International Finance

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International Finance

By | Feb. 2014
Page 1 of 2

1/28/14

1. The recent emergence of technology has made communication and information accessible to everyone for very little money. Therefor the previous domestic only investments has spread to an international scale. Here are a few of the reason’s to study International Finance:

New Business Opportunities
Multinational Corporations
Cheaper Labor
Better access to natural materials
Bigger markets leading to higher profits
Understanding monetary exchange rates
Political Policies
Emergence of the Euro
China and India’s growing markets

2. The Theory of Comparative Advantage by David Ricardo states that it is mutually advantageous for two countries to produce one product, that each country excels at, then these two countries trade with one another to achieve maximum production. It’s more efficient to commit all your resources to one product rather than try and produce multiple products. With free international trade it makes products available on the international scale, providing services and products to countries that need them in return for money. This also helps improve relations between countries who can trade with and help each other. As well helps the export to GDP ratio like NAFTA helped Mexico trade easier with the U.S.

3. Country C: 1 Unit = 7lbs of food or 4yds of textiles
a. 1yd of textile Opportunity Cost: 7/4 = 1.75lbs of food
b. 1lb of food Opportunity Cost: 4/7 = .57yds of textile

4. Gresham’s Law states that metals of lesser value like silver can become the main form of currency over metal of greater value like gold because that is what the majority of people have available. Even though gold holds more value and is internationally more stable, it can be phased out due to the abundance of a lesser valued metal.

5. The stock of domestic money increases when big amounts of gold are added to the country. When one country exports a lot of products and in return receives gold, the exchange rate of the nation’s currency goes...

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