FIN321: Tutorial 1
Chapter 1, 2 & 3
1. How is international financial management different from domestic financial
management?
2. Discuss a few of the major trends that have prevailed in international business
during the last two decades.
3. What are multinational corporations (MNCs) and what economic roles do they
play?
4. Explain Gresham’s Law.
5. Suppose that the pound is pegged to gold at 6 pounds per ounce, whereas the
franc is pegged to gold at 12 francs per ounce. This, of course, implies that the
equilibrium exchange rate should be two francs per pound. If the current market
exchange rate is 2.2 francs per pound, how would you take advantage of this
situation? What would be the effect of shipping costs?
6. Discuss the advantages and disadvantages of the gold standard.
7. Comment on the proposition that the Bretton Woods system was programmed
to an eventual demise.
8. Explain the arrangements and workings of the European Monetary System
(EMS).
9. There are arguments for and against the alternative exchange rate regimes.
a) List the advantages of the flexible exchange rate regime.
b) Criticize the flexible exchange rate regime from the viewpoint of the proponents
of the fixed exchange rate regime.
10. Suppose you are saving for your retirement. Would you invest in Bitcoin to
finance your retirement? Why or why not?
11. Why would it be useful to examine a country’s balance of payments data?
12. The United States has experienced continuous current account deficits since
the early 1980s. What do you think are the main causes for the deficits? What
would be the consequences of continuous U.S. current account deficits?
13. Explain how a country can run an overall deficit or surplus on its balance of
payments.
14. Foreign portfolio investors have purchased a significant portion of South African
treasury bond issues. Discuss the short-term and long-term effects of
foreigners’ portfolio investment on the South African balance of payments.
15. Examine the summary of the balance of payments of the United States for 2019
provided below. Compute and discuss the following:
a. Balance on the U.S. trade in goods, in services, and in goods and services
combined.
b. Balance on the U.S. primary income.
c. Balance on the U.S. secondary income.
d. Balance on the U.S. current account.
A Summary of the U.S. Balance of Payments for 2019 (in $ billion)
Credits
Debits
Current Account
[1] Exports
2,528.4
[1.1] Goods
1,652.1
[1.2] Services
876.3
[2] Imports
−3,104.7
[2.1] Goods
−2,513.6
[2.2] Services
−591.1
[3] Primary income
1,124.9
−893.0
[4] Secondary income
159.2
−286.9
Balance on current account
−472.1
[[1]+[2]+[3]+[4]]
Capital Account
Balance on capital account
0.1
−6.5
−6.4
Credits
Debits
Financial Account (excluding official
reserves)
[5] Direct investment
302.2
−122.2
[6] Portfolio investment
218.9
−13.5
[6.1] Equity securities
−244.1
163.4
[6.2] Debt securities
421.3
−149.9
[6.3] Derivatives, net
41.7
[7] Other investment
276.4
Balance on financial account
−203.6
485.2
[[5]+[6]+[7]]
[8] Statistical discrepancies
Overall balance
−2.0
4.7
Official Reserve Account
Source: The U.S. Bureau of Economic Analysis
−4.7