INTERNATIONAL FINANCIAL MANAGEMENT, 10TH
EDITION EUN CHAPTER 1-21
ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS
CHAPTER c1
GLOBALIZATION cAND cTHE cMULTINATIONAL cFIRM
QUESTIONS
1. Why cis cit cimportant cto cstudy cinternational cfinancial cmanagement?
Answer: c We care cnow cliving cin ca cworld cwhere call cthe cmajor ceconomic cfunctions, csuch cas
cconsumption, cproduction, cinvestment, cand cfinancing, care chighly cglobalized. c It cis cthus
cessential c for cfinancial cmanagers cto cfully cunderstand cvital cinternational cdimensions cof
cfinancial cmanagement. c This cglobal cshift cis cin cmarked ccontrast cto ca csituation cthat cexisted
cwhen cthe cauthors cof cthis cbook cwere clearning cfinance ca cfew cdecades cago. c At cthat ctime,
©MCGRAW cHILL cLLC. cALL cRIGHTS cRESERVED. cNO cREPRODUCTION cOR cDISTRIBUTION cWITHOUT cTHE cPRIOR cWRITTEN cCONSENT
cOF cMCGRAW cHILL cLLC
,cmost cprofessors ccustomarily c(and csafely, cto csome cextent) cignored cinternational caspects
cof cfinance. c This cmode cof coperation chas cbecome cuntenable csince cthen.
2. How cis cinternational cfinancial cmanagement cdifferent cfrom cdomestic cfinancial cmanagement?
Answer: c There care cthree cmajor cdimensions cthat cset capart cinternational cfinance cfrom
cdomestic cfinance. cThey care:
1. foreign cexchange cand cpolitical crisks,
2. market cimperfections, cand
3. expanded copportunity cset.
3. Discuss cthe cmajor ctrends cthat chave cprevailed cin cinternational cbusiness cduring cthe
clast ctwo cdecades.
Answer: c The c2000s cbrought ca crapid cintegration cof cinternational ccapital cand cfinancial
cmarkets. cImpetus cfor cglobalized cfinancial cmarkets cinitially ccame cfrom cthe cgovernments cof
cmajor ccountries cthat chad cbegun cto cderegulate ctheir cforeign cexchange cand ccapital
cmarkets. c The ceconomic
©MCGRAW cHILL cLLC. cALL cRIGHTS cRESERVED. cNO cREPRODUCTION cOR cDISTRIBUTION cWITHOUT cTHE cPRIOR cWRITTEN cCONSENT
cOF cMCGRAW cHILL cLLC
,integration cand cglobalization cthat cbegan cin cthe ceighties cand cnineties care cpicking cup
cspeed cin cthe c2000s. cTrade cliberalization cand ceconomic cintegration ccontinued cto cproceed
cat cboth cthe cregional cand cglobal clevels. cDespite csovereign cdebt ccrisis cin cEurope, cmore
cEU cmember ccountries chave cadopted cthe ccommon ccurrency, cthe ceuro, cthat ceffectively
cbecame cthe csecond cglobal ccurrency cafter cthe cU.S. cdollar. cIn cthe clast cfew cyears,
chowever, ceconomic cnationalism chas cbeen cgaining csome cpopularity, cas cexemplified cby
cthe cBrexit cdecision cof cthe cUnited cKingdom cand cthe cso-called
―America cFirst‖ cpolicies cof cthe cTrump cAdministration. cTo cthe cextent cthat ceconomic
cnationalism cis ca cpopulist cresponse cto cthe cglobal cfinancial ccrisis cand cGreat cRecession, cit
cmay csubside cas cthe cworld ceconomy ccontinues cto crecover.
4. How cis ca ccountry‘s ceconomic cwell-being cenhanced cthrough cfree cinternational ctrade cin
cgoods cand cservices?
Answer: c According cto cDavid cRicardo, cwith cfree cinternational ctrade, cit cis cmutually
cbeneficial cfor ctwo ccountries cto ceach cspecialize cin cthe cproduction cof cthe cgoods cthat cit
ccan cproduce crelatively cmost cefficiently cand cthen ctrade cthose cgoods. c By cdoing cso, cthe
ctwo ccountries ccan cincrease ctheir ccombined cproduction, cwhich callows cboth ccountries cto
cconsume cmore cof cboth cgoods. cThis cargument cremains cvalid ceven cif ca ccountry ccan
cproduce cboth cgoods cmore cefficiently cin cabsolute cterms cthan cthe cother ccountry.
c International ctrade cis cnot ca c‗zero-sum‘ cgame cin cwhich cone ccountry cbenefits cat cthe
cexpense cof canother ccountry. cRather, cinternational ctrade ccould cbe can c‗increasing- csum‘
cgame cfrom cwhich call cplayers cbecome cwinners.
