SOLUTION MANUAL FOR re re
International Financial Management, 10th Edition EUN
re re re re re
re Chapter 1-21 re
CHAPTER 1 re
GLOBALIZATION reAND reTHE reMULTINATIONAL reFIRM
ANSWERS re& reSOLUTIONS reTO reEND-OF-CHAPTER reQUESTIONS reAND rePROBLEMS
QUESTIONS
1. Why reis reit reimportant reto restudy reinternational refinancial remanagement?
Answer: r e We reare renow reliving rein rea reworld rewhere reall rethe remajor reeconomic refunctions, resuch reas
re consumption, reproduction, reinvestment, reand refinancing, reare rehighly reglobalized. r e It reis rethus
re essential r e for refinancial remanagers reto refully reunderstand revital reinternational redimensions reof
re financial remanagement. r e This reglobal reshift reis rein remarked recontrast reto rea resituation rethat reexisted
re when rethe reauthors reof rethis rebook rewere relearning refinance rea refew redecades reago. r e At rethat retime,
re most reprofessors recustomarily re(and resafely, reto resome reextent) reignored reinternational reaspects reof
re finance. r e This remode reof reoperation rehas rebecome reuntenable resince rethen.
2. How reis reinternational refinancial remanagement redifferent refrom redomestic refinancial remanagement?
Answer: r e There reare rethree remajor redimensions rethat reset reapart reinternational refinance refrom
re domestic refinance. reThey reare:
1. foreign reexchange reand repolitical rerisks,
2. market reimperfections, reand
3. expanded reopportunity reset.
3. Discuss rethe remajor retrends rethat rehave reprevailed rein reinternational rebusiness reduring rethe
last retwo redecades.
re
Answer: r e The re2000s rebrought rea rerapid reintegration reof reinternational recapital reand refinancial
re markets. reImpetus refor reglobalized refinancial remarkets reinitially recame refrom rethe regovernments reof
re major recountries rethat rehad rebegun reto rederegulate retheir reforeign reexchange reand recapital
re markets. r e The reeconomic
©MCGRAW reHILL reLLC. reALL reRIGHTS reRESERVED. reNO reREPRODUCTION reOR reDISTRIBUTION reWITHOUT reTHE rePRIOR reWRITTEN reCONSENT
reOF reMCGRAW reHILL reLLC
,integration reand reglobalization rethat rebegan rein rethe reeighties reand renineties reare repicking reup
speed rein rethe re2000s. reTrade reliberalization reand reeconomic reintegration recontinued reto reproceed
re
re at reboth rethe reregional reand reglobal relevels. reDespite resovereign redebt recrisis rein reEurope, remore
re EU remember recountries rehave readopted rethe recommon recurrency, rethe reeuro, rethat reeffectively
re became rethe resecond reglobal recurrency reafter rethe reU.S. redollar. reIn rethe relast refew reyears,
re however, reeconomic renationalism rehas rebeen regaining resome repopularity, reas reexemplified reby rethe
Brexit redecision reof rethe reUnited reKingdom reand rethe reso-called
re
―America reFirst‖ repolicies reof rethe reTrump reAdministration. reTo rethe reextent rethat reeconomic
nationalism reis rea repopulist reresponse reto rethe reglobal refinancial recrisis reand reGreat reRecession, reit
re
re may resubside reas rethe reworld reeconomy recontinues reto rerecover.
4. How reis rea recountry‘s reeconomic rewell-being reenhanced rethrough refree reinternational retrade rein
goods reand reservices?
re
Answer: r e According reto reDavid reRicardo, rewith refree reinternational retrade, reit reis remutually
re beneficial refor retwo recountries reto reeach respecialize rein rethe reproduction reof rethe regoods rethat reit
re can reproduce rerelatively remost reefficiently reand rethen retrade rethose regoods. r e By redoing reso, rethe
re two recountries recan reincrease retheir recombined reproduction, rewhich reallows reboth recountries reto
re consume remore reof reboth regoods. reThis reargument reremains revalid reeven reif rea recountry recan
re produce reboth regoods remore reefficiently rein reabsolute reterms rethan rethe reother recountry.
r e International retrade reis renot rea re‗zero-sum‘ regame rein rewhich reone recountry rebenefits reat rethe
expense reof reanother recountry. reRather, reinternational retrade recould rebe rean re‗increasing- resum‘
re
re game refrom rewhich reall replayers rebecome rewinners.
