SOLUTION MANUAL FOR v g v g
InternationalFinancialManagement,10thEditionEUN Chapter vg vg vg vg vg vg
1-21
vg
CHAPTER 1 vg
GLOBALIZATION AND THE MULTINATIONAL FIRM vg vg vg vg
ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS vg vg vg vg vg vg vg
QUESTIONS
1. Why is it important to study international financialmanagement?
vg vg vg vg vg vg vg vg
Answer: We are now living in a world where all the major economic functions, such as consumption,
v g vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
production, investment, and financing, are highly globalized.
vg vg vg vg vg vg vg v g It is thus essential for financial
vg vg vg v g vg
managers to fully understand vital international dimensions of financial management. This global
vg vg vg vg vg vg vg vg vg vg v g vg
shift is in marked contrast to a situation that existed when the authors of this book were learning
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
finance a few decades ago. At that time, most professors customarily (and safely, to some extent)
vg vg vg vg vg v g vg vg vg vg vg vg vg vg vg vg
vg ignored international aspects of finance.
vg vg vg vg v g This mode of operation has become untenable since
vg vg vg vg vg vg vg
then.
vg
2. Howis internationalfinancialmanagementdifferentfromdomesticfinancialmanagement?
g
v vg vg vg vg vg vg vg vg
Answer: There are three major dimensions that set apart international finance from domestic
v g vg vg vg vg vg vg vg vg vg vg vg
finance. They are:
vg vg vg
1. foreignexchangeandpoliticalrisks, vg vg vg vg
2. marketimperfections, and vg vg
3. expanded opportunityset. vg vg
3. Discuss the major trends that have prevailed in international business during the last two
vg vg vg vg vg vg vg vg vg vg vg vg vg
decades.
vg
Answer: The 2000s brought a rapid integration of international capital and financial markets.
v g vg vg vg vg vg vg vg vg vg vg vg
Impetus for globalized financial markets initially came from the governments of major countries that
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
had begun to deregulate their foreign exchange and capital markets. The economic
vg vg vg vg vg vg vg vg vg vg v g vg
©MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR WRITTEN CONSENT OF MCGRAW HILL LLC
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
,integration and globalization that began in the eighties and nineties are picking up speed in the
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg 2000s. Trade liberalization and economic integration continued to proceed at both the regional and
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg global levels. Despite sovereign debt crisis in Europe, more EU member countries have adopted
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg the common currency, the euro, that effectively became the second global currency after the U.S.
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg dollar. In the last few years, however, economic nationalism has been gaining some popularity, as
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
exemplified by the Brexit decision of the United Kingdom andthe so-called
vg vg vg vg vg vg vg vg vg vg vg vg
―AmericaFirst‖ policies of the Trump Administration. To theextent that economic nationalism is a
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg populist response to the global financial crisis and Great Recession, it may subside as the world
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg economy continues to recover. vg vg vg
4. How is a country‘s economic well-being enhanced through free international trade in goods and
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg services?
Answer: According to David Ricardo, with free international trade, it is mutually beneficial for two
v g vg vg vg vg vg vg vg vg vg vg vg vg vg
vg countries to each specialize in the production of the goods that it can produce relatively most
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg efficiently and then trade those goods. By doing so, the two countries can increase their combined
vg vg vg vg vg v g vg vg vg vg vg vg vg vg vg
vg production, which allows both countries to consume more of both goods. This argument remains
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg valid even if a country can produce both goods more efficiently in absolute terms than theother
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
country. International trade is not a ‗zero-sum‘ game in which one country benefits at the expense of
vg v g vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg another country. Rather, international trade could be an ‗increasing- sum‘ game from which all
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg players become winners. vg vg
5. What considerations might limit the extent to which the theory of comparative advantage is
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg realistic?
