Activity 11

1. How is a country’s economic well-being enhanced through free international trade in goods
and services?

It is mutually 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 doing so, the
two countries can increase their combined production, which allows both countries to
consume more of both goods. This argument remains valid even if a country can produce
both goods more efficiently than the other country. International trade is not a zero-sum
game, but is instead, could be an increasing-sum game at which all players become winners.
Compared to national financial markets international markets have different shape and
analytics. Proper management of international finances can help the organization in
achieving same efficiency and effectiveness in all markets, hence without IFM sustaining
in the market can be difficult. Companies are motivated to invest capital in abroad for the
following reasons: Efficiently produce products in foreign markets than that domestically
and obtain the essential raw materials needed for production.

2.What economic roles do multinational corporations (MNCs) play?

A multinational company generally has offices and/or factories in different countries and a
centralized head office where they coordinate global management. Some of these companies,
also known as international, stateless, or transnational corporate organizations, may have budgets
that exceed those of some small countries. MNC can have a positive economic effect on the
country where the business is taking place. Multinational advocates say they create high-paying
jobs and technologically advanced goods in countries that otherwise would not have access to
such opportunities or goods.
1.) Why would it be useful to examine a country’s
balance-of-payments data?

It is useful to examine a country’s balance-of-payments data because it shows the value

of all the transactions that took place between the domestic and the foreign residents in a
specific period of time. All of these transactions are recorded in double entry system of
accounting and each transaction has two sides one is debt and the other is credit. So, in the
balance of payment is the aggregate of both the transactions. The balance of payment can be in
surplus or in deficit within a specific period of time. When the export transactions are more than
the import transactions in a given specific period of time it is said as the surplus balance of
payment. On the other hand, when the export transactions are less than the import transactions
of the country in a given specific period of time it is said as deficit balance of payment.

2.) Comment on the following statement: “ Since the United States imports more than it
exports, it is necessary for the United States to import capital from foreign countries to
finance its current account deficits.”
As the world’s second-largest importer, the United States is burdened with a huge
trade deficit. Although the United States is capable of manufacturing almost all of its
imports, it gets much better prices when buying from other countries. All the transactions
that are related to the export services by the United States result in the inflow of funds
to the United States and all the transactions related to the import services are the reason
behind the outflow of the funds from the United States.
 International
Financial
Management

International
Expanded
Finance (Globalized
opportunity
Foreign Exchange and Integrated World
set
Economy)

When firms go
In a domestic economy global, they get
this risk is generally benefited from the
ignored because a Market expanded
single national curren- Political Risk Imperfections opportunities
cy serves as the main available globally.
medium of exchange They can locate
within a country. production in any
However, when country or region
different national to maximize their
currencies are The world performance and
exchanged, there is It is risk of loss (or markets are highly raise funds in any
definite risk of gain) from unforeseen imperfect, in the capital market
volatility in foreign government action or sense that a where the cost of
exchange rates. other events of political variety of barriers capital is the
Variability of exchange character, such as acts still hamper free lowest. They can
rates is widely of terrorism. movements of also gain from
regarded as the most people, goods, greater economies
serious international services, and of scale when
financial problem capital across tangible and
facing policymakers national intangible assets
and corporate boundaries. are deployed on a
managers. global basis.