Question

1. Explain how is international financial management different from domestic financial management (What are the major dimensions that set apart international finance from domestic and what is each dimension about)? 2. What is the argument of the theory of comparative advantage for international trade? Is it in favor of or against international trade? 3. Briefly discuss the Europe's Sovereign Debt Crisis of 2010 (How did the crisis start? How did the crisis affect the value of the euro and government bonds of the EU countries?...). What issues did the crisis reveal? 4. What are the main benefits and costs of the European Monetary Union (EMU)? 5. What are the main arguments for and against the flexible exchange rate regime and the fixed exchange rate regime?

Answer 1

.Difference

1. International finance is different from domestic finance in many aspects and the first and the most significant of them is foreign currency exposure. There are other aspects such as the different political, cultural, legal, economical, and taxation environment. International financial management involves a lot of currency derivatives whereas such derivatives are very less used in domestic financial management.

2. In Int Financial management there is an additional risk which a finance manager is required to cater to under an International Financial Management setting. Foreign exchange risk refers to the risk of fluctuating prices of currency which has the potential to convert a profitable deal into a loss-making one. DFM In domestic financial management the finance manager is required to deal in domestic currency only, there is no need to deal with foreign exchange, so there is no currency exchange risk.

3. The most significant difference is of foreign currency exposure. Currency exposure impacts almost all the areas of an international business starting from your purchase from suppliers, selling to customers, investing in plant and machinery, fund raising etc. Wherever you need money, currency exposure will come into play and as we know it well that there is no business transaction without money. DFM In domestic financial management exposure to a single currency of particular country. Entire business transaction takes place in a single currency.

4.IFM In international financial management we use derivatives instruments to hedge the risk. DFM In domestic financial management we do not use derivatives because there is less risk

5. IFM In an MNC, the financial managers have ample options of raising the capital. A number of options create more challenge with respect to the selection of the right source of capital to ensure the lowest possible cost of capital. DFM In domestic financial management, there is single market to raise capital, there is no option go outside the domestic boundaries.