Advanced Financial Management
Exam Solutions
Course Introduction
Advanced Financial Management delves into the strategic aspects of corporate finance, equipping students with the analytical tools and decision-making frameworks necessary to manage an organizations financial resources effectively. Topics include capital budgeting, risk analysis, capital structure optimization, financial planning, working capital management, mergers and acquisitions, and the use of derivatives for corporate risk management. Through case studies and real-world applications, students will develop the skills to evaluate complex financial situations, understand the impact of financial decisions on organizational value, and align corporate finance strategies with long-term business objectives.
Recommended Textbook
International Financial Management 8th Edition by Madura
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21 Chapters
1110 Verified Questions
1110 Flashcards
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Page 2
Chapter 1: Multinational Financial Management: An Overview
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42 Verified Questions
42 Flashcards
Source URL: https://quizplus.com/quiz/20499
Sample Questions
Q1) Franchising is the process by which national governments sell state owned operations to corporations and other investors.
A)True
B)False
Answer: False
Q2) Which of the following industries would most likely take advantage of lower costs in some less developed foreign countries
A) assembly line production.
B) specialized professional services.
C) nuclear missile planning.
D) planning for more sophisticated computer technology.
Answer: A
Q3) The Single European Act of 1987 made regulations more uniform among European countries.However,the cost of achieving this goal resulted in the imposition of additional taxes on goods traded between these countries.
A)True
B)False
Answer: False
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Chapter 2: International Flow of Funds
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46 Verified Questions
46 Flashcards
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Sample Questions
Q1) The World Bank extends loans only to developed nations,while the International Development Association (IDA)extends loans only to developing nations.
A)True
B)False
Answer: False
Q2) If the home currency begins to appreciate against other currencies,this should ____________ the current account balance,other things equal (assume that substitutes are readily available in the countries,and that the prices charged by firms remain the same).
A) increase B) have no impact on C) reduce
D) all of the above are equally possible
Answer: C
Q3) A balance-of-trade surplus indicates an excess of merchandise imports over merchandise exports.
A)True
B)False
Answer: False
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Page 4
Chapter 3: International Financial Markets
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52 Verified Questions
52 Flashcards
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Sample Questions
Q1) A futures contract is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.
A)True
B)False
Answer: True
Q2) Eurobonds are certificates representing bundles of stock.
A)True
B)False
Answer: False
Q3) The international money market is primarily served by:
A) the governments of European countries, which directly intervene in foreign currency markets.
B) government agencies such as the International Monetary Fund that enhance development of countries.
C) several large banks that accept deposits and provide loans in various currencies.
D) small banks that convert foreign currency for tourists and business visitors.
Answer: C
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Page 5
Chapter 4: Exchange Rate Determination
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45 Verified Questions
45 Flashcards
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Sample Questions
Q1) The markets that have a smaller amount of foreign exchange trading for speculatory purposes than for trade purposes will likely experience more volatility than those where trade flows play a larger role.
A)True
B)False
Q2) If a country experiences high inflation relative to the U.S.,its exports to the U.S.should _______________,its imports should ___________,and there is __________ pressure on its currency's equilibrium value.
A) decrease;increase;upward
B) decrease;decrease;upward
C) increase;decrease;downward
D) decrease;increase;downward
E) increase;decrease;upward
Q3) Signals regarding future actions of market participants in the foreign exchange market sometimes result in overreactions.
A)True
B)False
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Chapter 5: Currency Derivatives
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) Kalons,Inc.is a U.S.-based MNC that frequently imports raw materials from Canada.Kalons is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future.Which of the following is not an appropriate hedging technique under these circumstances
A) purchase Canadian dollars forward.
B) purchase Canadian dollar futures contracts.
C) purchase Canadian dollar put options.
D) purchase Canadian dollar call options.
Q2) Which of the following is the most unlikely strategy for a U.S.firm that will be purchasing Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)
A) purchase a call option on francs.
B) obtain a forward contract to purchase francs forward.
C) sell a futures contract on francs.
D) all of the above are appropriate strategies for the scenario described.
Q3) Forward contracts are the best technique for managing exposure arising from project bidding.
