Inter Finance Assignment

Assignment #1

1. Why is it important to study international financial management?

Answer: Because now the world is very highly globalized and integrated which is related with financial management such as routinely purchase oil imported from Saudi Arabia and Nigeria, or TV sets and camcorders from Japan.

2. How is international financial management different from domestic financial management?

Answer: There are three major dimensions set international finance apart from domestic finance.

-Foreign exchange and political risks: when firms and individuals are engaged in cross border transactions, they are potentially exposed to foreign exchange risk that they would not normally encounter in purely domestic transactions. Political risk ranges from unexpected changes in tax rules to outright expropriation of assets held by foreigners.

-Market imperfections: represents various frictions and impediments preventing markets from functioning perfectly, play on important role in motivating MNCs to locate production overseas.

-Expanded opportunity set: when firms venture into the area of global markets, they can benefit from an expanded opportunity set.

4. How is the country’s economic well-being enhanced through free international trade in goods and services?

Answer: According to David Ricardo, the liberalization of international trade will enhance the welfare of the world’s citizens. 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, and the two countries will be able to increase their combined production.

6. What are multinational corporations (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. MNCs receive financing from major money centers around the world in...