a major economic boom. It seems clear that both Mexico and the U.S. have
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
benefited from NAFTA. Perot‘s concern appears to have been ill founded.
ll ll ll ll ll ll ll ll ll ll ll
8. In 1995, a working group of French chief executive officers was set up by the Confederation
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
of French Industry (CNPF) and the French Association of Private Companies (AFEP) to study
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
the French corporate governance structure. The group reported the following, among other
ll ll ll ll ll ll ll ll ll ll ll ll
things: ―The board of directors should not simply aim at maximizing share values as in the
ll l l ll ll ll ll ll ll ll ll ll ll ll ll ll ll
U.K. and the U.S. Rather, its goal should be to serve the company, whose interests should be
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
clearly distinguished from those of its shareholders, employees, creditors, suppliers and clients
ll ll ll ll ll ll ll ll ll ll ll ll
but still equated with their general common interest, which is to safeguard the prosperity and
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
continuity of the company‖. Evaluate the above recommendation of the working group.
ll ll ll ll ll ll ll ll ll ll ll ll
Answer: The recommendations of the French working group clearly show that shareholder
ll ll ll ll ll ll ll ll ll ll ll
wealth maximization is not a universally accepted goal of corporate management, especially
ll ll ll ll ll l ll ll ll ll l ll
, outside the United States and possibly a few other Anglo-Saxon countries including the United
ll ll ll ll ll ll ll ll ll ll ll ll ll
ll Kingdom and Canada. To some extent, this may reflect the fact that share ownership is not wide
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll spread in most other countries. ll ll ll ll
9. Emphasizing the importance of voluntary compliance, as opposed to enforcement, in the ll ll ll ll ll ll ll ll ll ll ll
ll aftermath of such corporate scandals as those involving Enron and WorldCom, U.S. President
ll ll ll ll ll ll ll ll ll l ll ll
ll George W. Bush stated that while tougher laws might help, ―ultimately, the ethics of American
l ll ll ll ll ll ll ll ll ll ll ll ll ll
ll business depends on the conscience of America‘s business leaders.‖ Describe your view on
ll ll ll ll ll ll ll ll l l ll ll ll
ll this statement. ll
Answer: There can be different answers to this question. If business leaders always behave
l l ll ll ll ll ll ll ll ll ll ll ll ll
l l with a high ethical standard, many of the corporate scandals we have seen lately might not
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll have happened. Since we cannot fully depend on the ethical behavior on the part of individual
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll business leaders, the society should protect itself by adopting the rules/regulations and
ll ll ll ll ll ll ll ll ll ll ll
ll governance structure that would induce business leaders to behave in the interest of the society
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll at large. But at the same time, we need to make sure that excessive regulations do not stymy
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll free enterprises, an important engine of economic growth. It is important to strike the right
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll balance.
10. Suppose you are interested in investing in shares of Samsung Electronics of Korea, which ll ll ll ll ll ll ll ll ll ll ll ll ll
ll is a world leader in mobile phones, TVs, and home appliances. But before you make investment
ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll decision, you would like to learn about the company. and collect information about Samsung
ll ll ll ll ll ll ll ll ll ll ll ll ll
ll Electronics, including the recent stock price history and analysts‘ views of the company. Discuss
ll ll ll ll ll ll ll ll ll ll ll ll ll
ll what you learn about the company. Also discuss how the instantaneous access to information
ll ll ll ll ll ll ll ll ll ll ll ll ll
ll via internet would affect the nature and workings of financial markets.
ll ll ll l l ll ll ll ll ll ll
Answer: As students might have learned from visiting the website, information is readily
ll ll ll ll ll ll ll ll ll ll ll ll
ll available even for foreign companies like Samsung Electronics. Ready access to international
ll ll ll ll ll ll ll ll ll ll ll
ll information helps integrate financial markets, dismantling barriers to international investment
ll ll ll ll ll ll ll ll ll
ll and financing. Integration, however, may help a financial shock in one market to be quickly
ll ll ll ll ll ll ll ll ll ll ll ll ll ll
ll transmitted to other markets. ll ll ll
11. Most companies make corporate decisions to maximize their profits, without taking into
ll ll ll ll ll ll ll ll ll ll ll
ll consideration the possibly negative effects of corporate activities on the environments, thereby
ll ll ll ll ll ll ll ll ll ll ll