A)True
B)False
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Page 7
Chapter 6: Government Influence on Exchange Rates
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Sample Questions
Q1) Consider two countries that trade with each other,called X and Y. According to the text,inflation in Country X will have a greater impact on inflation in Country Y under the _______ system. Now,consider two other countries that trade with each other,called A and B. Unemployment in Country A will have a greater impact on unemployment in Country B under the _______ system.
A) floating rate;fixed rate
B) floating rate;floating rate
C) fixed rate;fixed rate
D) fixed rate;floating rate
Q2) Under a managed float exchange rate system,the Fed may attempt to stimulate the U.S.economy by _______ the dollar. Such an adjustment in the dollar's value should _______ the U.S.demand for products produced by major foreign countries.
A) weakening;increase
B) weakening;decrease
C) strengthening;increase
D) strengthening;decrease
Q3) Dollarization refers to the replacement of local currency with U.S.dollars.
A)True
B)False
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Page 8
Chapter 7: International Arbitrage and Interest Rate Parity
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58 Verified Questions
58 Flashcards
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Sample Questions
Q1) Assume that the U.S.investors are benefiting from covered interest arbitrage due to high interest rates on euros. Which of the following forces should result from the act of this covered interest arbitrage
A) downward pressure on the euro's spot rate.
B) downward pressure on the euro's forward rate.
C) downward pressure on the U.S. interest rate.
D) upward pressure on the euro's interest rate.
Q2) Due to _______,market forces should realign the relationship between the interest rate differential of two currencies and the forward premium (or discount)on the forward exchange rate between the two currencies.
A) forward realignment arbitrage
B) triangular arbitrage
C) covered interest arbitrage
D) locational arbitrage
Q3) If the cross exchange rate of two nondollar currencies implied by their individual spot rates with respect to the dollar is less than the cross exchange rate quoted by a bank,locational arbitrage is possible.
A)True
B)False
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Page 9
Chapter 8: Relationships among Inflation,Interest Rates,and Exchange Rates
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37 Verified Questions
37 Flashcards
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Sample Questions
Q1) If interest rate parity holds,then the one-year forward rate of a currency will ______ the predicted spot rate of the currency in one year according to the international Fisher effect.
A) greater than B) less than C) equal to
D) answer is dependent on whether the forward rate has a discount or premium
Q2) According to the international Fisher effect,if investors in all countries require the same real rate of return,the differential in nominal interest rates between any two countries:
A) follows their exchange rate movement.
B) is due to their inflation differentials.
C) is zero.
D) is constant over time.
E) C and D
Q3) Because there are sometimes no substitutes for traded goods,this will:
A) reduce the probability that PPP shall hold.
B) increase the probability that PPP shall hold.
C) increase the probability the IFE will hold.
D) B and C
Page 10
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Chapter 9: Forecasting Exchange Rates
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Sample Questions
Q1) When measuring forecast performance of different currencies,it is often useful to adjust for their relative sizes.Thus,percentages,rather than nominal amounts,are often used to compute forecast errors.
A)True
B)False
Q2) If the forward rate is used as an indicator of the future spot rate,the spot rate is expected to appreciate or depreciate by the same amount as the forward premium or discount,respectively.
A)True
B)False
Q3) A forecasting technique based on fundamental relationships between economic variables and exchange rates,such as inflation,is referred to as technical forecasting.
A)True
B)False
Q4) Usually,fundamental forecasting is used for short-term forecasts,while technical forecasting is used for longer-term forecasts.
A)True
B)False
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Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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59 Verified Questions
59 Flashcards
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Sample Questions
Q1) Cerra Co.expects to receive 5 million euros tomorrow as a result of selling goods to the Netherlands.Cerra estimates the standard deviation of daily percentage changes of the euro to be 1 percent over the last 100 days.Assume that these percentage changes are normally distributed.Using the value-at-risk (VAR)method based on a 95% confidence level,what is the maximum one-day loss in dollars if the expected percentage change of the euro tomorrow is 0.5% The current spot rate of the euro (before considering the maximum one-day loss)is $1.01.
A) -$75,750.
B) -$60,600.
C) -$111,100.
D) -$25,250.
