SOLUTION MANUAL FOR hy hy
International Financial Management, 10th Edition EUN
hy hy hy hy hy
hy Chapter 1-21 hy
CHAPTER 1 hy
GLOBALIZATION hyAND hyTHE hyMULTINATIONAL hyFIRM
ANSWERS hy& hySOLUTIONS hyTO hyEND-OF-CHAPTER hyQUESTIONS hyAND hyPROBLEMS
QUESTIONS
1. Why hyis hyit hyimportant hyto hystudy hyinternational hyfinancial hymanagement?
Answer: hy We hyare hynow hyliving hyin hya hyworld hywhere hyall hythe hymajor hyeconomic hyfunctions, hysuch
hy as hyconsumption, hyproduction, hyinvestment, hyand hyfinancing, hyare hyhighly hyglobalized. h y It hyis
hy thus hyessential h y for hyfinancial hymanagers hyto hyfully hyunderstand hyvital hyinternational hydimensions
hy of hyfinancial hymanagement. hy This hyglobal hyshift hyis hyin hymarked hycontrast hyto hya hysituation hythat
hy existed hywhen hythe hyauthors hyof hythis hybook hywere hylearning hyfinance hya hyfew hydecades hyago. hy At
hy that time,
hy hy most professors
hy customarily
hy hy (and safely,
hy hy to some
hy hy extent) ignored
hy
hy international hyaspects hyof hyfinance. h y This hymode hyof hyoperation hyhas hybecome hyuntenable
hy since hythen.
2. How hyis hyinternational hyfinancial hymanagement hydifferent hyfrom hydomestic hyfinancial hymanagement?
Answer: hy There hyare hythree hymajor hydimensions hythat hyset hyapart hyinternational hyfinance hyfrom
hy domestic hyfinance. hyThey hyare:
1. foreign hyexchange hyand hypolitical hyrisks,
2. market hyimperfections, hyand
3. expanded hyopportunity hyset.
3. Discuss hythe hymajor hytrends hythat hyhave hyprevailed hyin hyinternational hybusiness hyduring hythe
last hytwo hydecades.
hy
Answer: hy The hy2000s hybrought hya hyrapid hyintegration hyof hyinternational hycapital hyand hyfinancial
hy markets. hyImpetus hyfor hyglobalized hyfinancial hymarkets hyinitially hycame hyfrom hythe hygovernments
hy of hymajor hycountries hythat hyhad hybegun hyto hyderegulate hytheir hyforeign hyexchange hyand hycapital
hy markets. hy The hyeconomic
©MCGRAW hyHILL hyLLC. hyALL hyRIGHTS hyRESERVED. hyNO hyREPRODUCTION hyOR hyDISTRIBUTION hyWITHOUT hyTHE hyPRIOR hyWRITTEN hyCONSENT
hyOF hyMCGRAW hyHILL hyLLC
,integration hyand hyglobalization hythat hybegan hyin hythe hyeighties hyand hynineties hyare hypicking hyup
speed hyin hythe hy2000s. hyTrade hyliberalization hyand hyeconomic hyintegration hycontinued hyto
hy
hy proceed hyat hyboth hythe hyregional hyand hyglobal hylevels. hyDespite hysovereign hydebt hycrisis hyin
hy Europe, hymore hyEU hymember hycountries hyhave hyadopted hythe hycommon hycurrency, hythe hyeuro,
hy that hyeffectively hybecame hythe hysecond hyglobal hycurrency hyafter hythe hyU.S. hydollar. hyIn hythe hylast
hy few hyyears, hyhowever, hyeconomic hynationalism hyhas hybeen hygaining hysome hypopularity, hyas
exemplified hyby hythe hyBrexit hydecision hyof hythe hyUnited hyKingdom hyand hythe hyso-called
hy
―America hyFirst‖ hypolicies hyof hythe hyTrump hyAdministration. hyTo hythe hyextent hythat hyeconomic
nationalism hyis hya hypopulist hyresponse hyto hythe hyglobal hyfinancial hycrisis hyand hyGreat hyRecession,
hy
hy it hymay hysubside hyas hythe hyworld hyeconomy hycontinues hyto hyrecover.
