EC249 Study Guide - Final Guide: Bearer Instrument, Canola, Wealth Management
Document Summary
Ec249 chapter 1 globalization and the multinational firm. Foreign exchange risk and political risk: unanticipated exchange rate movements. Can result in investment losses: political risk laws can change unexpectedly. Example: china banned canola oil in 2002 (affected canada) Multilateral agreements may reduce political risk through trading rules. Market imperfections: prevent markets from functioning efficiently: legal restrictions, transaction costs, shipping costs, taxation motivates mncs to locate production abroad. Example: nestle: only swiss people could hold registered shares, foreigners had to hold bearer shares. Resulted in bearer shares being worth double the price. Nestle lifted the ban and this resulted in a transfer of wealth from foreigners to swiss shareholders (foreigners got snaked) Expanded opportunity set: doesn"t make sense to only play in 1 corner of the sandbox, scan world for low cost resources and foreign markets to develop. Some countries don"t have governance to protect shareholders from corruption)