Q2) ___________ exposure is the degree to which the value of future cash transactions can be affected by exchange rate fluctuations.
A) Transaction
B) Economic
C) Translation
D) None of the above
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Page 12
Chapter 11: Managing Transaction Exposure
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63 Verified Questions
63 Flashcards
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Sample Questions
Q1) If Lazer Co.desired to lock in the maximum it would have to pay for its net payables in euros but wanted to be able to capitalize if the euro depreciates substantially against the dollar by the time payment is to be made,the most appropriate hedge would be:
A) a money market hedge.
B) purchasing euro put options.
C) a forward purchase of euros.
D) purchasing euro call options.
E) selling euro call options.
Q2) Your company will receive C$600,000 in 90 days. The 90day forward rate in the Canadian dollar is $.80. If you use a forward hedge,you will:
A) receive $750,000 today.
B) receive $750,000 in 90 days.
C) pay $750,000 in 90 days.
D) receive $480,000 today.
E) receive $480,000 in 90 days.
Q3) MNCs generally do not need to hedge because shareholders can hedge their own risk.
A)True
B)False
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Page 13
Chapter 12: Managing Economic Exposure and Translation Exposure
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43 Flashcards
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Sample Questions
Q1) ______________ is not a limitation of hedging translation exposure.
A) Inaccurate stock price forecasts
B) Inadequate forward contracts for some currencies
C) Accounting distortions
D) Increased transaction exposure
Q2) A foreign subsidiary with more susceptible expenses than revenue to exchange rate movements will be favorably affected by an appreciation of the foreign currency.
A)True
B)False
Q3) An MNC is attempting to reduce its economic exposure by financing a portion of its business with loans in the foreign currency.If the foreign currency weakens,the MNC will need _______ of the foreign currency to cover the loan payment,while the MNC's foreign currency revenues will convert to _______ dollars.
A) more;fewer
B) more;more
C) less;fewer
D) less;more
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Page 14
Chapter 13: Direct Foreign Investment
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45 Verified Questions
45 Flashcards
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Sample Questions
Q1) Generally speaking,direct foreign investment by U.S.firms is common in ________ but not to common in _________.
A) Europe;Canada
B) Asia;Europe
C) Europe;Asia
D) none of the above
Q2) Even if production costs are higher in a foreign country,a U.S.firm may establish a manufacturing plant in the foreign country now if:
A) the host government of that country eliminates all quotas.
B) the host government of that country reduces all quotas.
C) the host government of that country increases all quotas.
D) the host government of that country eliminates all tariffs.
Q3) MNCs commonly consider direct foreign investment because it can improve their profitability and enhance shareholder wealth.
A)True
B)False
Q4) Most of the DFI by U.S.firms is Mexico.
A)True
B)False
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Chapter 14: Multinational Capital Budgeting
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49 Verified Questions
49 Flashcards
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Sample Questions
Q1) When assessing a German project administered by a German subsidiary of a U.S.based MNC solely from the German subsidiary's perspective,which variable will most likely influence the capital budgeting analysis
A) the withholding tax rate.
B) the euro's exchange rate.
C) the U.S. tax rate on earnings remitted to the U.S.
D) the German government's tax rate.
E) A and C
Q2) Other things being equal,a blocked funds restriction is more likely to have a significant adverse effect on a project if the currency of that country is expected to _______ over time,and if the interest rate in that country is relatively ______.
A) appreciate;low
B) appreciate;high
C) depreciate;high
D) depreciate;low
Q3) In multinational capital budgeting,depreciation is treated as a cash outflow.
A)True
B)False
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16
Chapter 15: Multinational Restructuring
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52 Flashcards
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Sample Questions
Q1) According to your text,many more international acquisitions are taking place in
Partially because of more uniform standards and the momentum for free enterprise.
A) Europe
B) Latin America
C) Asia
D) Africa
E) none of the above
Q2) An international acquisition is different from the establishment of a new subsidiary in that the MNC can immediately expand its international business since the target is already in place.
A)True
B)False
Q3) Even if an existing business adds value to an MNC,it may be worthwhile to assess whether the business would generate more value to the MNC if it was restructured.
