Class 1 (ch. 1)

Question 1

Name some risks of going global (7)

Answer 1

-currency risk
-political and regulatory risk
-legal, fiscal and compliance risk
-cultural and social risk
-operational risk
-strategic risk
-reputational risk

Question 2

describe currency risk of going global

Answer 2

fluctuations in exchange risks may effect the value of the firm and their revenue performance which will impact their overall financial performances

Question 3

describe political and regulatory risks of going global

Answer 3

Changes in the government policies may create some uncertainties and affect the operations and profitability

Question 4

Describe economic risks of going global

Answer 4

Global economic conditions like inflation and recessions in foreign markets, can impact a firm’s sales, profits and cash flows

Question 5

Describe legal, fiscal and compliance risk of going global

Answer 5

The firm needs to navigate through different legal and tax systems, contact enforcement mechanics and compliance requirements in foreign jurisdictions which can be a challenge

Question 6

Describe cultural and social risk of going global

Answer 6

Differences in business practices, consumer behaviour and cultural norms across countries can affect a firm’s ability to effectively market its products and manage its workforce

Question 7

Describe strategic risk of going global

Answer 7

May have a hard time adapting their business strategies to the global markets which may include competition, market entry barriers and the need to customize products and services

Question 8

Describe reputational risk of going global

Answer 8

May expose firm to reputational risks related to local perceptions, social responsibility and ethical considerations

Question 9

Name 5 reasons why a company may go global

Answer 9

1) market seekers
2) raw material seekers
3) production efficiency seekers
4) knowledge seekers
5) political safety seekers

Question 10

Describe market seekers of going global

Answer 10

Produce in a foreign market to satisfy local demand or to export to markets other than their home market

Question 11

Describe raw material seekers of going global

Answer 11

Extract raw material wherever they can be found, to either export or further process and sale in the country in which they were found

Question 12

Describe production efficiency seekers of going global

Answer 12

Expand to regions where one or more of the factors of production are underprices relative to their productivity which can be labour, tax, etc

Question 13

Describe knowledge seekers of going global

Answer 13

operate in a foreign market to gain access to technology or managerial expertise

Question 14

Describe political safety seekers of going global

Answer 14

Acquire or establish new operations in countries that are considered unlikely to interfere with private enterprise

Question 15

Why do institutional investors hold portfolios across different geographical locations

Answer 15

To benefit from diversification

Question 16

The risk that institutional investors face are similar to…

Answer 16

Organizations that are also international

Question 17

What is globalization?

Answer 17

It is a theory of comparative advantage which is when a country can produce a good or service at a lower opportunity cost than another country which means it sacrifices less losses to make that good

Question 18

How should countries produce in regards to comparative advantage under globalization? What does it lead to?

Answer 18

Country’s should specialize in the production of the good that costs them the least in terms of opportunity cost, which leads to increased production and consumption

Question 19

What are some challenges in achieving globalization? (3)

Answer 19

1) globalization assumes free flow of capital, which has not yet materialized
2) Intervention by government or other players in global markets cause inefficiencies
3) Intervention implies bad faith