國際財務(wù)管理課后習(xí)題解答

1、SUGGESTED ANSWERS TO END-OF-CHAPTER QUESTIONSQUESTIONS1. 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 financi

2、al 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

3、) ignored international aspects of finance. This mode of operation has become untenable since then.2. 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:

4、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.

5、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. Privatiza

6、tion 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 countrys economic wel

7、l-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 thos

8、e 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

9、 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 limit the extent to which the theory of comparative advantage is realistic?Answer: The theory of comparative advantage

10、 was originally advanced by the nineteenth century economist David Ricardo as an explanation for why nations trade with one another. The theory claims that economic well-being is enhanced if each countrys citizens produce what they have a comparative advantage in producing relative to the citizens o

11、f other countries, and then trade products. Underlying the theory are the assumptions of free trade between nations and that the factors of production (land, buildings, labor, technology, and capital) are relatively immobile. To the extent that these assumptions do not hold, the theory of comparativ

12、e advantage will not realistically describe international trade.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 sever

13、al other countries. Indeed, some MNCs have operations in dozens of different countries. MNCs obtain financing from major money centers around the world in many different currencies to finance their operations. Global operations force the treasurers office to establish international banking relations

14、hips, to place short-term funds in several currency denominations, and to effectively manage foreign exchange risk.7. Mr. Ross Perot, a former Presidential candidate of the Reform Party, which is a third political party in the United States, had strongly objected to the creation of the North America

15、n Trade Agreement (NAFTA), which nonetheless was inaugurated in 1994, for the fear of losing American jobs to Mexico where it is much cheaper to hire workers. What are the merits and demerits of Mr. Perots position on NAFTA? Considering the recent economic developments in North America, how would yo

16、u assess Mr. Perots position on NAFTA?Answer: Since the inception of NAFTA, many American companies indeed have invested heavily in Mexico, sometimes relocating production from the United States to Mexico. Although this might have temporarily caused unemployment of some American workers, they were e

17、ventually rehired by other industries often for higher wages. Currently, the unemployment rate in the U.S. is quite low by historical standard. At the same time, Mexico has been experiencing a major economic boom. It seems clear that both Mexico and the U.S. have benefited from NAFTA. Mr. Perots con

18、cern appears to have been ill founded.8. In 1995, a working group of French chief executive officers was set up by the Confederation of French Industry (CNPF) and the French Association of Private Companies (AFEP) to study the French corporate governance structure. The group reported the following,

19、among other things “The board of directors should not simply aim at maximizing share values as in the U.K. and the U.S. Rather, its goal should be to serve the company, whose interests should be clearly distinguished from those of its shareholders, employees, creditors, suppliers and clients but sti

20、ll equated with their general common interest, which is to safeguard the prosperity and continuity of the company”. Evaluate the above recommendation of the working group.Answer: The recommendations of the French working group clearly show that shareholder wealth maximization is not a universally ac

21、cepted goal of corporate management, especially outside the United States and possibly a few other Anglo-Saxon countries including the United Kingdom and Canada. To some extent, this may reflect the fact that share ownership is not wide spread in most other countries. In France, about 15% of househo

22、lds own shares.9. Emphasizing the importance of voluntary compliance, as opposed to enforcement, in the aftermath of corporate scandals, e.g., Enron and WorldCom, U.S. President George W. Bush stated that while tougher laws might help, “ultimately, the ethics of American business depends on the cons

23、cience of Americas business leaders.” Describe your view on this statement. Answer: There can be different answers to this question. If business leaders always behave with a high ethical standard, many of the corporate scandals we have seen lately might not have happened. Since we cannot fully depen

24、d on the ethical behavior on the part of business leaders, the society should protect itself by adopting the rules/regulations and governance structure that would induce business leaders to behave in the interest of the society at large. 10. Suppose you are interested in investing in shares of Nokia

25、 Corporation of Finland, which is a world leader in wireless communication. But before you make investment decision, you would like to learn about the company. Visit the website of CNN Financial network () and collect information about Nokia, including the recent stock price history and analysts vie

