The Global Financial Marketplace - Essay Questions

Essay Questions

1.1 The Global Financial Marketplace

1) The global financial marketplace consists of assets, institutions, and linkages. Explain how these factors come together to form the marketplace we know today.

Answer: Financial assets , such as government securities, are at the heart of today's global financial marketplace. These securities set the standard and establish rate and price benchmarks for other financial assets sourced by private and public firms and NGOs. Central banks help establish and implement monetary policy and regulate the commercial banks which take deposits and make loans. The assets and institutions are linked by the interbank networks operating worldwide that are so necessary for actual trading to take place.

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Topic: 1.1 The Global Financial Marketplace

1.2 The Theory of Comparative Advantage

1) Despite the underlying advantages of the Theory of Comparative Advantage, countries do not appear to specialize in producing only those goods and services that could most efficiently be produced domestically. Provide at least three reasons why governments interfere with comparative advantage and the techniques they may use to enforce their objectives..

Answer: Governments interfere for several reasons. The authors suggest several reasons for this including national objectives for full employment, economic development, self-sufficiency, national defense, and agricultural protection. Common forms of government interference are tariffs, quotas, and other types of restrictions. Political influence may also include the manipulation of international standards of trade that benefit their own country more than others.

Diff: 3

Topic: 1.2 Comparative Advantage

1.4 Market Imperfections: A Rationale for the Existence of the Multinational Firm

1) List and explain three strategic motives why firms become multinationals and give an example of each.

Answer: The authors provide 5 strategic motives for firms to become...