International Financial
Management 10th Edition
ST
UV
SOLUTIONS
IA
MANUAL
_A
PP
Cheol Eun
RO
Bruce Resnick
Tuugi Chuluun
VE
────────────────────────────────────────────────────
Comprehensive Solutions Manual for Instructors
D?
and Students
© Cheol Eun, Bruce Resnick & Tuugi Chuluun. All rights reserved. Reproduction or
?
distribution without permission is prohibited.
© Successhands
, Solutions Manual for International Financial Management (10th Edition)
Cheol Eun, Bruce Resnick & Tuugi Chuluun
ISBN: 9781264413096
ST
PART ONE: FOUNDATIONS OF INTERNATIONAL FINANCIAL
MANAGEMENT
1. Globalization and the Multinational Firm
2. International Monetary System
UV
3. Balance of Payments
4. Corporate Governance Around the World
PART TWO: THE FOREIGN EXCHANGE MARKET, EXCHANGE
RATE DETERMINATION, AND CURRENCY DERIVATIVES
IA
5. The Market for Foreign Exchange
6. International Parity Relationships and Forecasting Foreign Exchange Rates
7. Futures and Options on Foreign Exchange
_A
PART THREE: FOREIGN EXCHANGE EXPOSURE AND
MANAGEMENT
8. Management of Transaction Exposure
9. Management of Economic Exposure
PP
10. Management of Translation Exposure
PART FOUR: WORLD FINANCIAL MARKETS AND INSTITUTIONS
11. International Banking and Money Market
RO
12. International Bond Market
13. International Equity Markets
14. Interest Rate and Currency Swaps
15. International Portfolio Investment
VE
PART FIVE: FINANCIAL MANAGEMENT OF THE
MULTINATIONAL FIRM
16. Foreign Direct Investment and Cross-Border Acquisitions
17. International Capital Structure and the Cost of Capital
D?
18. International Capital Budgeting
19. Multinational Cash Management
20. International Trade Finance
21. International Tax Environment and Transfer Pricing
?
© Successhands
, Solution Manual For
International Financial Management, 10th Edition EUN
SMT
Chapter 1-21
UEDV
CHAPTER 1
GLOBALIZATION AND THE MULTINATIONAL FIRM
ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS
QUESTIONS
ICAO
1. Why is it important to study international financial management?
_NA
Answer: We are now living in a world where all the major economic functions, such as
consumption, production, investment, and financing, are highly globalized. It is thus essential
for financial managers to fully understand vital international dimensions of financial
management. This global shift is in marked contrast to a situation that existed when the authors
PNPO
of this book were learning finance a few decades ago. At that time, most professors customarily
(and safely, to some extent) ignored international aspects of finance. This mode of operation
has become untenable since then.
RISO
2. How is international financial management different from domestic financial management?
Answer: There are three major dimensions that set apart international finance from domestic
finance. They are:
SVE
1. foreign exchange and political risks,
2. market imperfections, and
EDU
3. expanded opportunity set.
3. Discuss the major trends that have prevailed in international business during the last two
decades.
?R?
Answer: The 2000s brought a rapid integration of international capital and financial markets.
Impetus for globalized financial markets initially came from the governments of major countries
that had begun to deregulate their foreign exchange and capital markets. The economic
©MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR WRITTEN CONSENT OF MCGRAW HILL LLC
, integration and globalization that began in the eighties and nineties are picking up speed in the
2000s. Trade liberalization and economic integration continued to proceed at both the regional
and global levels. Despite sovereign debt crisis in Europe, more EU member countries have
SMT
adopted the common currency, the euro, that effectively became the second global currency
after the U.S. dollar. In the last few years, however, economic nationalism has been gaining
some popularity, as exemplified by the Brexit decision of the United Kingdom and the so-called
―America First‖ policies of the Trump Administration. To the extent that economic nationalism is
UEDV
a populist response to the global financial crisis and Great Recession, it may subside as the
world economy continues to recover.
4. How is a country‘s economic well-being enhanced through free international trade in goods
ICAO
and services?
Answer: According to David Ricardo, with free international trade, it is mutually beneficial for
_NA
two countries to each specialize in the production of the goods that it can produce relatively
most efficiently and then trade those goods. By doing so, the two countries can increase their
combined production, which allows both countries to consume more of both goods. This
argument remains valid even if a country can produce both goods more efficiently in absolute
PNPO
terms than the other country. International trade is not a ‗zero-sum‘ game in which one country
benefits at the expense of another country. Rather, international trade could be an ‗increasing-
sum‘ game from which all players become winners.
RISO
5. What considerations might limit the extent to which the theory of comparative advantage is
realistic?
Answer: The theory of comparative advantage was originally advanced by the nineteenth
SVE
century economist David Ricardo as an explanation for why nations trade with one another.
The theory claims that economic well-being is enhanced if each country produces what it has a
EDU
comparative advantage in producing relative to other countries, and then trade products.
Underlying the theory are the assumptions of free trade between nations and that the factors of
production (labor, technological know-how, and capital) are relatively immobile. To the extent
that these assumptions do not hold, the theory of comparative advantage may not realistically
?R?
describe international trade. In addition, free trade produces winners and losers and if the
losers are not compensated, free trade may faces political opposition from them.
