EC249 Study Guide - Final Guide: Stock Transfer Agent, Basel Ii, Adjustable-Rate Mortgage

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Annual trading in the foreign exchange market approx. Daily trading in the foreign exchange market approx. Business requires finance and international business deals with international finance. 3 additional dimensions added to international finance: foreign exchange and political risk, market imperfections (differences in regulation, tax law and government policies, expanded opportunity set for production and investment. Risk that foreign currency profits may evaporate in dollar terms due to unanticipated exchange rate movements. Sovereign governments regulate the movement of goods, capital and people across their borders; these laws sometimes change in unexpected way. Multilateral agreements may reduce political risk because of trading rules and provisions for dispute settlements. Frictions that prevent markets from functioning efficiently: legal restrictions on movements of goods, services, people and money, transaction costs, shipping costs, taxation. Often motivate mncs to locate production abroad. Doesn"t make sense to play in only one corner of the sandbox.