5. What reconsiderations remight relimit rethe reextent reto rewhich rethe retheory reof recomparative
re advantage reis rerealistic?
Answer: r e The retheory reof recomparative readvantage rewas reoriginally readvanced reby rethe
re nineteenth recentury reeconomist reDavid reRicardo reas rean reexplanation refor rewhy renations retrade
re with reone reanother. reThe retheory reclaims rethat reeconomic rewell-being reis reenhanced reif reeach
re country reproduces rewhat reit rehas rea recomparative readvantage rein reproducing rerelative reto reother
re countries, reand rethen retrade reproducts.
Underlying rethe retheory reare rethe reassumptions reof refree retrade rebetween renations reand rethat rethe
factors reof reproduction re(labor, retechnological reknow-how, reand recapital) reare rerelatively
re
re immobile. r e To rethe reextent rethat rethese reassumptions redo renot rehold, rethe retheory reof
re comparative readvantage remay renot rerealistically redescribe reinternational retrade. r e In readdition,
re free retrade reproduces rewinners reand relosers reand reif rethe relosers reare renot recompensated, refree
re trade remay refaces repolitical reopposition refrom rethem.
©MCGRAW reHILL reLLC. reALL reRIGHTS reRESERVED. reNO reREPRODUCTION reOR reDISTRIBUTION reWITHOUT reTHE rePRIOR reWRITTEN reCONSENT
reOF reMCGRAW reHILL reLLC
,6. What reare remultinational recorporations re(MNCs) reand rewhat reeconomic reroles redo rethey replay?
©MCGRAW reHILL reLLC. reALL reRIGHTS reRESERVED. reNO reREPRODUCTION reOR reDISTRIBUTION reWITHOUT reTHE rePRIOR reWRITTEN reCONSENT
reOF reMCGRAW reHILL reLLC
, Answer: r e A remultinational recorporation re(MNC) recan rebe redefined reas rea rebusiness refirm
re incorporated rein reone recountry rethat rehas reproduction reand resales reoperations rein remany reother
re countries. reIndeed, resome reMNCs rehave reoperations rein rea refew redozens reof redifferent recountries.
r e MNCs reobtain refinancing refrom remajor remoney recenters rearound rethe reworld rein remany redifferent
re currencies reto refinance retheir reoperations. reGlobal reoperations reforce rethe retreasurer‘s reoffice reto
re establish reinternational rebanking rerelationships, reto replace reshort-term refunds rein reseveral
re currency redenominations, reand reto reeffectively remanage reforeign reexchange rerisk. r e By
re circumventing reand realso retaking readvantage reof revarious remarket reimperfections, resuch reas
re barriers reto retrade reand rebarriers reto reflow reof repeople reand recapital reacross recountries, reMNCs
re contribute reto regreater reintegration reof rethe reworld reeconomy reand reing remore reperfect refunctioning
re of reglobal remarkets.
7. Ross rePerot, rea reformer rePresidential recandidate reof rethe reReform reParty, rewhich rewas rea rethird
re political reparty rein rethe reUnited reStates, rehad restrongly reobjected reto rethe recreation reof rethe reNorth
re American reTrade reAgreement re(NAFTA), rewhich renonetheless rewas reinaugurated rein re1994.
re Perot refeared rethe reloss reof reAmerican rejobs reto reMexico rewhere reit reis remuch recheaper reto rehire
re workers. reWhat reare rethe remerits reand redemerits reof rePerot‘s reposition reon reNAFTA? reConsidering
re the rerecent reeconomic redevelopments rein reNorth reAmerica, rehow rewould reyou reassess rePerot‘s
re position reon reNAFTA?
