a) Let's assume I want to buy an Apple computer and the price of Apple is $1000 in Country A and $1100 in Country B. You have access to both Country A and Country B shopping sites. There are no transaction costs or taxes. Which country would you buy the computer from? You're a smart finance student and you realize one additional thing you can do. What else seems possible? What is this concept called (say the word and explain it with your own words - no need to calculate anything if you don't want to)?

b) As a financial manager would you be interested in purchasing another company abroad? Why or Why not? In addition to our usual business risk and financial risk what additional risks would you have to consider when planning to make an investment in another country?

a and b options will be solved!

A. I'll be buying the computer from country A because it will be lowering my overall cost of capital as it is being offered at a comparatively lower price in in respective country B.

I will be trying to gain from buying the computer from country A and selling it to country B and I will be trying to taking an arbitrage position in order to maximize my rate of return because it is not following up with the principle of law of One price.

This concept is known as law of One price and there has been a possibility of maximization of rate of return by comparison of the prices in both the countries as it will be believed that the prices will be the respective of any kind of market efficiency which will help us in order to maximize our rate of return.

B. I will be interested in purchasing other countries abroad because it will help us in order to have a higher degree of diversification and it will also help us in maintaining an economies of scale and it will also help in lowering our cost of capital by borrowing from other countries and increasing our overall market base.

There will be additional risk in respect to the exchange rate risk and there will be risk associated with transaction risk and translation risk.