Answer: The theory of comparative advantage was originally advanced by the nineteenth century
v g vg vg vg vg vg vg vg vg vg vg vg
vg economist David Ricardo as an explanation for why nations trade with one another. The theory
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
claims that economic well-being is enhanced if each country produces what it has a comparative
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg advantage in producing relative to other countries, and then trade products. vg vg vg vg vg vg vg vg vg vg
Underlying the theory are the assumptions of free trade between nations and that the factors of
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg production (labor, technological know-how, and capital) are relatively immobile. To the extent that
vg vg vg vg vg vg vg vg v g vg vg vg
vg these assumptions do not hold, the theory of comparative advantage may not realistically describe
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg international trade. In addition, free trade produces winners and losers and if the losers are not vg v g vg vg vg vg vg vg vg vg vg vg vg vg vg
vg compensated, free trade may faces political opposition from them. vg vg vg vg vg vg vg vg
6. What are multinational corporations (MNCs) and what economicroles do they play?
vg vg vg vg vg vg vg vg vg vg vg
©MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR WRITTEN CONSENT OF MCGRAW HILL LLC
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
,Answer: A multinational corporation (MNC) can be defined as a business firm incorporated in one
v g vg vg vg vg vg vg vg vg vg vg vg vg vg
vg country that has production and sales operations in many other countries. Indeed, some MNCs have
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg operations in a few dozens of different countries. vg vg vg vg vg vg vg v g MNCs obtain financing from major money vg vg vg vg vg
vg centers around the world in many different currencies to finance their operations. Global operations
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg force the treasurer‘s office to establish international banking relationships, to place short-term funds
vg vg vg vg vg vg vg vg vg vg vg vg
vg in several currency denominations, and to effectively manage foreign exchange risk. By
vg vg vg vg vg vg vg vg vg vg v g
vg circumventing and also taking advantage of various market imperfections, such as barriers to trade vg vg vg vg vg vg vg vg vg vg vg vg vg
vg and barriers to flow of people and capital across countries, MNCs contribute to greater integration of
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg the world economy and ing more perfect functioning of global markets.
vg vg vg vg vg vg vg vg vg vg
7. Ross Perot, a former Presidential candidate of the Reform Party, which was a third political party
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg in the United States, had strongly objected to the creation of the North American Trade Agreement
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg (NAFTA), which nonetheless was inaugurated in 1994. Perot feared the loss of American jobs to
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg Mexico where it is much cheaper to hire workers. What are the merits and demerits of Perot‘s
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg position on NAFTA? Considering the recent economic developments in North America, how would
vg vg vg vg vg vg vg vg vg vg vg vg
vg you assess Perot‘s position on NAFTA?
vg vg vg vg vg
Answer: Since the inception of NAFTA, many American companies indeed have invested heavily in
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg Mexico, sometimes relocating production from the United States to Mexico. Although this might
vg vg vg vg vg vg vg vg vg vg vg vg
vg have temporarily caused unemployment of some American workers, they were eventually rehired
vg vg vg vg vg vg vg vg vg vg vg
vg by other industries often for higher wages. At the same time, Mexico has been experiencing a major
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg economic boom. It seems clear that both Mexico and the U.S. have benefited from NAFTA. Perot‘s
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg concern appears to have been ill founded. vg vg vg vg vg vg
8. In 1995, a working group of French chief executive officers was set up by the Confederation of
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg French Industry (CNPF) and the French Association of Private Companies (AFEP) to study the
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg French corporate governance structure. The group reported the following, among other things:
vg vg vg vg vg vg vg vg vg vg vg
v g ―The board of directors should not simply aim at maximizing share values as in the U.K. and the U.S.
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg Rather, its goal should be to serve the company, whose interests should be clearly distinguished
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg from those of its shareholders, employees, creditors, suppliers and clients but still equated with their
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg general common interest, which is to safeguard the prosperity and continuity of the company‖.
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg Evaluate the above recommendation of the working group. vg vg vg vg vg vg vg
Answer: The recommendations of the French working group clearly show that shareholder wealth
vg vg vg vg vg vg vg vg vg vg vg vg
vg maximization is not a universally accepted goal of corporate management, especially vg vg vg vg vg vg vg vg vg vg
©MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR WRITTEN CONSENT OF MCGRAW HILL LLC
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
, outside the United States and possibly a few other Anglo-Saxon countries including the United
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg Kingdom and Canada. To some extent, this may reflect the fact that share ownership is not wide
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg spread in most other countries. vg vg vg vg
9. Emphasizing the importance of voluntary compliance, as opposed to enforcement, in the vg vg vg vg vg vg vg vg vg vg vg
vg aftermath of such corporate scandals as those involving Enron and WorldCom, U.S. President
vg vg vg vg vg vg vg vg vg vg vg vg
vg GeorgeW. Bush stated that while tougher laws might help, ―ultimately, the ethics of American
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg business depends on the conscience of America‘s business leaders.‖ Describe your view on this
vg vg vg vg vg vg vg vg v g vg vg vg vg
vg statement.