Answer: reSince rethe reinception reof reNAFTA, remany reAmerican recompanies reindeed rehave
re invested reheavily rein reMexico, resometimes rerelocating reproduction refrom rethe reUnited reStates reto
Mexico. reAlthough rethis remight rehave retemporarily recaused reunemployment reof resome reAmerican
re
re workers, rethey rewere reeventually rerehired reby reother reindustries reoften refor rehigher rewages. reAt rethe
re same retime, reMexico rehas rebeen reexperiencing rea remajor reeconomic reboom. reIt reseems reclear rethat
re both reMexico reand rethe reU.S. rehave rebenefited refrom reNAFTA. rePerot‘s reconcern reappears reto
re have rebeen reill refounded.
8. In re1995, rea reworking regroup reof reFrench rechief reexecutive reofficers rewas reset reup reby rethe
re Confederation reof reFrench reIndustry re(CNPF) reand rethe reFrench reAssociation reof rePrivate
re Companies re(AFEP) reto restudy rethe reFrench recorporate regovernance restructure. reThe regroup
re reported rethe refollowing, reamong reother rethings: re ―The reboard reof redirectors reshould renot resimply
re aim reat remaximizing reshare revalues reas rein rethe reU.K. reand rethe reU.S. reRather, reits regoal reshould rebe
re to reserve rethe recompany, rewhose reinterests reshould rebe reclearly redistinguished refrom rethose reof reits
re shareholders, reemployees, recreditors, resuppliers reand reclients rebut restill reequated rewith retheir
re general recommon reinterest, rewhich reis reto resafeguard rethe reprosperity reand recontinuity reof rethe
re company‖. reEvaluate rethe reabove rerecommendation reof rethe reworking regroup.
©MCGRAW reHILL reLLC. reALL reRIGHTS reRESERVED. reNO reREPRODUCTION reOR reDISTRIBUTION reWITHOUT reTHE rePRIOR reWRITTEN reCONSENT
reOF reMCGRAW reHILL reLLC
International Financial Management, 10th Edition EUN
re re re re re
re Chapter 1-21 re
CHAPTER 1 re
GLOBALIZATION reAND reTHE reMULTINATIONAL reFIRM
ANSWERS re& reSOLUTIONS reTO reEND-OF-CHAPTER reQUESTIONS reAND rePROBLEMS
QUESTIONS
1. Why reis reit reimportant reto restudy reinternational refinancial remanagement?
Answer: r e We reare renow reliving rein rea reworld rewhere reall rethe remajor reeconomic refunctions, resuch reas
re consumption, reproduction, reinvestment, reand refinancing, reare rehighly reglobalized. r e It reis rethus
re essential r e for refinancial remanagers reto refully reunderstand revital reinternational redimensions reof
re financial remanagement. r e This reglobal reshift reis rein remarked recontrast reto rea resituation rethat reexisted
re when rethe reauthors reof rethis rebook rewere relearning refinance rea refew redecades reago. r e At rethat retime,
re most reprofessors recustomarily re(and resafely, reto resome reextent) reignored reinternational reaspects reof
re finance. r e This remode reof reoperation rehas rebecome reuntenable resince rethen.
2. How reis reinternational refinancial remanagement redifferent refrom redomestic refinancial remanagement?
Answer: r e There reare rethree remajor redimensions rethat reset reapart reinternational refinance refrom
re domestic refinance. reThey reare:
1. foreign reexchange reand repolitical rerisks,
2. market reimperfections, reand
3. expanded reopportunity reset.
