International Finance Midterm Review
FI-555
International Finance Mid-Term Exam Guide
Below is an outline of what is included in your test. Class notes, exercises and discussion along with homework problems should be enough. Reading book chapters will provide additional info if you feel you need it.
1. Globalization and the Multinational Firm
• What’s special about international finance
o Foreign Exchange Risk
▪ The risk that foreign currency profits may evaporate in dollar terms due to unanticipated unfavorable exchange rate movements.
o Political Risk
▪ Sovereign governments have the right to regulate the movement of goods, capital, and people across their borders. These laws sometimes change in unexpected ways.
o Market Imperfections
▪ Legal restrictions on the movement of goods, people, and money
▪ Transactions costs
▪ Shipping costs
▪ Tax arbitrage
o Expanded Opportunity Set-maximization of shareholder wealth (the corporate objective continues to be maximization of existing shareholder wealth)
• Globalization of the World Economy Major Trends
o Emergence of Globalized Financial Markets
▪ Deregulation of Financial Markets coupled with
▪ Advances in Technology have greatly reduced information and transactions costs, which has led to:
▪ Financial Innovations, such as
• Currency futures and options
• Multi-currency bonds
• Cross-border stock listings
• International mutual funds
o Emergence of the Euro as a Global Currency
▪ The “transaction domain” of the euro may become larger than the U.S. dollar’s in the near future.
o Trade Liberalization and Economic Integration
o Privatization
▪ The selling off state-run enterprises to investors is also known as “Denationalization”.
▪ Often seen in socialist economies in transition to market economies.
▪ By most estimates this increases the efficiency of the
International Finance Mid-Term Exam Guide
Below is an outline of what is included in your test. Class notes, exercises and discussion along with homework problems should be enough. Reading book chapters will provide additional info if you feel you need it.
1. Globalization and the Multinational Firm
• What’s special about international finance
o Foreign Exchange Risk
▪ The risk that foreign currency profits may evaporate in dollar terms due to unanticipated unfavorable exchange rate movements.
o Political Risk
▪ Sovereign governments have the right to regulate the movement of goods, capital, and people across their borders. These laws sometimes change in unexpected ways.
o Market Imperfections
▪ Legal restrictions on the movement of goods, people, and money
▪ Transactions costs
▪ Shipping costs
▪ Tax arbitrage
o Expanded Opportunity Set-maximization of shareholder wealth (the corporate objective continues to be maximization of existing shareholder wealth)
• Globalization of the World Economy Major Trends
o Emergence of Globalized Financial Markets
▪ Deregulation of Financial Markets coupled with
▪ Advances in Technology have greatly reduced information and transactions costs, which has led to:
▪ Financial Innovations, such as
• Currency futures and options
• Multi-currency bonds
• Cross-border stock listings
• International mutual funds
o Emergence of the Euro as a Global Currency
▪ The “transaction domain” of the euro may become larger than the U.S. dollar’s in the near future.
o Trade Liberalization and Economic Integration
o Privatization
▪ The selling off state-run enterprises to investors is also known as “Denationalization”.
▪ Often seen in socialist economies in transition to market economies.
▪ By most estimates this increases the efficiency of the