4. How hyis hya hycountry‘s hyeconomic hywell-being hyenhanced hythrough hyfree hyinternational hytrade
in hygoods hyand hyservices?
hy
Answer: hy According hyto hyDavid hyRicardo, hywith hyfree hyinternational hytrade, hyit hyis hymutually
hy beneficial hyfor hytwo hycountries hyto hyeach hyspecialize hyin hythe hyproduction hyof hythe hygoods hythat hyit
hy can hyproduce hyrelatively hymost hyefficiently hyand hythen hytrade hythose hygoods. h y By hydoing hyso,
hy the hytwo hycountries hycan hyincrease hytheir hycombined hyproduction, hywhich hyallows hyboth
hy countries hyto hyconsume hymore hyof hyboth hygoods. hyThis hyargument hyremains hyvalid hyeven hyif hya
hy country hycan hyproduce hyboth hygoods hymore hyefficiently hyin hyabsolute hyterms hythan hythe hyother
country.
hy hy International hytrade hyis hynot hya hy‗zero-sum‘ hygame hyin hywhich hyone hycountry hybenefits
hy at hythe hyexpense hyof hyanother hycountry. hyRather, hyinternational hytrade hycould hybe hyan
hy ‗increasing- hysum‘ hygame hyfrom hywhich hyall hyplayers hybecome hywinners.
5. What hyconsiderations hymight hylimit hythe hyextent hyto hywhich hythe hytheory hyof hycomparative
hy advantage hyis hyrealistic?
Answer: hy The hytheory hyof hycomparative hyadvantage hywas hyoriginally hyadvanced hyby hythe
hy nineteenth hycentury hyeconomist hyDavid hyRicardo hyas hyan hyexplanation hyfor hywhy hynations hytrade
hy with hyone hyanother. hyThe hytheory hyclaims hythat hyeconomic hywell-being hyis hyenhanced hyif hyeach
hy country hyproduces hywhat hyit hyhas hya hycomparative hyadvantage hyin hyproducing hyrelative hyto hyother
hy countries, hyand hythen hytrade hyproducts.
Underlying hythe hytheory hyare hythe hyassumptions hyof hyfree hytrade hybetween hynations hyand hythat hythe
factors hyof hyproduction hy(labor, hytechnological hyknow-how, hyand hycapital) hyare hyrelatively
hy
hy immobile. hy To hythe hyextent hythat hythese hyassumptions hydo hynot hyhold, hythe hytheory hyof
hy comparative hyadvantage hymay hynot hyrealistically hydescribe hyinternational hytrade. hy In hyaddition,
hy free hytrade hyproduces hywinners hyand hylosers hyand hyif hythe hylosers hyare hynot hycompensated, hyfree
hy trade hymay hyfaces hypolitical hyopposition hyfrom hythem.
©MCGRAW hyHILL hyLLC. hyALL hyRIGHTS hyRESERVED. hyNO hyREPRODUCTION hyOR hyDISTRIBUTION hyWITHOUT hyTHE hyPRIOR hyWRITTEN hyCONSENT
hyOF hyMCGRAW hyHILL hyLLC
,6. What hyare hymultinational hycorporations hy(MNCs) hyand hywhat hyeconomic hyroles hydo hythey hyplay?
©MCGRAW hyHILL hyLLC. hyALL hyRIGHTS hyRESERVED. hyNO hyREPRODUCTION hyOR hyDISTRIBUTION hyWITHOUT hyTHE hyPRIOR hyWRITTEN hyCONSENT
hyOF hyMCGRAW hyHILL hyLLC
, Answer: hy A hymultinational hycorporation hy(MNC) hycan hybe hydefined hyas hya hybusiness hyfirm
hy incorporated hyin hyone hycountry hythat hyhas hyproduction hyand hysales hyoperations hyin hymany hyother
hy countries. hyIndeed, hysome hyMNCs hyhave hyoperations hyin hya hyfew hydozens hyof hydifferent
hy countries. h y MNCs hyobtain hyfinancing hyfrom hymajor hymoney hycenters hyaround hythe hyworld hyin
hy many hydifferent hycurrencies hyto hyfinance hytheir hyoperations. hyGlobal hyoperations hyforce hythe
hy treasurer‘s hyoffice hyto hyestablish hyinternational hybanking hyrelationships, hyto hyplace hyshort-term
hy funds hyin hyseveral hycurrency hydenominations, hyand hyto hyeffectively hymanage hyforeign hyexchange
hy risk. hy By hycircumventing hyand hyalso hytaking hyadvantage hyof hyvarious hymarket hyimperfections,
hy such hyas hybarriers hyto hytrade hyand hybarriers hyto hyflow hyof hypeople hyand hycapital hyacross hycountries,
hy MNCs hycontribute hyto hygreater hyintegration hyof hythe hyworld hyeconomy hyand hying hymore hyperfect
hy functioning hyof hyglobal hymarkets.