26、ws of the company. Discuss what you learn about the company. Also discuss how the instantaneous access to information via internet would affect the nature and workings of financial markets.Answer: As students might have learned from visiting the website, information is readily available even for for

27、eign companies like Nokia. Ready access to international information helps integrate financial markets, dismantling barriers to international investment and financing. Integration, however, may help a financial shock in one market to be transmitted to other markets.MINI CASE: NIKES DECISIONNike, a U

28、.S.-based company with a globally recognized brand name, manufactures athletic shoes in such Asian developing countries as China, Indonesia, and Vietnam using subcontractors, and sells the products in the U.S. and foreign markets. The company has no production facilities in the United States. In eac

29、h of those Asian countries where Nike has production facilities, the rates of unemployment and underemployment are quite high. The wage rate is very low in those countries by the U.S. standard; hourly wage rate in the manufacturing sector is less than one dollar in each of those countries, which is

30、compared with about $18 in the U.S. In addition, workers in those countries often are operating in poor and unhealthy environments and their rights are not well protected. Understandably, Asian host countries are eager to attract foreign investments like Nikes to develop their economies and raise th

31、e living standards of their citizens. Recently, however, Nike came under a world-wide criticism for its practice of hiring workers for such a low pay, “next to nothing” in the words of critics, and condoning poor working conditions in host countries.Evaluate and discuss various ethical as well as ec

32、onomic ramifications of Nikes decision to invest in those Asian countries.Suggested Solution to Nikes DecisionObviously, Nikes investments in such Asian countries as China, Indonesia, and Vietnam were motivated to take advantage of low labor costs in those countries. While Nike was criticized for th

33、e poor working conditions for its workers, the company has recognized the problem and has substantially improved the working environments recently. Although Nikes workers get paid very low wages by the Western standard, they probably are making substantially more than their local compatriots who are

34、 either under- or unemployed. While Nikes detractors may have valid points, one should not ignore the fact that the company is making contributions to the economic welfare of those Asian countries by creating job opportunities.CHAPTER 1A THEORY OF COMPARATIVE ADVANTAGESUGGESTED SOLUTIONS TO APPENDIX

35、 PROBLEMSPROBLEMS1. Country C can produce seven pounds of food or four yards of textiles per unit of input. Compute the opportunity cost of producing food instead of textiles. Similarly, compute the opportunity cost of producing textiles instead of food.Solution: The opportunity cost of producing fo

36、od instead of textiles is one yard of textiles per 7/4 = 1.75 pounds of food. A pound of food has an opportunity cost of 4/7 = .57 yards of textiles.2. Consider the no-trade input/output situation presented in the following table for Countries X and Y. Assuming that free trade is allowed, develop a

37、scenario that will benefit the citizens of both countries.INPUT/OUTPUT WITHOUT TRADE_CountryXYTotal_I. Units of Input(000,000)_Food7060Textiles4030_II. Output per Unit of Input(lbs or yards)_Food17 5Textiles 5 2_III. Total Output(lbs or yards)(000,000)_Food 1,190300 1,490Textiles 200 60260_IV. Consu

38、mption(lbs or yards)(000,000)_Food 1,190300 1,490Textiles 200 60260_Solution:Examination of the no-trade input/output table indicates that Country X has an absolute advantage in the production of food and textiles. Country X can “trade off” one unit of production needed to produce 17 pounds of food

39、for five yards of textiles. Thus, a yard of textiles has an opportunity cost of 17/5 = 3.40 pounds of food, or a pound of food has an opportunity cost of 5/17 = .29 yards of textiles. Analogously, Country Y has an opportunity cost of 5/2 = 2.50 pounds of food per yard of textiles, or 2/5 = .40 yards

40、 of textiles per pound of food. In terms of opportunity cost, it is clear that Country X is relatively more efficient in producing food and Country Y is relatively more efficient in producing textiles. Thus, Country X (Y) has a comparative advantage in producing food (textile) is comparison to Count

