Corporate Governance Goals and Challenges

Moffett, M.H., Stonehill A.I., & Eitemen, D.K. (2012).

Fundamentals of multinational finance (4th Ed.). Boston, MA: Prentice Hall.

In completing these assignments the university requires that you follow APA guidelines and include (in-text citations) in preparing all works, citations, and references.

Each essay question response should be numbered, answered separately, and be at least 200 words (each question) in length but should be submitted as one file.

Some information has been added to responses. Please ONLY add to these responses and format correctly.

In your own words, contrast international financial management with domestic finance.

International financial management and domestic finance share many commonalities. Each deals with interest rates and making the best financial use of assets. However, in international financial management the primary difference is that there is also interest rate risk and risks associated with exchanges. When currencies float, the rate can be subject to volatile movements. For example, one month a dollar might be worth two Canadian dollars and then later the two currencies might have the same face value depending on sometimes random domestic events. Any chances in exchange rates can either work for or against a company's position.

The problem with exchange rates is that they are volatile and unpredictable. Therefore, even though that there is a chance that the interest rate fluctuation could benefit the company, the uncertainty in its movements add a lot of risk to organizations that deal in international trade. However, there are many different devices that can help manage this risk. There are financial tools such as futures that allow companies to hedge their risk at a price. Yet this all adds complexity to the job of an international financial manager that would not be found in the domestic equivalent. The international manager will have to deal with all the tasks that a domestic manager would, plus the additional complexity that exchange rates adds to financial management.

2. In your own words, define corporate governance and relate it to corporate culture.

Corporate governance will determine an organization's standard practices and performances based on the culture. The relationship between a corporation and their clientele is used to determine how an entire organization is going to run in order to make the most amount of profit while remaining efficient at the same time. Without an appropriate and effective corporate governance mechanism, it is very possible that a business can either go bankrupt or loss market shares due to improper practices. Together the relationship of their clientele, the company's culture, and the corporate governance mechanism will serve as the foundation for how successful a company will run.

For example, a company that is located in the United States will have different corporate culture than that of a company based in Europe as their cultivations, which define corporate culture to some extent, are not the same. Corporate culture as works to define the organization's governance as the company will run based upon the founders preferences and the mission and vision which will sometimes incorporate aspects of their religions. In term the culture will also set base for the general standards as such for respect of the psychology, attitude, beliefs, and behavior of the people that inhabit the surrounding area. Basically corporate culture is in the definition of corporate governance as the standards and practices will only be preceded in respect of the civilization's beliefs.

3. In your own words, contrast the forms of comparative advantage. Support your answer with at least two examples and detail where applicable.

There are two forms of advantages, comparative and absolute. Absolute advantage is when a country only produces a product that, because of their environment, they are best suited for due to the supplies or instruments at hand. That country would then be producing much more product for less and would then be able to trade their specialized product for other goods that are more expensive in their host country. On the other hand; there is comparative advantage which is when a country specializes in producing goods for cheaper, another country may produce the same good that is even more efficient. Therefore the host country that specializes in such a product would then trade their more efficient product for another country's product that may be more efficient than one of their own.

For example, country A builds a phone that is very durable due to the availability of raw materials, while country B. creates a phone that is very technologically advanced due to the available technologies. If country A were to trade country B. For their product they can then advance their phones technologically while country B. is able to make their phones even more accident proof. The issue with absolute advantage is that there is no other product to compare it to while only producing and selling the product at home. Therefore, there will be no advancements on such product which will decline in sales. The host civilization will then seek other countries products that fit their needs. Although cost efficient, absolute advantage has many disadvantages that comparative advantage may avoid.

4. Based on the reading assignment (and in your own words), why are MNEs better able to exploit global opportunities (versus purely domestic competitors)?

Global financial management will inherit risks that pure domestic competitors alone will not generally face. MNE's are specifically trained for these risks and will be facing much more as business moves forward, i.e. political risks. Although many of the complications that MNE's face are also extensions to those that a domestic competitor faces. Domestic finance theory will approach many issues and economical businesses with a strategy that accommodates foreign complexities (Moffett, 2012,-page 12). The responsibility of a domestic competitor is to try to only fix the issue to the extent that the habitat and its civilization will agree upon.

MNEs are faced with the reality that they will have to make a structure that is stable enough for each corporation to follow and change where need be. Therefore to exploit any global opportunity an MNE would be better suited as they are faced with many more obstacles to establish peace within the business while domestic competitors are only touching base at their host environment. MNEs are faced with a variety of foreign practices therefore an MNE will change their way of business to fit each country while domestic competitors have no experience in the matter and will attempt business as their culture views it to be.

When global opportunities are available, businesses will seek out those who are sensitive to the environment they are intending to do business with, rather than those whose beliefs may insult that country's faith. Although domestic competitors face issues and risks that are similar to those an MNE faces, they are generally handled in the manner that is believed to be right in their region rather than that of the host country.

5. What are the assumptions of the Theory of Comparative Advantage? Provide two of your own examples where these assumptions are weak or invalid, refuting the theory.