International finance assessment - Essay Example

International Finance Assessment International Finance Assessment The comparative advantage theory is a theory of international trade, which explains how trade relations and exchange of goods and services takes place at the international arena. This theory takes the assumption that a firm having comparative advantage can produce services and goods at an opportunity cost, which is lower than that of other firms. As such, the comparative advantage will also allow the firm to price the goods at a cost, which is lower than that offered by its competitors in the market.

The assumptions of the theory can be refuted as weak and invalid based on several reasons. A notable weakness of the theory emanates from the counter-intuitive nature of the comparative advantage principle. This means that the assumptions made by the theory defy logic. The other weakness of the comparative advantage theoretical assumptions is that they can be confused with the assumptions made by the absolute advantage theory. As such, people may contradict the assumptions made by this theory with the assumptions made by the absolute advantage approach (Carbaugh, 2011).

In most cases, Multinational Corporations tend to stand out as more competitive than domestic firms. This emanates from the fact that these firms deal with a diverse variety of goods and services, thus motivating people to purchase from them. In addition, multinational corporations employ modern forms of technology, which enable them to meet the needs of the customers. Large scale production by multinational corporations can also be regarded as another factor that contributes to their competitiveness.

With mass production, these firms can meet the market demands of the customers since they produce in large quantities, thus reducing the shortages in the market. The other reason why MNEs thrive at the expense of local firms is because they sell goods at a lower price than domestic firms. Since they do not incur high production costs (because they use advanced technology), MNEs can price goods at an affordable price (Carbaugh, 2011).There are various forms of comparative advantage, which can be regarded as different based on a number of factors.

One of the forms of comparative advantage includes absolute advantage, which states that one of the countries taking part in international trade has the capacity to have a higher output in every unit produced than the other country. For example, one country can have high output of coffee in each of the units of the product that it produces. Based on comparative advantage, when one of the countries has a disadvantage that can be termed as absolute, the other country can reap benefits from engaging in producing the products, which give the other country absolute disadvantage.

For example, when a country is not good at producing technology products, the other can take advantage of such a situation and benefit from engaging in mass production of technology products (Carbaugh, 2011).Corporate governance refers to a system comprising of practices, rules, as well as guidelines, which determine how activities take place in an organization. Corporate governance requires that the management ensures that all stakeholder interests are balanced. As such, the needs of the customers, management, suppliers, shareholders and other stakeholders should be met without favoring one stakeholder at the expense of the other.

Corporate governance relates to corporate culture since it forms the basis upon which the company can achieve the objectives, as well as the goals, which it has set to attain after a specified period. Corporate governance determines the performance of the company, as well as how internal controls in the company take place (Tricker, 2012).ReferencesCarbaugh, R. J. (2011). International economics. Mason, OH: South-Western Cengage Learning.Tricker, R. I. (2012). Corporate governance: Principles, policies and practices.

Oxford: Oxford University Press.