Solution manual for international financial management 10th edition by cheol eun Chapter 1-21
Solution Manual For
International Financial Management, 10th Edition EUN
Chapter 1-21
CHAPTER 1
GLOBALIZATION AND THE MULTINATIONAL FIRM
ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS
QUESTIONS
1. Why is it important to study international financial management?
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
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.
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:
1. foreign exchange and political risks,
2. market imperfections, and
3. expanded opportunity set.
3. Discuss the major trends that have prevailed in international business during the last two
decades.
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
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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
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
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
and services?
Answer: According to David Ricardo, with free international trade, it is mutually beneficial for
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
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.