7. Ross hyPerot, hya hyformer hyPresidential hycandidate hyof hythe hyReform hyParty, hywhich hywas hya
third hypolitical hyparty hyin hythe hyUnited hyStates, hyhad hystrongly hyobjected hyto hythe hycreation hyof hythe
hy
hy North hyAmerican hyTrade hyAgreement hy(NAFTA), hywhich hynonetheless hywas hyinaugurated hyin
hy 1994. hyPerot hyfeared hythe hyloss hyof hyAmerican hyjobs hyto hyMexico hywhere hyit hyis hymuch hycheaper
hy to hyhire hyworkers. hyWhat hyare hythe hymerits hyand hydemerits hyof hyPerot‘s hyposition hyon hyNAFTA?
hy Considering hythe hyrecent hyeconomic hydevelopments hyin hyNorth hyAmerica, hyhow hywould hyyou
hy assess hyPerot‘s hyposition hyon hyNAFTA?
Answer: hySince hythe hyinception hyof hyNAFTA, hymany hyAmerican hycompanies hyindeed hyhave
hy invested hyheavily hyin hyMexico, hysometimes hyrelocating hyproduction hyfrom hythe hyUnited hyStates hyto
Mexico. hyAlthough hythis hymight hyhave hytemporarily hycaused hyunemployment hyof hysome
hy
hy American hyworkers, hythey hywere hyeventually hyrehired hyby hyother hyindustries hyoften hyfor hyhigher
hy wages. hyAt hythe hysame hytime, hyMexico hyhas hybeen hyexperiencing hya hymajor hyeconomic hyboom. hyIt
hy seems hyclear hythat hyboth hyMexico hyand hythe hyU.S. hyhave hybenefited hyfrom hyNAFTA. hyPerot‘s
hy concern hyappears hyto hyhave hybeen hyill hyfounded.
8. In hy1995, hya hyworking hygroup hyof hyFrench hychief hyexecutive hyofficers hywas hyset hyup hyby hythe
hy Confederation hyof hyFrench hyIndustry hy(CNPF) hyand hythe hyFrench hyAssociation hyof hyPrivate
hy Companies hy(AFEP) hyto hystudy hythe hyFrench hycorporate hygovernance hystructure. hyThe hygroup
hy reported hythe hyfollowing, hyamong hyother hythings: hy ―The hyboard hyof hydirectors hyshould hynot
hy simply hyaim hyat hymaximizing hyshare hyvalues hyas hyin hythe hyU.K. hyand hythe hyU.S. hyRather, hyits hygoal
hy should hybe hyto hyserve hythe hycompany, hywhose hyinterests hyshould hybe hyclearly hydistinguished hyfrom
hy those hyof hyits hyshareholders, hyemployees, hycreditors, hysuppliers hyand hyclients hybut hystill hyequated
hy with hytheir hygeneral hycommon hyinterest, hywhich hyis hyto hysafeguard hythe hyprosperity hyand hycontinuity
hy of hythe hycompany‖. hyEvaluate hythe hyabove hyrecommendation hyof hythe hyworking hygroup.