Answer: v g There can be different answers to this question. If business leaders always behave with
vg vg vg vg vg vg vg vg vg vg vg vg v g
vg a high ethical standard, many of the corporate scandals we have seen lately might not have
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg happened. Since we cannot fully depend on the ethical behavior on the part of individual business
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg leaders, the society should protect itself by adopting the rules/regulations and governance structure
vg vg vg vg vg vg vg vg vg vg vg vg
vg that would induce business leaders to behave in the interest of the society at large. But at the same
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg time, we need to make sure that excessive regulations do not stymy free enterprises, an important
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg engine of economic growth. It is important to strike the right balance.
vg vg vg vg vg vg vg vg vg vg vg
10. Suppose you are interested in investing in shares of Samsung Electronics of Korea, which is a vg vg vg vg vg vg vg vg vg vg vg vg vg v g vg
vg world leader in mobile phones, TVs, and home appliances. But before you make investment
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg decision, you would like to learn about the company. Visit the website of Yahoo
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg (http://finance.yahoo.com) and collect information about Samsung Electronics, including the recent vg vg vg vg vg vg vg vg vg
vg stock price history and analysts‘ views of the company. Discuss what you learn about the company.
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg Also discuss how the instantaneous access to information via internet would affect the nature and
vg vg vg vg vg vg vg vg vg vg vg v g vg vg
vg workings of financial markets. vg vg vg
Answer: As students might have learned from visiting the website, information is readily available
vg vg vg vg vg vg vg vg vg vg vg vg vg
even for foreign companies like Samsung Electronics. Ready access to international information
vg vg vg vg vg vg vg vg vg vg vg vg
vg helps integrate financial markets, dismantling barriers to international investment and financing.
vg vg vg vg vg vg vg vg vg vg
vg Integration, however, may help a financial shock in one market to be quickly transmitted to othervg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg markets.
11. Most companies make corporate decisions to maximize their profits, without taking into
vg vg vg vg vg vg vg vg vg vg vg
vg considerationthe possiblynegative effects of corporate activities on the environments, thereby vg vg vg vg vg vg vg vg vg vg vg
©MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR WRITTEN CONSENT OF MCGRAW HILL LLC
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
InternationalFinancialManagement,10thEditionEUN Chapter vg vg vg vg vg vg
1-21
vg
CHAPTER 1 vg
GLOBALIZATION AND THE MULTINATIONAL FIRM vg vg vg vg
ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS vg vg vg vg vg vg vg
QUESTIONS
1. Why is it important to study international financialmanagement?
vg vg vg vg vg vg vg vg
Answer: We are now living in a world where all the major economic functions, such as consumption,
v g vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
production, investment, and financing, are highly globalized.
vg vg vg vg vg vg vg v g It is thus essential for financial
vg vg vg v g vg
managers to fully understand vital international dimensions of financial management. This global
vg vg vg vg vg vg vg vg vg vg v g vg
shift is in marked contrast to a situation that existed when the authors of this book were learning
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
finance a few decades ago. At that time, most professors customarily (and safely, to some extent)
vg vg vg vg vg v g vg vg vg vg vg vg vg vg vg vg
vg ignored international aspects of finance.
vg vg vg vg v g This mode of operation has become untenable since
vg vg vg vg vg vg vg
then.
vg
2. Howis internationalfinancialmanagementdifferentfromdomesticfinancialmanagement?
g
v vg vg vg vg vg vg vg vg
Answer: There are three major dimensions that set apart international finance from domestic
v g vg vg vg vg vg vg vg vg vg vg vg
finance. They are:
vg vg vg
1. foreignexchangeandpoliticalrisks, vg vg vg vg
2. marketimperfections, and vg vg
3. expanded opportunityset. vg vg
3. Discuss the major trends that have prevailed in international business during the last two
vg vg vg vg vg vg vg vg vg vg vg vg vg
decades.
vg
Answer: The 2000s brought a rapid integration of international capital and financial markets.
v g vg vg vg vg vg vg vg vg vg vg vg
Impetus for globalized financial markets initially came from the governments of major countries that
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
had begun to deregulate their foreign exchange and capital markets. The economic
vg vg vg vg vg vg vg vg vg vg v g vg
©MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR WRITTEN CONSENT OF MCGRAW HILL LLC
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
,integration and globalization that began in the eighties and nineties are picking up speed in the
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg 2000s. Trade liberalization and economic integration continued to proceed at both the regional and
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg global levels. Despite sovereign debt crisis in Europe, more EU member countries have adopted
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg the common currency, the euro, that effectively became the second global currency after the U.S.
