CH 1: Questions

Why is it important to study international financial management?

Financial markets are becoming increasingly interconnected. With currency fluctuations, exchange rate risks, and political risks, it is important to understand why certain events unfold and how a nation can combat unfavourable circumstances. It is also helpful for investors to buy and sell stocks, providing risk management and profit maximization.

How is international financial management different form domestic financial management?

There are 4 dimensions that separate domestic from international:

• Foreign exchange risks

• Political risks

• Market imperfections

• Expanded opportunity set

Discuss the Major trends that have prevailed in the last three decades

• Emerging globalized financial markets

  Deregulation of Financial markets along with technological improvments have reduced transaction and information costs. leading to financial innovations such as multi-currency bonds and ETFS

• Advent of the Euro

  Countries within the euro zone adopted a basket currency. The problem is eurozone countries have achieved monetary union without fiscal integration.

• Trade liberalization and economic integration

  Many nations have bailed on mercantilist views and adopted free trade. Mercantilist view states that a countries wealth and power is best served by increasing exports and decreasing imports.

• Liberalization of protectionist legislation

  The use of multilateral agreement to overcome trade barriers. An example would be GATT, enforced by the WTO

• Privitization

  Denationalization is the process of selling state-runed enterprises to investors. Often seen in socialist economies transitioning to market economies

How is a country’s economic well-being enhanced through free international trade in goods and services?

• Access to more goods & services - gives people options

• Efficiency & specialization - Countries focus on producing what they do best, leading to better use of resources

• Foreign Investments - Trade attracts investors, bringing new tech, skills, and capital

• Stronger Diplomatic & Economic ties

What are multinational corporations (MNCs) and what economic roles do they play?

Corporations that are incorporated in one country but carry out production in other nations. They are responsible for spreading FDI, producing jobs, and expanding global trade.