41、ry Y (X).When there are no restrictions or impediments to free trade the economic-well being of the citizens of both countries is enhanced through trade. Suppose that Country X shifts 20,000,000 units from the production of textiles to the production of food where it has a comparative advantage and

42、that Country Y shifts 60,000,000 units from the production of food to the production of textiles where it has a comparative advantage. Total output will now be (90,000,000 x 17 =) 1,530,000,000 pounds of food and (20,000,000 x 5 =100,000,000) + (90,000,000 x 2 =180,000,000) = 280,000,000 yards of te

43、xtiles. Further suppose that Country X and Country Y agree on a price of 3.00 pounds of food for one yard of textiles, and that Country X sells Country Y 330,000,000 pounds of food for 110,000,000 yards of textiles. Under free trade, the following table shows that the citizens of Country X (Y) have

44、increased their consumption of food by 10,000,000 (30,000,000) pounds and textiles by 10,000,000 (10,000,000) yards.INPUT/OUTPUT WITH FREE TRADE_ CountryXYTotal_I. Units of Input (000,000)_Food90 0Textiles2090_II. Output per Unit of Input (lbs or yards)_Food17 5Textiles 5 2_III. Total Output (lbs or

45、 yards) (000,000)_Food 1,530 0 1,530Textiles100180280_IV. Consumption (lbs or yards) (000,000)_Food 1,200330 1,530Textiles210 70280_CHAPTER 2 INTERNATIONAL MONETARY SYSTEMSUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTERQUESTIONS AND PROBLEMSQUESTIONS1. Explain Greshams Law.Answer: Greshams law refe

46、rs to the phenomenon that bad (abundant) money drives good (scarce) money out of circulation. This kind of phenomenon was often observed under the bimetallic standard under which both gold and silver were used as means of payments, with the exchange rate between the two metals fixed.2. Explain the m

47、echanism which restores the balance of payments equilibrium when it is disturbed under the gold standard.Answer: The adjustment mechanism under the gold standard is referred to as the price-specie-flow mechanism expounded by David Hume. Under the gold standard, a balance of payment disequilibrium wi

48、ll be corrected by a counter-flow of gold. Suppose that the U.S. imports more from the U.K. than it exports to the latter. Under the classical gold standard, gold, which is the only means of international payments, will flow from the U.S. to the U.K. As a result, the U.S. (U.K.) will experience a de

49、crease (increase) in money supply. This means that the price level will tend to fall in the U.S. and rise in the U.K. Consequently, the U.S. products become more competitive in the export market, while U.K. products become less competitive. This change will improve U.S. balance of payments and at th

50、e same time hurt the U.K. balance of payments, eventually eliminating the initial BOP disequilibrium.3. Suppose that the pound is pegged to gold at 6 pounds per ounce, whereas the franc is pegged to gold at 12 francs per ounce. This, of course, implies that the equilibrium exchange rate should be tw

51、o francs per pound. If the current market exchange rate is 2.2 francs per pound, how would you take advantage of this situation? What would be the effect of shipping costs?Answer: Suppose that you need to buy 6 pounds using French francs. If you buy 6 pounds directly in the foreign exchange market,

52、it will cost you 13.2 francs. Alternatively, you can first buy an ounce of gold for 12 francs in France and then ship it to England and sell it for 6 pounds. In this case, it only costs you 12 francs to buy 6 pounds. It is thus beneficial to ship gold due to the overpricing of the pound. Of course,

53、you can make an arbitrage profit by selling 6 pounds for 13.2 francs in the foreign exchange market. The arbitrage profit will be 1.2 francs. So far, we assumed that shipping costs do not exist. If it costs more than 1.2 francs to ship an ounce of gold, there will be no arbitrage profit.4. Discuss t

54、he advantages and disadvantages of the gold standard.Answer: The advantages of the gold standard include: (I) since the supply of gold is restricted, countries cannot have high inflation; (2) any BOP disequilibrium can be corrected automatically through cross-border flows of gold. On the other hand, the main disadvantages of the gold standard are: (I) the world economy can be subject to deflationary pressure due to restricted supply of gold; (ii) the gold stan