Lesson 2: Scope, Importance, Advantages, and Disadvantages of International Finance

Question 1

companies that use the same standards to prepare their financial statements can be compared to each other more accurately.

Answer 1

Greater comparability

Question 2

a principle-based philosphy means that the goal of each standard is to arrive at a reasonable valuation and that there are many ways to get there. It gives the companies the freedom to adapt IFRS to their particular situation.

Answer 2

More flexibility

Question 3

Advantages of Global/International Finance

Answer 3

(1) Greater Comparability
(2) More Flexibility

Question 4

Disadvantages of Global/International Finance

Answer 4

(1) Political Risks
(2) Credit Risks
(3) Exchange Rate
(4) Cultural Difference

Question 5

What are the Importance of Global Finance?

Answer 5

• it plays a critical role in international trade and inter-economy exchange of goods and services.
• it is an important tool to find exchange rates, compare inflation rates, get idea about investing in international debt securities.
• Exchange rates are important as they determine the actual values of currencies.
• Various economic factors help in making international investment decisions. Help in determining whether or not investors money is safe with foreign debt securities.
• maintains peace among the nations.