McGraw-Hill/IrwinCopyright?2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.1-0InternationalFinanceMcGraw-Hill/IrwinCopyright?2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.1-1InternationalFinanceBookforUse:

InternationalFinancialManagementAuthor:ChoelS.Sun6thEditionPress:ChinaMachinePressForsupplementedmaterialofthebook,pleaseaccessto:/er6e

INTERNATIONALFINANCIALMANAGEMENTEUN/RESNICKSecondEdition1

GlobalizationandInternationalFinance

(Chapter1)McGraw-Hill/IrwinCopyright?2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.1-3EssentialReadings

P4-19

McGraw-Hill/IrwinCopyright?2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.1-4What’sSpecialabout“InternationalFinance”?ForeignExchangeriskandpoliticalRiskMarketImperfectionsExpandedOpportunityMcGraw-Hill/IrwinCopyright?2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.1-5What’sSpecialabout

“International”Finance?ForeignExchangeRiskTheriskthatforeigncurrencyprofitsmayevaporateinyourhomecurrencyduetounanticipatedunfavorableexchangeratemovements.PoliticalRiskSovereigngovernmentshavetherighttoregulatethemovementofgoods,capital,andpeopleacrosstheirborders.Theselawssometimeschangeinunexpectedways.McGraw-Hill/IrwinCopyright?2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.1-6MarketImperfectionsLegalrestrictionsonfreemovementofgoods,people,andmoneyTransactionscostsShippingcostsTaxarbitrageWhat’sSpecialabout

“International”Finance?McGraw-Hill/IrwinCopyright?2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.1-7ExpandedOpportunitySetFirmscanlocatetheirproductioninanycountryorregionoftheworldtomaximizetheirprofits.Firmscanalsoraisefundsinanycapitalmarketwherethecostofcapitalisthelowest.What’sSpecialabout

“International”Finance?McGraw-Hill/IrwinCopyright?2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.1-8McGraw-Hill/IrwinCopyright?2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.1-9DeregulationofFinancialMarketscoupledwithAdvancesinTechnology

havegreatlyreducedinformationandtransactionscosts,whichhasledto:FinancialInnovations,