©MCGRAW hyHILL hyLLC. hyALL hyRIGHTS hyRESERVED. hyNO hyREPRODUCTION hyOR hyDISTRIBUTION hyWITHOUT hyTHE hyPRIOR hyWRITTEN hyCONSENT
hyOF hyMCGRAW hyHILL hyLLC
International Financial Management, 10th Edition EUN
hy hy hy hy hy
hy Chapter 1-21 hy
CHAPTER 1 hy
GLOBALIZATION hyAND hyTHE hyMULTINATIONAL hyFIRM
ANSWERS hy& hySOLUTIONS hyTO hyEND-OF-CHAPTER hyQUESTIONS hyAND hyPROBLEMS
QUESTIONS
1. Why hyis hyit hyimportant hyto hystudy hyinternational hyfinancial hymanagement?
Answer: hy We hyare hynow hyliving hyin hya hyworld hywhere hyall hythe hymajor hyeconomic hyfunctions, hysuch
hy as hyconsumption, hyproduction, hyinvestment, hyand hyfinancing, hyare hyhighly hyglobalized. h y It hyis
hy thus hyessential h y for hyfinancial hymanagers hyto hyfully hyunderstand hyvital hyinternational hydimensions
hy of hyfinancial hymanagement. hy This hyglobal hyshift hyis hyin hymarked hycontrast hyto hya hysituation hythat
hy existed hywhen hythe hyauthors hyof hythis hybook hywere hylearning hyfinance hya hyfew hydecades hyago. hy At
hy that time,
hy hy most professors
hy customarily
hy hy (and safely,
hy hy to some
hy hy extent) ignored
hy
hy international hyaspects hyof hyfinance. h y This hymode hyof hyoperation hyhas hybecome hyuntenable
hy since hythen.
2. How hyis hyinternational hyfinancial hymanagement hydifferent hyfrom hydomestic hyfinancial hymanagement?
Answer: hy There hyare hythree hymajor hydimensions hythat hyset hyapart hyinternational hyfinance hyfrom
hy domestic hyfinance. hyThey hyare:
1. foreign hyexchange hyand hypolitical hyrisks,
2. market hyimperfections, hyand
3. expanded hyopportunity hyset.
3. Discuss hythe hymajor hytrends hythat hyhave hyprevailed hyin hyinternational hybusiness hyduring hythe
last hytwo hydecades.
hy
Answer: hy The hy2000s hybrought hya hyrapid hyintegration hyof hyinternational hycapital hyand hyfinancial
hy markets. hyImpetus hyfor hyglobalized hyfinancial hymarkets hyinitially hycame hyfrom hythe hygovernments
hy of hymajor hycountries hythat hyhad hybegun hyto hyderegulate hytheir hyforeign hyexchange hyand hycapital
hy markets. hy The hyeconomic
©MCGRAW hyHILL hyLLC. hyALL hyRIGHTS hyRESERVED. hyNO hyREPRODUCTION hyOR hyDISTRIBUTION hyWITHOUT hyTHE hyPRIOR hyWRITTEN hyCONSENT
hyOF hyMCGRAW hyHILL hyLLC
,integration hyand hyglobalization hythat hybegan hyin hythe hyeighties hyand hynineties hyare hypicking hyup
speed hyin hythe hy2000s. hyTrade hyliberalization hyand hyeconomic hyintegration hycontinued hyto
hy
hy proceed hyat hyboth hythe hyregional hyand hyglobal hylevels. hyDespite hysovereign hydebt hycrisis hyin
hy Europe, hymore hyEU hymember hycountries hyhave hyadopted hythe hycommon hycurrency, hythe hyeuro,
hy that hyeffectively hybecame hythe hysecond hyglobal hycurrency hyafter hythe hyU.S. hydollar. hyIn hythe hylast
hy few hyyears, hyhowever, hyeconomic hynationalism hyhas hybeen hygaining hysome hypopularity, hyas
exemplified hyby hythe hyBrexit hydecision hyof hythe hyUnited hyKingdom hyand hythe hyso-called
hy
―America hyFirst‖ hypolicies hyof hythe hyTrump hyAdministration. hyTo hythe hyextent hythat hyeconomic
nationalism hyis hya hypopulist hyresponse hyto hythe hyglobal hyfinancial hycrisis hyand hyGreat hyRecession,
hy
hy it hymay hysubside hyas hythe hyworld hyeconomy hycontinues hyto hyrecover.
