International Finance
FINA 4314
Sec. 102
Assignment 1
Dr. Mohammad Magableh
Rami Al-khamsani
201001334
Ch1.
7) A licensing agreement has limited potential for return, because the foreign firm will
receive much of the benefits as a result of the licensing agreement. Yet, the MNC
has limited risk, because it did not need to invest substantial funds in the foreign
country. An acquisition by the MNC requires a substantial investment. If this
investment is not a success, the MNC may have trouble selling the firm it acquired
for a reasonable price. Thus, there is more risk. However, if this investment is
successful, all of the benefits accrue to the MNC.
8) a. The operating characteristics of the firm (what it produces or sells) and the risk
perception of international business will influence the degree to which a firm
becomes internationalized. Several other factors such as access to capital could
also be relevant here. Firms that are labor-intensive could more easily capitalize
on low-wage countries while firms that rely on technological advances could not.
b. The Internet allows for easy and low-cost communication between countries, so
that firms could now develop contacts with potential customers overseas by
having a website. Many firms use their website to identify the products that they
sell, along with the prices for each product. This allows them to easily advertise
their products to potential importers anywhere in the world without mailing
brochures to various countries. In addition, they can add to their product line and
change prices by simply revising their website, so importers are kept abreast of the
exporter’s product information by monitoring the exporter’s website periodically.
Firms can also use their websites to accept orders online. Some firms with an
international reputation use their brand name to advertise products over the
internet. They may use manufacturers in some foreign countries to produce some
of their products subject to their specification.
12) a. Because of imperfect markets, resources cannot be easily and freely retrieved
by the MNC. Consequently, the MNC must sometimes go to the resources rather
than retrieve resources (such as land, labor, etc.).
b. If perfect markets existed, resources would be more mobile and could therefore be
transferred to those countries more willing to pay a high price for them. As this
occurred, shortages of resources in any particular country would be alleviated and
the costs of such resources would be similar across countries.
Ch2.
6) Governments can place tariffs or quotas on imports to restrict imports. They can
also place taxes on income from foreign securities, thereby discouraging
investors from purchasing foreign securities. If they loosen restrictions, they can
encourage international payments among countries.
7) The euro allowed for a single currency among many European countries.
It could encourage firms in those countries to trade among each other since there is
no exchange rate risk. This would possibly cause them to trade less with the U.S. The
euro can increase trade within Europe because it eliminates the need for
several European countries to exchange currencies when trading with each other.
8) a. a hi gh i n fl at i on r at e t en ds t o i n c r ea s e i m po rt s an d de c r e as e
ex po rt s , t h er e b y i n c r ea si n g t h e cu r re nt a cc ou nt d efi ci t , ot h e r t hi n gs
eq ua l .
b . This question is intended to encourage opinions and does not have a
perfect solution. A negative current account is thought to reflect lost jobs in a country,
which is unfavorable. Yet, the foreign importing reflects strong competition from
foreign producers, which may keep prices (inflation) low.
References
www.appstate.edu/~jjohnston/intlnotes.doc
www.ling.gcsu.edu/.../InternationalFinance%20Homeworksolution.doc