1、 WORD格式.可编辑 CHAPTER 1 GLOBALIZATION AND THE MULTINATIONAL FIRMANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMSQUESTIONS1. Why is it important to study international financial management?Answer: We are now living in a world where all the major economic functions, i.e., consumption, produc
2、tion, and investment, 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 some twenty yea
3、rs 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 dime
4、nsions 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 1990s broug
5、ht 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 integration and globalization that began in the
6、 eighties is picking up speed in the 1990s via privatization. Privatization is the process by which a country divests itself of the ownership and operation of a business venture by turning it over to the free market system. Trade liberalization and economic integration continued to proceed at both t
7、he regional and global levels. In Europe, many EU member countries have adopted the common currency, euro, that has become the second global currency after the U.S. dollar.4. How is a countrys economic well-being enhanced through free international trade in goods and services?Answer: According to Da
8、vid 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 bo
9、th countries to consume more of both goods. This argument remains valid even if a country can produce both goods more efficiently 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 a
10、n increasing-sum game at which all players become winners.5. What considerations might limit the extent to which the theory of comparative advantage is realistic?Answer: The theory of comparative advantage was originally advanced by the nineteenth century economist David Ricardo as an explanation fo
11、r why nations trade with one another. The theory claims that economic well-being is enhanced if each countrys citizens produce what they have a comparative advantage in producing relative to the citizens of other countries, and then trade products. Underlying the theory are the assumptions of free t
12、rade between nations and that the factors of production (land, buildings, labor, technology, and capital) are relatively immobile. To the extent that these assumptions do not hold, the theory of comparative advantage mayl not realistically describe international trade.6. What are multinational corpo
13、rations (MNCs) and what economic roles do they play?Answer: A multinational corporation (MNC) can be defined as a business firm incorporated in one country that has production and sales operations in several other countries. Indeed, some MNCs have operations in dozens of different countries. MNCs ob
14、tain financing from major money centers around the world in many different currencies to finance their operations. Global operations force the treasurers office to establish international banking relationships, to place short-term funds in several currency denominations, and to effectively manage fo
15、reign exchange risk.7. Ross Perot, a former Presidential candidate of the Reform Party, which is a third political party in the United States, had strongly objected to the creation of the North American Trade Agreement (NAFTA), which nonetheless was inaugurated in 1994. Perot feared the loss of Amer
16、ican jobs to Mexico where it is much cheaper to hire workers. What are the merits and demerits of Perots position on NAFTA? Considering the recent economic developments in North America, how would you assess Perots position on NAFTA?Answer: Since the inception of NAFTA, many American companies indee
17、d have invested heavily in Mexico, sometimes relocating production from the United States to Mexico. Although this might have temporarily caused unemployment of some American workers, they were eventually rehired by other industries often for higher wages. At the same time, Mexico has been experienc
18、ing a major economic boom. It seems clear that both Mexico and the U.S. have benefited from NAFTA. Perots concern appears to have been ill founded.8. In 1995, a working group of French chief executive officers was set up by the Confederation of French Industry (CNPF) and the French Association of Pr
19、ivate Companies (AFEP) to study the French corporate governance structure. The group reported the following, among other things: “The board of directors should not simply aim at maximizing share values as in the U.K. and the U.S. Rather, its goal should be to serve the company, whose interests shoul
20、d be clearly distinguished from those of its shareholders, employees, creditors, suppliers and clients but still equated with their general common interest, which is to safeguard the prosperity and continuity of the company”. Evaluate the above recommendation of the working group.Answer: The recomme
21、ndations of the French working group clearly show that shareholder wealth maximization is not a universally accepted goal of corporate management, especially outside the United States and possibly a few other Anglo-Saxon countries including the United Kingdom and Canada. To some extent, this may ref
22、lect the fact that share ownership is not wide spread in most other countries. In France, about 15% of households own shares.9. Emphasizing the importance of voluntary compliance, as opposed to enforcement, in the aftermath of such corporate scandals as those involving Enron and WorldCom, U.S. Presi
23、dent George W. Bush stated that while tougher laws might help, “ultimately, the ethics of American business depends on the conscience of Americas business leaders.” Describe your view on this statement. Answer: There can be different answers to this question. If business leaders always behave with a
24、 high ethical standard, many of the corporate scandals we have seen lately might not have happened. Since we cannot fully depend on the ethical behavior on the part of individual business leaders, the society should protect itself by adopting the rules/regulations and governance structure that would
25、 induce business leaders to behave in the interest of the society at large. 10. Suppose you are interested in investing in shares of Nokia Corporation of Finland, which is a world leader in wireless communication. But before you make investment decision, you would like to learn about the company. Vi
26、sit the website of Yahoo () and collect information about Nokia, including the recent stock price history and analysts views of the company. Discuss what you learn about the company. Also discuss how the instantaneous access to information via internet would affect the nature and workings of financi
27、al markets.Answer: As students might have learned from visiting the website, information is readily available even for foreign companies like Nokia. Ready access to international information helps integrate financial markets, dismantling barriers to international investment and financing. Integratio
28、n, however, may help a financial shock in one market to be transmitted to other markets.MINI CASE: NIKE AND SWEATSHOP LABORNike, a company headquartered in Beaverton, Oregon, is a major force in the sports footwear and fashion industry, with annual sales exceeding $ 12 billion, more than half of whi
29、ch now come from outside the United States. The company was co-founded in 1964 by Phil Knight, a CPA at Price Waterhouse, and Bill Bowerman, college track coach, each investing $ 500 to start. The company, initially called Blue Ribbon Sports, changed its name to Nike in 1971 and adopted the “Swoosh”
30、 logorecognizable around the worldoriginally designed by a college student for $35. Nike became highly successful in designing and marketing mass-appealing products such as the Air Jordan, the best selling athletic shoe of all time.Nike has no production facilities in the United States. Rather, the
31、company manufactures athletic shoes and garments in such Asian countries as China, Indonesia, and Vietnam using subcontractors, and sells the products in the U.S. and international markets. In each of those Asian countries where Nike has production facilities, the rates of unemployment and under-emp
32、loyment are quite high. The wage rate is very low in those countries by U.S. standardsthe hourly wage rate in the manufacturing sector is less than $ 1 in each of those countries, compared with about $ 20 in the United States. In addition, workers in those countries often operate in poor and unhealthy environments and their rights are not particularly well protected. Understandably, host countries are eager to attract foreign investments like Nikes to de