4. How hyis hya hycountry‘s hyeconomic hywell-being hyenhanced hythrough hyfree hyinternational hytrade
in hygoods hyand hyservices?
hy
Answer: hy According hyto hyDavid hyRicardo, hywith hyfree hyinternational hytrade, hyit hyis hymutually
hy beneficial hyfor hytwo hycountries hyto hyeach hyspecialize hyin hythe hyproduction hyof hythe hygoods hythat hyit
hy can hyproduce hyrelatively hymost hyefficiently hyand hythen hytrade hythose hygoods. h y By hydoing hyso,
hy the hytwo hycountries hycan hyincrease hytheir hycombined hyproduction, hywhich hyallows hyboth
hy countries hyto hyconsume hymore hyof hyboth hygoods. hyThis hyargument hyremains hyvalid hyeven hyif hya
hy country hycan hyproduce hyboth hygoods hymore hyefficiently hyin hyabsolute hyterms hythan hythe hyother
country.
hy hy International hytrade hyis hynot hya hy‗zero-sum‘ hygame hyin hywhich hyone hycountry hybenefits
hy at hythe hyexpense hyof hyanother hycountry. hyRather, hyinternational hytrade hycould hybe hyan
hy ‗increasing- hysum‘ hygame hyfrom hywhich hyall hyplayers hybecome hywinners.
5. What hyconsiderations hymight hylimit hythe hyextent hyto hywhich hythe hytheory hyof hycomparative
hy advantage hyis hyrealistic?
Answer: hy The hytheory hyof hycomparative hyadvantage hywas hyoriginally hyadvanced hyby hythe
hy nineteenth hycentury hyeconomist hyDavid hyRicardo hyas hyan hyexplanation hyfor hywhy hynations hytrade
hy with hyone hyanother. hyThe hytheory hyclaims hythat hyeconomic hywell-being hyis hyenhanced hyif hyeach
hy country hyproduces hywhat hyit hyhas hya hycomparative hyadvantage hyin hyproducing hyrelative hyto hyother
hy countries, hyand hythen hytrade hyproducts.
Underlying hythe hytheory hyare hythe hyassumptions hyof hyfree hytrade hybetween hynations hyand hythat hythe
factors hyof hyproduction hy(labor, hytechnological hyknow-how, hyand hycapital) hyare hyrelatively
hy
hy immobile. hy To hythe hyextent hythat hythese hyassumptions hydo hynot hyhold, hythe hytheory hyof
hy comparative hyadvantage hymay hynot hyrealistically hydescribe hyinternational hytrade. hy In hyaddition,
hy free hytrade hyproduces hywinners hyand hylosers hyand hyif hythe hylosers hyare hynot hycompensated, hyfree
hy trade hymay hyfaces hypolitical hyopposition hyfrom hythem.
©MCGRAW hyHILL hyLLC. hyALL hyRIGHTS hyRESERVED. hyNO hyREPRODUCTION hyOR hyDISTRIBUTION hyWITHOUT hyTHE hyPRIOR hyWRITTEN hyCONSENT
hyOF hyMCGRAW hyHILL hyLLC
,6. What hyare hymultinational hycorporations hy(MNCs) hyand hywhat hyeconomic hyroles hydo hythey hyplay?
©MCGRAW hyHILL hyLLC. hyALL hyRIGHTS hyRESERVED. hyNO hyREPRODUCTION hyOR hyDISTRIBUTION hyWITHOUT hyTHE hyPRIOR hyWRITTEN hyCONSENT
hyOF hyMCGRAW hyHILL hyLLC
, Answer: hy A hymultinational hycorporation hy(MNC) hycan hybe hydefined hyas hya hybusiness hyfirm
hy incorporated hyin hyone hycountry hythat hyhas hyproduction hyand hysales hyoperations hyin hymany hyother
hy countries. hyIndeed, hysome hyMNCs hyhave hyoperations hyin hya hyfew hydozens hyof hydifferent
hy countries. h y MNCs hyobtain hyfinancing hyfrom hymajor hymoney hycenters hyaround hythe hyworld hyin
hy many hydifferent hycurrencies hyto hyfinance hytheir hyoperations. hyGlobal hyoperations hyforce hythe
hy treasurer‘s hyoffice hyto hyestablish hyinternational hybanking hyrelationships, hyto hyplace hyshort-term
hy funds hyin hyseveral hycurrency hydenominations, hyand hyto hyeffectively hymanage hyforeign hyexchange
hy risk. hy By hycircumventing hyand hyalso hytaking hyadvantage hyof hyvarious hymarket hyimperfections,
hy such hyas hybarriers hyto hytrade hyand hybarriers hyto hyflow hyof hypeople hyand hycapital hyacross hycountries,
hy MNCs hycontribute hyto hygreater hyintegration hyof hythe hyworld hyeconomy hyand hying hymore hyperfect
hy functioning hyof hyglobal hymarkets.