6. What are multinational corporations (MNCs) and what economic roles do they play?
©MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR WRITTEN CONSENT OF MCGRAW HILL LLC
Management 10th Edition
ST
UV
SOLUTIONS
IA
MANUAL
_A
PP
Cheol Eun
RO
Bruce Resnick
Tuugi Chuluun
VE
────────────────────────────────────────────────────
Comprehensive Solutions Manual for Instructors
D?
and Students
© Cheol Eun, Bruce Resnick & Tuugi Chuluun. All rights reserved. Reproduction or
?
distribution without permission is prohibited.
© Successhands
, Solutions Manual for International Financial Management (10th Edition)
Cheol Eun, Bruce Resnick & Tuugi Chuluun
ISBN: 9781264413096
ST
PART ONE: FOUNDATIONS OF INTERNATIONAL FINANCIAL
MANAGEMENT
1. Globalization and the Multinational Firm
2. International Monetary System
UV
3. Balance of Payments
4. Corporate Governance Around the World
PART TWO: THE FOREIGN EXCHANGE MARKET, EXCHANGE
RATE DETERMINATION, AND CURRENCY DERIVATIVES
IA
5. The Market for Foreign Exchange
6. International Parity Relationships and Forecasting Foreign Exchange Rates
7. Futures and Options on Foreign Exchange
_A
PART THREE: FOREIGN EXCHANGE EXPOSURE AND
MANAGEMENT
8. Management of Transaction Exposure
9. Management of Economic Exposure
PP
10. Management of Translation Exposure
PART FOUR: WORLD FINANCIAL MARKETS AND INSTITUTIONS
11. International Banking and Money Market
RO
12. International Bond Market
13. International Equity Markets
14. Interest Rate and Currency Swaps
15. International Portfolio Investment
VE
PART FIVE: FINANCIAL MANAGEMENT OF THE
MULTINATIONAL FIRM
16. Foreign Direct Investment and Cross-Border Acquisitions
17. International Capital Structure and the Cost of Capital
D?
18. International Capital Budgeting
19. Multinational Cash Management
20. International Trade Finance
21. International Tax Environment and Transfer Pricing
?
© Successhands
, Solution Manual For
International Financial Management, 10th Edition EUN
SMT
Chapter 1-21
UEDV
CHAPTER 1
GLOBALIZATION AND THE MULTINATIONAL FIRM
ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS
QUESTIONS
ICAO
1. Why is it important to study international financial management?
_NA
Answer: We are now living in a world where all the major economic functions, such as
consumption, production, investment, and financing, are highly globalized. It is thus essential
for financial managers to fully understand vital international dimensions of financial
management. This global shift is in marked contrast to a situation that existed when the authors
PNPO
of this book were learning finance a few decades ago. At that time, most professors customarily
(and safely, to some extent) ignored international aspects of finance. This mode of operation
has become untenable since then.
RISO
2. How is international financial management different from domestic financial management?
Answer: There are three major dimensions that set apart international finance from domestic
finance. They are:
SVE
1. foreign exchange and political risks,
2. market imperfections, and
EDU
3. expanded opportunity set.
3. Discuss the major trends that have prevailed in international business during the last two
decades.
?R?
Answer: The 2000s brought a rapid integration of international capital and financial markets.
Impetus for globalized financial markets initially came from the governments of major countries
that had begun to deregulate their foreign exchange and capital markets. The economic
©MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR WRITTEN CONSENT OF MCGRAW HILL LLC
, integration and globalization that began in the eighties and nineties are picking up speed in the
2000s. Trade liberalization and economic integration continued to proceed at both the regional
and global levels. Despite sovereign debt crisis in Europe, more EU member countries have
SMT
adopted the common currency, the euro, that effectively became the second global currency
after the U.S. dollar. In the last few years, however, economic nationalism has been gaining
some popularity, as exemplified by the Brexit decision of the United Kingdom and the so-called
―America First‖ policies of the Trump Administration. To the extent that economic nationalism is
UEDV
a populist response to the global financial crisis and Great Recession, it may subside as the
world economy continues to recover.
4. How is a country‘s economic well-being enhanced through free international trade in goods
ICAO
and services?
Answer: According to David Ricardo, with free international trade, it is mutually beneficial for
_NA
two countries to each specialize in the production of the goods that it can produce relatively
most efficiently and then trade those goods. By doing so, the two countries can increase their
combined production, which allows both countries to consume more of both goods. This
argument remains valid even if a country can produce both goods more efficiently in absolute
PNPO
terms than the other country. International trade is not a ‗zero-sum‘ game in which one country
benefits at the expense of another country. Rather, international trade could be an ‗increasing-
sum‘ game from which all players become winners.
RISO
5. What considerations might limit the extent to which the theory of comparative advantage is
realistic?
Answer: The theory of comparative advantage was originally advanced by the nineteenth
SVE
century economist David Ricardo as an explanation for why nations trade with one another.
The theory claims that economic well-being is enhanced if each country produces what it has a
EDU
comparative advantage in producing relative to other countries, and then trade products.
Underlying the theory are the assumptions of free trade between nations and that the factors of
production (labor, technological know-how, and capital) are relatively immobile. To the extent
that these assumptions do not hold, the theory of comparative advantage may not realistically
?R?
describe international trade. In addition, free trade produces winners and losers and if the
losers are not compensated, free trade may faces political opposition from them.
6. What are multinational corporations (MNCs) and what economic roles do they play?
©MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR WRITTEN CONSENT OF MCGRAW HILL LLC