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg dollar. In the last few years, however, economic nationalism has been gaining some popularity, as
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
exemplified by the Brexit decision of the United Kingdom andthe so-called
vg vg vg vg vg vg vg vg vg vg vg vg
―AmericaFirst‖ policies of the Trump Administration. To theextent that economic nationalism is a
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg populist response to the global financial crisis and Great Recession, it may subside as the world
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg economy continues to recover. vg vg vg
4. How is a country‘s economic well-being enhanced through free international trade in goods and
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg services?
Answer: According to David Ricardo, with free international trade, it is mutually beneficial for two
v g vg vg vg vg vg vg vg vg vg vg vg vg vg
vg countries to each specialize in the production of the goods that it can produce relatively most
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg efficiently and then trade those goods. By doing so, the two countries can increase their combined
vg vg vg vg vg v g vg vg vg vg vg vg vg vg vg
vg production, which allows both countries to consume more of both goods. This argument remains
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg valid even if a country can produce both goods more efficiently in absolute terms than theother
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
country. International trade is not a ‗zero-sum‘ game in which one country benefits at the expense of
vg v g vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg another country. Rather, international trade could be an ‗increasing- sum‘ game from which all
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg players become winners. vg vg
5. What considerations might limit the extent to which the theory of comparative advantage is
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg realistic?
Answer: The theory of comparative advantage was originally advanced by the nineteenth century
v g vg vg vg vg vg vg vg vg vg vg vg
vg economist David Ricardo as an explanation for why nations trade with one another. The theory
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
claims that economic well-being is enhanced if each country produces what it has a comparative
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg advantage in producing relative to other countries, and then trade products. vg vg vg vg vg vg vg vg vg vg
Underlying the theory are the assumptions of free trade between nations and that the factors of
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg production (labor, technological know-how, and capital) are relatively immobile. To the extent that
vg vg vg vg vg vg vg vg v g vg vg vg
vg these assumptions do not hold, the theory of comparative advantage may not realistically describe
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg international trade. In addition, free trade produces winners and losers and if the losers are not vg v g vg vg vg vg vg vg vg vg vg vg vg vg vg
vg compensated, free trade may faces political opposition from them. vg vg vg vg vg vg vg vg
6. What are multinational corporations (MNCs) and what economicroles do they play?
vg vg vg vg vg vg vg vg vg vg vg
©MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR WRITTEN CONSENT OF MCGRAW HILL LLC
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
,Answer: A multinational corporation (MNC) can be defined as a business firm incorporated in one
v g vg vg vg vg vg vg vg vg vg vg vg vg vg
vg country that has production and sales operations in many other countries. Indeed, some MNCs have
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg operations in a few dozens of different countries. vg vg vg vg vg vg vg v g MNCs obtain financing from major money vg vg vg vg vg
vg centers around the world in many different currencies to finance their operations. Global operations
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg force the treasurer‘s office to establish international banking relationships, to place short-term funds
vg vg vg vg vg vg vg vg vg vg vg vg
vg in several currency denominations, and to effectively manage foreign exchange risk. By
vg vg vg vg vg vg vg vg vg vg v g
vg circumventing and also taking advantage of various market imperfections, such as barriers to trade vg vg vg vg vg vg vg vg vg vg vg vg vg
vg and barriers to flow of people and capital across countries, MNCs contribute to greater integration of
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg the world economy and ing more perfect functioning of global markets.
vg vg vg vg vg vg vg vg vg vg
7. Ross Perot, a former Presidential candidate of the Reform Party, which was a third political party
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg in the United States, had strongly objected to the creation of the North American Trade Agreement
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg (NAFTA), which nonetheless was inaugurated in 1994. Perot feared the loss of American jobs to
vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg Mexico where it is much cheaper to hire workers. What are the merits and demerits of Perot‘s
vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg position on NAFTA? Considering the recent economic developments in North America, how would
vg vg vg vg vg vg vg vg vg vg vg vg
vg you assess Perot‘s position on NAFTA?