3. Discuss rethe remajor retrends rethat rehave reprevailed rein reinternational rebusiness reduring rethe
last retwo redecades.
re
Answer: r e The re2000s rebrought rea rerapid reintegration reof reinternational recapital reand refinancial
re markets. reImpetus refor reglobalized refinancial remarkets reinitially recame refrom rethe regovernments reof
re major recountries rethat rehad rebegun reto rederegulate retheir reforeign reexchange reand recapital
re markets. r e The reeconomic
©MCGRAW reHILL reLLC. reALL reRIGHTS reRESERVED. reNO reREPRODUCTION reOR reDISTRIBUTION reWITHOUT reTHE rePRIOR reWRITTEN reCONSENT
reOF reMCGRAW reHILL reLLC
,integration reand reglobalization rethat rebegan rein rethe reeighties reand renineties reare repicking reup
speed rein rethe re2000s. reTrade reliberalization reand reeconomic reintegration recontinued reto reproceed
re
re at reboth rethe reregional reand reglobal relevels. reDespite resovereign redebt recrisis rein reEurope, remore
re EU remember recountries rehave readopted rethe recommon recurrency, rethe reeuro, rethat reeffectively
re became rethe resecond reglobal recurrency reafter rethe reU.S. redollar. reIn rethe relast refew reyears,
re however, reeconomic renationalism rehas rebeen regaining resome repopularity, reas reexemplified reby rethe
Brexit redecision reof rethe reUnited reKingdom reand rethe reso-called
re
―America reFirst‖ repolicies reof rethe reTrump reAdministration. reTo rethe reextent rethat reeconomic
nationalism reis rea repopulist reresponse reto rethe reglobal refinancial recrisis reand reGreat reRecession, reit
re
re may resubside reas rethe reworld reeconomy recontinues reto rerecover.
4. How reis rea recountry‘s reeconomic rewell-being reenhanced rethrough refree reinternational retrade rein
goods reand reservices?
re
Answer: r e According reto reDavid reRicardo, rewith refree reinternational retrade, reit reis remutually
re beneficial refor retwo recountries reto reeach respecialize rein rethe reproduction reof rethe regoods rethat reit
re can reproduce rerelatively remost reefficiently reand rethen retrade rethose regoods. r e By redoing reso, rethe
re two recountries recan reincrease retheir recombined reproduction, rewhich reallows reboth recountries reto
re consume remore reof reboth regoods. reThis reargument reremains revalid reeven reif rea recountry recan
re produce reboth regoods remore reefficiently rein reabsolute reterms rethan rethe reother recountry.
r e International retrade reis renot rea re‗zero-sum‘ regame rein rewhich reone recountry rebenefits reat rethe
expense reof reanother recountry. reRather, reinternational retrade recould rebe rean re‗increasing- resum‘
re
re game refrom rewhich reall replayers rebecome rewinners.
5. What reconsiderations remight relimit rethe reextent reto rewhich rethe retheory reof recomparative
re advantage reis rerealistic?
Answer: r e The retheory reof recomparative readvantage rewas reoriginally readvanced reby rethe
re nineteenth recentury reeconomist reDavid reRicardo reas rean reexplanation refor rewhy renations retrade
re with reone reanother. reThe retheory reclaims rethat reeconomic rewell-being reis reenhanced reif reeach
re country reproduces rewhat reit rehas rea recomparative readvantage rein reproducing rerelative reto reother
re countries, reand rethen retrade reproducts.
Underlying rethe retheory reare rethe reassumptions reof refree retrade rebetween renations reand rethat rethe
factors reof reproduction re(labor, retechnological reknow-how, reand recapital) reare rerelatively
re
re immobile. r e To rethe reextent rethat rethese reassumptions redo renot rehold, rethe retheory reof
re comparative readvantage remay renot rerealistically redescribe reinternational retrade. r e In readdition,
re free retrade reproduces rewinners reand relosers reand reif rethe relosers reare renot recompensated, refree
re trade remay refaces repolitical reopposition refrom rethem.
©MCGRAW reHILL reLLC. reALL reRIGHTS reRESERVED. reNO reREPRODUCTION reOR reDISTRIBUTION reWITHOUT reTHE rePRIOR reWRITTEN reCONSENT
reOF reMCGRAW reHILL reLLC
,6. What reare remultinational recorporations re(MNCs) reand rewhat reeconomic reroles redo rethey replay?