7. Ross hyPerot, hya hyformer hyPresidential hycandidate hyof hythe hyReform hyParty, hywhich hywas hya
third hypolitical hyparty hyin hythe hyUnited hyStates, hyhad hystrongly hyobjected hyto hythe hycreation hyof hythe
hy
hy North hyAmerican hyTrade hyAgreement hy(NAFTA), hywhich hynonetheless hywas hyinaugurated hyin
hy 1994. hyPerot hyfeared hythe hyloss hyof hyAmerican hyjobs hyto hyMexico hywhere hyit hyis hymuch hycheaper
hy to hyhire hyworkers. hyWhat hyare hythe hymerits hyand hydemerits hyof hyPerot‘s hyposition hyon hyNAFTA?
hy Considering hythe hyrecent hyeconomic hydevelopments hyin hyNorth hyAmerica, hyhow hywould hyyou
hy assess hyPerot‘s hyposition hyon hyNAFTA?
Answer: hySince hythe hyinception hyof hyNAFTA, hymany hyAmerican hycompanies hyindeed hyhave
hy invested hyheavily hyin hyMexico, hysometimes hyrelocating hyproduction hyfrom hythe hyUnited hyStates hyto
Mexico. hyAlthough hythis hymight hyhave hytemporarily hycaused hyunemployment hyof hysome
hy
hy American hyworkers, hythey hywere hyeventually hyrehired hyby hyother hyindustries hyoften hyfor hyhigher
hy wages. hyAt hythe hysame hytime, hyMexico hyhas hybeen hyexperiencing hya hymajor hyeconomic hyboom. hyIt
hy seems hyclear hythat hyboth hyMexico hyand hythe hyU.S. hyhave hybenefited hyfrom hyNAFTA. hyPerot‘s
hy concern hyappears hyto hyhave hybeen hyill hyfounded.
8. In hy1995, hya hyworking hygroup hyof hyFrench hychief hyexecutive hyofficers hywas hyset hyup hyby hythe
hy Confederation hyof hyFrench hyIndustry hy(CNPF) hyand hythe hyFrench hyAssociation hyof hyPrivate
hy Companies hy(AFEP) hyto hystudy hythe hyFrench hycorporate hygovernance hystructure. hyThe hygroup
hy reported hythe hyfollowing, hyamong hyother hythings: hy ―The hyboard hyof hydirectors hyshould hynot
hy simply hyaim hyat hymaximizing hyshare hyvalues hyas hyin hythe hyU.K. hyand hythe hyU.S. hyRather, hyits hygoal
hy should hybe hyto hyserve hythe hycompany, hywhose hyinterests hyshould hybe hyclearly hydistinguished hyfrom
hy those hyof hyits hyshareholders, hyemployees, hycreditors, hysuppliers hyand hyclients hybut hystill hyequated
hy with hytheir hygeneral hycommon hyinterest, hywhich hyis hyto hysafeguard hythe hyprosperity hyand hycontinuity
hy of hythe hycompany‖. hyEvaluate hythe hyabove hyrecommendation hyof hythe hyworking hygroup.
©MCGRAW hyHILL hyLLC. hyALL hyRIGHTS hyRESERVED. hyNO hyREPRODUCTION hyOR hyDISTRIBUTION hyWITHOUT hyTHE hyPRIOR hyWRITTEN hyCONSENT
hyOF hyMCGRAW hyHILL hyLLC
