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International Finance Concepts :

1. What are some political and currency risks in China, and why would a U.S. company invest in that country?
2. Why is it important for international firms to understand international finance concepts such as foreign exchange market, purchasing power parity, interest rate parity et cetera?

Solution Preview

Some political risks in China are the risk that the Chinese government may confiscate assets of foreign companies, repudiate contracts, or interfere in business. The political risk is that the Chinese Government may change the rules and laws applicable to businesses inflicting losses on business. The currency risks of China are the fluctuation in the currency exchange rate in China. It also means that the government may place different types of restrictions on the Yuan.

A US company would invest in China to avail itself of low cost factors of production such as low-cost labor. In addition, it will set up a factory to ...

Solution Summary

The answer to this problem explains the advantages of low cost factors of production in China. The references related to the answer are also included.