FIN 621 Chapter 1: CFIN 621- Chapter 1- Globalization and the Multinational Firm.docx
6 Dec 2014
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North american free trade agreement (nafta) most comprehensive trade agreement in the world: governing not just trade cross border investment and legal procedures to deal with. What is special about international finance? disputes: foreign exchange risk and political risk, differences in regulations, tax law and government policies, the greater set of business opportunities for production and investment. Reflect sovereign nations have the right and the power to issue their own currency, formulate economic policies, impose taxes, regulate movement of goods. Foreign exchange risk unexpected change in the exchange rate. Firms involved in foreign sales potentially exposed to foreign exchange risk: not normally encountered in purely domestic tractions, modern world of flexible-exchange rates rates fluctuate continuously in unpredictable ways o. 1970s regime of fixed exchange rates amount major countries was abandoned: canada allowed the canadian dollar to float against the us dollar in a narrow range. Exchange rates volatility creates a bumpy road for international business.