5. What cconsiderations cmight climit cthe cextent cto cwhich cthe ctheory cof ccomparative
cadvantage cis crealistic?
Answer: c The ctheory cof ccomparative cadvantage cwas coriginally cadvanced cby cthe
cnineteenth ccentury ceconomist cDavid cRicardo cas can cexplanation cfor cwhy cnations ctrade
cwith cone canother. cThe ctheory cclaims cthat ceconomic cwell-being cis cenhanced cif ceach
ccountry cproduces cwhat cit chas ca ccomparative cadvantage cin cproducing crelative cto cother
ccountries, cand cthen ctrade cproducts.
Underlying cthe ctheory care cthe cassumptions cof cfree ctrade cbetween cnations cand cthat cthe
cfactors cof cproduction c(labor, ctechnological cknow-how, cand ccapital) care crelatively
cimmobile. c To cthe cextent cthat cthese cassumptions cdo cnot chold, cthe ctheory cof
ccomparative cadvantage cmay cnot crealistically cdescribe cinternational ctrade. c In caddition,
cfree ctrade cproduces cwinners cand closers cand cif cthe closers care cnot ccompensated, cfree
ctrade cmay cfaces cpolitical copposition cfrom cthem.
©MCGRAW cHILL cLLC. cALL cRIGHTS cRESERVED. cNO cREPRODUCTION cOR cDISTRIBUTION cWITHOUT cTHE cPRIOR cWRITTEN cCONSENT
cOF cMCGRAW cHILL cLLC
, 6. What care cmultinational ccorporations c(MNCs) cand cwhat ceconomic croles cdo cthey cplay?
©MCGRAW cHILL cLLC. cALL cRIGHTS cRESERVED. cNO cREPRODUCTION cOR cDISTRIBUTION cWITHOUT cTHE cPRIOR cWRITTEN cCONSENT
cOF cMCGRAW cHILL cLLC
EDITION EUN CHAPTER 1-21
ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS
CHAPTER c1
GLOBALIZATION cAND cTHE cMULTINATIONAL cFIRM
QUESTIONS
1. Why cis cit cimportant cto cstudy cinternational cfinancial cmanagement?
Answer: c We care cnow cliving cin ca cworld cwhere call cthe cmajor ceconomic cfunctions, csuch cas
cconsumption, cproduction, cinvestment, cand cfinancing, care chighly cglobalized. c It cis cthus
cessential c for cfinancial cmanagers cto cfully cunderstand cvital cinternational cdimensions cof
cfinancial cmanagement. c This cglobal cshift cis cin cmarked ccontrast cto ca csituation cthat cexisted
cwhen cthe cauthors cof cthis cbook cwere clearning cfinance ca cfew cdecades cago. c At cthat ctime,
©MCGRAW cHILL cLLC. cALL cRIGHTS cRESERVED. cNO cREPRODUCTION cOR cDISTRIBUTION cWITHOUT cTHE cPRIOR cWRITTEN cCONSENT
cOF cMCGRAW cHILL cLLC
,cmost cprofessors ccustomarily c(and csafely, cto csome cextent) cignored cinternational caspects
cof cfinance. c This cmode cof coperation chas cbecome cuntenable csince cthen.
2. How cis cinternational cfinancial cmanagement cdifferent cfrom cdomestic cfinancial cmanagement?
Answer: c There care cthree cmajor cdimensions cthat cset capart cinternational cfinance cfrom
cdomestic cfinance. cThey care:
1. foreign cexchange cand cpolitical crisks,
2. market cimperfections, cand
3. expanded copportunity cset.
3. Discuss cthe cmajor ctrends cthat chave cprevailed cin cinternational cbusiness cduring cthe
clast ctwo cdecades.
