Bus Adm 456
2 February 2015
Chapter 1 Homework
1. It is important because all our economics are very globally related. One country’s GDP, for example, may have an effect on another. The United States imports and exports many products, which is another reason to study financial processes elsewhere in the world.
2. There are three major things that set apart international finance and domestic finance. The three things are: foreign exchange and risk, market imperfections, and expanded opportunity set.
3. During the 1980s, there was an increase in the mixing of other country’s money and financial markets. The need for globalization came from governments that wanted to deregulate their foreign exchange and markets. Privatization also picked up in the 1990s. Privatization is turning over to a free market system. Lastly, trade liberalization and economic integration continued to past the 1990s.
4. Free international trade, it is 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 combining, they increase production. One country does not benefit at the expense of another.
5. David Ricardo is responsible for the original advancement of the theory of comparative advantage. For this to be true, it is assumed that factors of production, such as land, buildings and labor, are immobile.
6. A multinational corporation is a business incorporated in one country that has production and sales operations in several other countries. MNCs get financing from centers around the world in many different currencies. Global operations force the treasurers to establish international banking relationships, to place short-term funds in several currency denominations, and to effectively manage foreign exchange risk.
7. Since NAFTA,…