Chap 1-3 International Accounting Course Notes

Chapter 1 Questions 1. How important is international trade to the world economy? a. International sales and trade can be a source of higher profit margins through additional sales. Unique products or technological advantages can provide competitive advantage that a company wishes to exploit by expanding sales in a foreign market 2. What accounting issues arise for a company as a result of engaging in international trade? b. New accounts added to the chart of accounts, foreign currency and exchange rates and the risk of falling rates, hedging, whether or not it is profitable for a company to invest overseas, financial reporting for overseas operations, international taxes, tariffs, fees associated with intercompany transfers, international auditing, cross-listing on exchanges, global accounting standards 3. Why might a company be interested in a foreign direct investment? c. Increase sales and profits through a different market that may have comparative advantage that a company wishes to exploit by expanding sales in a foreign country, enter rapidly growing or emerging markets to gain a foothold in an emerging market overseas, reduce costs by investing overseas sometimes a company can lower labor and manufacturing costs by having a factory close to a supply of materials rather than import them, protect domestic markets by weakening an international competitor in their home market, protect foreign markets to create a stronger presence in a country to protect the market, acquire technological and managerial know how by setting up an operation close to leading competitors and monitoring their activities and even stealing experienced employees. 4. How important is foreign direct investment to the world economy? d. Global sales of foreign affiliates comprises of about 10% of the worldwide gross domestic product and global sales of foreign affiliates were about 1.5 times as high as global exports in 2008. 5. What financial