Answer: c The c2000s cbrought ca crapid cintegration cof cinternational ccapital cand cfinancial
cmarkets. cImpetus cfor cglobalized cfinancial cmarkets cinitially ccame cfrom cthe cgovernments cof
cmajor ccountries cthat chad cbegun cto cderegulate ctheir cforeign cexchange cand ccapital
cmarkets. c The ceconomic
©MCGRAW cHILL cLLC. cALL cRIGHTS cRESERVED. cNO cREPRODUCTION cOR cDISTRIBUTION cWITHOUT cTHE cPRIOR cWRITTEN cCONSENT
cOF cMCGRAW cHILL cLLC
,integration cand cglobalization cthat cbegan cin cthe ceighties cand cnineties care cpicking cup
cspeed cin cthe c2000s. cTrade cliberalization cand ceconomic cintegration ccontinued cto cproceed
cat cboth cthe cregional cand cglobal clevels. cDespite csovereign cdebt ccrisis cin cEurope, cmore
cEU cmember ccountries chave cadopted cthe ccommon ccurrency, cthe ceuro, cthat ceffectively
cbecame cthe csecond cglobal ccurrency cafter cthe cU.S. cdollar. cIn cthe clast cfew cyears,
chowever, ceconomic cnationalism chas cbeen cgaining csome cpopularity, cas cexemplified cby
cthe cBrexit cdecision cof cthe cUnited cKingdom cand cthe cso-called
―America cFirst‖ cpolicies cof cthe cTrump cAdministration. cTo cthe cextent cthat ceconomic
cnationalism cis ca cpopulist cresponse cto cthe cglobal cfinancial ccrisis cand cGreat cRecession, cit
cmay csubside cas cthe cworld ceconomy ccontinues cto crecover.
4. How cis ca ccountry‘s ceconomic cwell-being cenhanced cthrough cfree cinternational ctrade cin
cgoods cand cservices?
Answer: c According cto cDavid cRicardo, cwith cfree cinternational ctrade, cit cis cmutually
cbeneficial cfor ctwo ccountries cto ceach cspecialize cin cthe cproduction cof cthe cgoods cthat cit
ccan cproduce crelatively cmost cefficiently cand cthen ctrade cthose cgoods. c By cdoing cso, cthe
ctwo ccountries ccan cincrease ctheir ccombined cproduction, cwhich callows cboth ccountries cto
cconsume cmore cof cboth cgoods. cThis cargument cremains cvalid ceven cif ca ccountry ccan
cproduce cboth cgoods cmore cefficiently cin cabsolute cterms cthan cthe cother ccountry.
c International ctrade cis cnot ca c‗zero-sum‘ cgame cin cwhich cone ccountry cbenefits cat cthe
cexpense cof canother ccountry. cRather, cinternational ctrade ccould cbe can c‗increasing- csum‘
cgame cfrom cwhich call cplayers cbecome cwinners.
5. What cconsiderations cmight climit cthe cextent cto cwhich cthe ctheory cof ccomparative
cadvantage cis crealistic?
Answer: c The ctheory cof ccomparative cadvantage cwas coriginally cadvanced cby cthe
cnineteenth ccentury ceconomist cDavid cRicardo cas can cexplanation cfor cwhy cnations ctrade
cwith cone canother. cThe ctheory cclaims cthat ceconomic cwell-being cis cenhanced cif ceach
ccountry cproduces cwhat cit chas ca ccomparative cadvantage cin cproducing crelative cto cother
ccountries, cand cthen ctrade cproducts.
Underlying cthe ctheory care cthe cassumptions cof cfree ctrade cbetween cnations cand cthat cthe
cfactors cof cproduction c(labor, ctechnological cknow-how, cand ccapital) care crelatively
cimmobile. c To cthe cextent cthat cthese cassumptions cdo cnot chold, cthe ctheory cof
ccomparative cadvantage cmay cnot crealistically cdescribe cinternational ctrade. c In caddition,
cfree ctrade cproduces cwinners cand closers cand cif cthe closers care cnot ccompensated, cfree
ctrade cmay cfaces cpolitical copposition cfrom cthem.
©MCGRAW cHILL cLLC. cALL cRIGHTS cRESERVED. cNO cREPRODUCTION cOR cDISTRIBUTION cWITHOUT cTHE cPRIOR cWRITTEN cCONSENT
cOF cMCGRAW cHILL cLLC
, 6. What care cmultinational ccorporations c(MNCs) cand cwhat ceconomic croles cdo cthey cplay?
©MCGRAW cHILL cLLC. cALL cRIGHTS cRESERVED. cNO cREPRODUCTION cOR cDISTRIBUTION cWITHOUT cTHE cPRIOR cWRITTEN cCONSENT
cOF cMCGRAW cHILL cLLC