vg vg vg vg vg
Answer: Since the inception of NAFTA, many American companies indeed have invested heavily in
vg vg vg vg vg vg vg vg vg vg vg vg vg
vg Mexico, sometimes relocating production from the United States to Mexico. Although this might
vg vg vg vg vg vg vg vg vg vg vg vg
vg have temporarily caused unemployment of some American workers, they were eventually rehired
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vg by other industries often for higher wages. At the same time, Mexico has been experiencing a major
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vg economic boom. It seems clear that both Mexico and the U.S. have benefited from NAFTA. Perot‘s
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vg concern appears to have been ill founded. vg vg vg vg vg vg
8. In 1995, a working group of French chief executive officers was set up by the Confederation of
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vg French Industry (CNPF) and the French Association of Private Companies (AFEP) to study the
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vg French corporate governance structure. The group reported the following, among other things:
vg vg vg vg vg vg vg vg vg vg vg
v g ―The board of directors should not simply aim at maximizing share values as in the U.K. and the U.S.
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vg Rather, its goal should be to serve the company, whose interests should be clearly distinguished
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vg from those of its shareholders, employees, creditors, suppliers and clients but still equated with their
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vg general common interest, which is to safeguard the prosperity and continuity of the company‖.
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vg Evaluate the above recommendation of the working group. vg vg vg vg vg vg vg
Answer: The recommendations of the French working group clearly show that shareholder wealth
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vg maximization is not a universally accepted goal of corporate management, especially vg vg vg vg vg vg vg vg vg vg
©MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR WRITTEN CONSENT OF MCGRAW HILL LLC
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, outside the United States and possibly a few other Anglo-Saxon countries including the United
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vg Kingdom and Canada. To some extent, this may reflect the fact that share ownership is not wide
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vg spread in most other countries. vg vg vg vg
9. Emphasizing the importance of voluntary compliance, as opposed to enforcement, in the vg vg vg vg vg vg vg vg vg vg vg
vg aftermath of such corporate scandals as those involving Enron and WorldCom, U.S. President
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vg GeorgeW. Bush stated that while tougher laws might help, ―ultimately, the ethics of American
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vg business depends on the conscience of America‘s business leaders.‖ Describe your view on this
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vg statement.
Answer: v g There can be different answers to this question. If business leaders always behave with
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vg a high ethical standard, many of the corporate scandals we have seen lately might not have
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vg happened. Since we cannot fully depend on the ethical behavior on the part of individual business
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vg leaders, the society should protect itself by adopting the rules/regulations and governance structure
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vg that would induce business leaders to behave in the interest of the society at large. But at the same
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vg time, we need to make sure that excessive regulations do not stymy free enterprises, an important
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vg engine of economic growth. It is important to strike the right balance.
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10. Suppose you are interested in investing in shares of Samsung Electronics of Korea, which is a vg vg vg vg vg vg vg vg vg vg vg vg vg v g vg
vg world leader in mobile phones, TVs, and home appliances. But before you make investment
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vg decision, you would like to learn about the company. Visit the website of Yahoo
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vg (http://finance.yahoo.com) and collect information about Samsung Electronics, including the recent vg vg vg vg vg vg vg vg vg
vg stock price history and analysts‘ views of the company. Discuss what you learn about the company.
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vg Also discuss how the instantaneous access to information via internet would affect the nature and
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vg workings of financial markets. vg vg vg
Answer: As students might have learned from visiting the website, information is readily available
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even for foreign companies like Samsung Electronics. Ready access to international information
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vg helps integrate financial markets, dismantling barriers to international investment and financing.
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vg Integration, however, may help a financial shock in one market to be quickly transmitted to othervg vg vg vg vg vg vg vg vg vg vg vg vg vg vg
vg markets.
11. Most companies make corporate decisions to maximize their profits, without taking into
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vg considerationthe possiblynegative effects of corporate activities on the environments, thereby vg vg vg vg vg vg vg vg vg vg vg
©MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR WRITTEN CONSENT OF MCGRAW HILL LLC
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