Resnick Solution Manual

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SUGGESTED ANSWERS AND SOLUTIONS TO
END-OF-CHAPTER QUESTIONS AND PROBLEMS
TABLE OF CONTENTS
Chapter
Globalization and the Multinational Firm Suggested Answers to End-of-Chapter Questions International Monetary System Suggested Answers and Solutions to End-of-Chapter Questions and Problems
Balance of Payments Suggested Answers and Solutions to End-of-Chapter Questions and Problems
The Market for Foreign Exchange Suggested Answers and Solutions to End-of-Chapter Questions and Problems
International Parity Relationships Suggested Answers and Solutions to End-of-Chapter Questions and Problems
International Banking Suggested Answers and Solutions to End-of-Chapter Questions and Problems
International Bond Markets Suggested Answers and Solutions to End-of-Chapter Questions and Problems
International Equity Markets Suggested Answers and Solutions to End-of-Chapter Questions and Problems
Management of Economic Exposure Suggested Answers and Solutions to End-of-Chapter Questions and Problems
Management of Transaction Exposure Suggested Answers and Solutions to End-of-Chapter Questions and Problems
Management of Translation Exposure Suggested Answers and Solutions to End-of-Chapter Questions and Problems
Foreign Direct Investment Suggested Answers and Solutions to End-of-Chapter Questions and Problems
CHAPTER 1 GLOBALIZATION AND THE MULTINATIONAL FIRM
SUGGESTED ANSWERS TO END-OF-CHAPTER QUESTIONS
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, i.e., consumption, production, 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 years 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.

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 three major trends that have prevailed in international business during the last two decades.
Answer: The 1980s 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 integration and globalization that began in the 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. Lastly, trade liberalization and economic integration continued to proceed at both the regional and global levels.

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 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 at which all players become winners.

5. What considerations might...
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