©MCGRAW reHILL reLLC. reALL reRIGHTS reRESERVED. reNO reREPRODUCTION reOR reDISTRIBUTION reWITHOUT reTHE rePRIOR reWRITTEN reCONSENT
reOF reMCGRAW reHILL reLLC
, Answer: r e A remultinational recorporation re(MNC) recan rebe redefined reas rea rebusiness refirm
re incorporated rein reone recountry rethat rehas reproduction reand resales reoperations rein remany reother
re countries. reIndeed, resome reMNCs rehave reoperations rein rea refew redozens reof redifferent recountries.
r e MNCs reobtain refinancing refrom remajor remoney recenters rearound rethe reworld rein remany redifferent
re currencies reto refinance retheir reoperations. reGlobal reoperations reforce rethe retreasurer‘s reoffice reto
re establish reinternational rebanking rerelationships, reto replace reshort-term refunds rein reseveral
re currency redenominations, reand reto reeffectively remanage reforeign reexchange rerisk. r e By
re circumventing reand realso retaking readvantage reof revarious remarket reimperfections, resuch reas
re barriers reto retrade reand rebarriers reto reflow reof repeople reand recapital reacross recountries, reMNCs
re contribute reto regreater reintegration reof rethe reworld reeconomy reand reing remore reperfect refunctioning
re of reglobal remarkets.
7. Ross rePerot, rea reformer rePresidential recandidate reof rethe reReform reParty, rewhich rewas rea rethird
re political reparty rein rethe reUnited reStates, rehad restrongly reobjected reto rethe recreation reof rethe reNorth
re American reTrade reAgreement re(NAFTA), rewhich renonetheless rewas reinaugurated rein re1994.
re Perot refeared rethe reloss reof reAmerican rejobs reto reMexico rewhere reit reis remuch recheaper reto rehire
re workers. reWhat reare rethe remerits reand redemerits reof rePerot‘s reposition reon reNAFTA? reConsidering
re the rerecent reeconomic redevelopments rein reNorth reAmerica, rehow rewould reyou reassess rePerot‘s
re position reon reNAFTA?
Answer: reSince rethe reinception reof reNAFTA, remany reAmerican recompanies reindeed rehave
re invested reheavily rein reMexico, resometimes rerelocating reproduction refrom rethe reUnited reStates reto
Mexico. reAlthough rethis remight rehave retemporarily recaused reunemployment reof resome reAmerican
re
re workers, rethey rewere reeventually rerehired reby reother reindustries reoften refor rehigher rewages. reAt rethe
re same retime, reMexico rehas rebeen reexperiencing rea remajor reeconomic reboom. reIt reseems reclear rethat
re both reMexico reand rethe reU.S. rehave rebenefited refrom reNAFTA. rePerot‘s reconcern reappears reto
re have rebeen reill refounded.
8. In re1995, rea reworking regroup reof reFrench rechief reexecutive reofficers rewas reset reup reby rethe
re Confederation reof reFrench reIndustry re(CNPF) reand rethe reFrench reAssociation reof rePrivate
re Companies re(AFEP) reto restudy rethe reFrench recorporate regovernance restructure. reThe regroup
re reported rethe refollowing, reamong reother rethings: re ―The reboard reof redirectors reshould renot resimply
re aim reat remaximizing reshare revalues reas rein rethe reU.K. reand rethe reU.S. reRather, reits regoal reshould rebe
re to reserve rethe recompany, rewhose reinterests reshould rebe reclearly redistinguished refrom rethose reof reits
re shareholders, reemployees, recreditors, resuppliers reand reclients rebut restill reequated rewith retheir
re general recommon reinterest, rewhich reis reto resafeguard rethe reprosperity reand recontinuity reof rethe
re company‖. reEvaluate rethe reabove rerecommendation reof rethe reworking regroup.
©MCGRAW reHILL reLLC. reALL reRIGHTS reRESERVED. reNO reREPRODUCTION reOR reDISTRIBUTION reWITHOUT reTHE rePRIOR reWRITTEN reCONSENT
reOF reMCGRAW reHILL reLLC
