FIN 4110 Exam 1 Clemson University Questions with Complete Solution| 100% Solved

FIN 4110 Exam 1 Clemson University Questions with Complete Solution| 100% Solved 3 Functions of Money 1. Medium of exchange 2. Unit of account 3. Store of value Multinational Corporation a company with production and distribution facilities in more than 1 country Reasons to globalize find new markets; lower costs; utilize different resources/materials Raw Material Seekers the earliest multinationals; exploit markets in other countries Market Seekers produce and sell in foreign markets (ex. IBM, McDonald's, Nestle) Cost Minimizers seek lower cost production abroad in order to remain cost competitive 2 Types of Cost Minimization 1. Offshoring: production by foreign affiliate 2. Outsourcing: production by foreign 3rd party Costs of Globalization 1. lost manufacturing jobs in U.S. 2. major plant closings 3. high paying union jobs replaced with low paying service jobs 3 Requirements for Arbitrage 1. no risk 2. can't use any personal money 3. instantaneous return Market Efficiency prices reflect all relevant information Capital Asset Pricing equates risk and return; investors expect compensation for systematic risk 2 Types of Risk 1. Systematic: undiversifiable (risk premium) 2. Unsystematic: diversifiable (no risk premium) Exchange Rate price of one unit of currency expressed as a certain price in local currency