A)True
B)False
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Chapter 16: Country Risk Analysis
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Sample Questions
Q1) After a project is accepted and implemented,country risk does not need to be monitored;since the project is already established,no further changes can be made.
A)True
B)False
Q2) As a result of the 2003 war in Iraq,some MNCs feared that oil prices would ______ and that U.S.inflation and interest rates would _______.
A) rise;rise
B) fall;fall
C) rise;fall
D) fall;rise
Q3) According to the text,country risk analysis has:
A) almost always detected problems before they occur.
B) been effectively used in place of capital budgeting to determine whether a project should be accepted.
C) been perfected as a result of the development of discrim inant analysis.
D) none of the above
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18
Chapter 17: Multinational Cost of Capital and Capital Structure
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50 Verified Questions
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Sample Questions
Q1) When assuming that financial markets are segments,it is acceptable to use the U.S.market when measuring a U.S.-based MNC's project's beta.
A)True
B)False
Q2) In general,a firm __________ exposed to exchange rate fluctuations will usually have a ___________ distribution of possible cash flows in future periods.
A) more;narrower
B) less;wider
C) more;wider
D) none of the above
Q3) According to your text,which of the following is not a factor that affects an MNC's cost of capital unfavorably
A) exchange rate risk.
B) country risk.
C) political risk.
D) size.
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19
Chapter 18: Long-Term Financing
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Sample Questions
Q1) If U.S.firms issue bonds in _______,the dollar outflows to cover fixed coupon payments increase as the dollar _______.
A) a foreign currency;weakens
B) dollars;strengthens
C) a foreign currency;strengthens D) dollars;weakens
Q2) In a(n)_________ swap,the notional value is increased over time.
A) amortizing
B) basis
C) zero-coupon
D) accretion
Q3) Most MNCs obtain equity funding:
A) in foreign countries. B) in their home country.
C) through global offerings.
D) through private placements.
Q4) A floating coupon rate can be an advantage to the bond issuer during periods of increasing interest rates.
A)True
B)False
Page 20
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Chapter 19: Financing International Trade
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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) The interest rate the bank charges the customer in a banker's acceptance is referred to as the all-in rate;it entirely consists of the acceptance commission.
A)True
B)False
Q2) A _____________ letter of credit is not a trade-related letter of credit.
A) commercial
B) import/export
C) revocable
D) irrevocable
E) all of the above are trade-related letters of credit
Q3) In _______,a bank arranges to fund a loan to pay the exporter instead of charging the importer's account immediately.
A) refinancing of a sight letter of credit
B) a banker's acceptance
C) a short term bank loan
D) accounts receivable financing
Q4) A draft drawn on and accepted by a bank is called a banker's acceptance.
A)True
B)False
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Chapter 20: Short-Term Financing
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48 Flashcards
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Sample Questions
Q1) A firm without any exposure to foreign exchange rates would likely increase this exposure the most by:
A) borrowing domestically.
B) borrowing a portfolio of foreign currencies that are not highly correlated.
C) borrowing a portfolio of foreign currencies that are highly correlated.
D) borrowing two foreign currencies that are negatively correlated.
Q2) Firms that believe the forward rate is an unbiased predictor of the future spot rate will prefer borrowing the foreign currency.
A)True
B)False
Q3) What is the expected standard deviation of the portfolio contemplated by Cameron A) 2.24%.
B) 14.98%.
C) 2.89%.
D) 17.00%.
E) none of the above
Q4) The interest rate of euronotes is based on the T-bill rate.
A)True
B)False
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Chapter 21: International Cash Management
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Sample Questions
Q1) In what is known as dynamic hedging,banks periodically hedge those currencies expected to move unfavorably and remove currencies that are expected to move favorably.
A)True
B)False
Q2) A subsidiary will normally have a more difficult time forecasting future outflow payments if its purchases are international rather than domestic.
A)True
B)False
Q3) Leading refers to the payment of supplies earlier than necessary;lagging refers to the payment of supplies later than allowed.
A)True
B)False
Q4) Although netting typically increases the need for foreign exchange conversion,it generally reduces the number of cross border transactions between subsidiaries.
A)True
B)False
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