Canadian International Business Exam Bank
Course Introduction
Canadian International Business explores the principles, strategies, and challenges related to conducting business across borders with a focus on Canadas unique position in the global marketplace. This course examines international trade theories, cross-cultural communication, legal and ethical considerations, and the impact of government policies on international trade. Students analyze how Canadian businesses expand into and operate within international markets, including North American, European, and Asian regions, while considering the influence of NAFTA/USMCA, foreign investment, international marketing, and global supply chains. Through case studies and real-world applications, learners gain the skills to identify opportunities, manage risks, and develop successful international business strategies pertinent to Canadian organizations.
Recommended Textbook
International Financial Management Canadian Perspective 3rd Edition by Don Brean
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Page 2
Chapter 1: Globalization and the Multinational Firm
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Q1) A multinational firm can be defined as:
A) A firm that invests short-term cash inflows in more than one currency
B) A firm that has sales affiliates in several countries
C) A firm that is incorporated in more than one country
D) A firm that incorporated in one country that has production and sales operations in several other countries
Answer: D
Q2) GATT,the General Agreement on Tariffs and Trade,has been successful in:
A) reducing import tariffs worldwide by an average of 98%.
B) reducing import tariffs worldwide by an average of 78%.
C) reducing import tariffs worldwide by an average of 58%.
D) reducing import tariffs worldwide by an average of 38%.
Answer: D
Q3) If the price of potatoes is $300 per ton,with free trade the price of tomatoes can be any of the numbers below EXCEPT
A) $600
B) $750
C) $900
D) All of these numbers can be the equilibrium price of tomatoes
Answer: D
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Chapter 2: International Monetary System
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Q1) Gresham's law is most applicable to which of the following monetary system?
A) Bimetallism
B) Classical Gold Standard
C) Bretton Woods System
D) Flexible exchange rate regime
Answer: A
Q2) The exchange rate arrangement in which the currency is adjusted periodically in small amounts at a fixed,preannounced rate or in response to changes in selective quantitative indicators is called
A) Currency Board
B) Pegged Exchange rate within horizontal bands
C) Crawling pegs
D) Exchange rate within crawling bands
Answer: C
Q3) Which of the following is a cost of a Monetary Union:
A) Loss of national monetary policy independence
B) Loss of exchange rate uncertainty
C) Increased transaction costs
D) Loss of efficiency
Answer: A
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Chapter 3: Balance of Payments
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Q1) Encana,a Canadian firm,buys equipment from Germany.This transaction will be recorded in the balance of payments as
A) a credit in the current account
B) a debit in the current account
C) a credit in the capital account
D) a debit in the capital account
Answer: B
Q2) BMW,a German car manufacturer,opens a new subsidiary in China.This transaction will be recorded in China's balance of payments as
A) a credit in the current account
B) a debit in the current account
C) a credit in the capital account
D) a debit in the capital account
Answer: C
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Chapter 4: The Market for Foreign Exchange
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Q1) Which of the following is true if one year forward rate is F = 1.83$/£; current spot rate is S = 1.81$/£; and interest rates are i = 3.5%,and i* = 3% (where exchange rates are quoted in $/£,i is the interest rate in the U.S.and i* is the interest rate in the U.K.)?
A) Arbitrage is not possible
B) Arbitrage is possible and arbitrage strategy involves buying £ forwards
C) Arbitrage is possible and arbitrage strategy involves selling £ forwards
D) Arbitrage is possible; however, there is not enough information to pick one of the answers above.
Q2) If CIBC posts 1.10 CA$/US$ - 1.14 CA$/US$ bid-ask exchange rates,Scotiabank posts 1.12 CA$/US$ - 1.15 CA$/US$,and Bank of America posts 0.88 US$/CA$ - 0.9 US$/CA$ exchange rates,what is the maximum amount of CA$ can you get for 1 US$?
A) 1.100
B) 1.111
C) 1.120
D) 1.136
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Chapter 5: International Parity Relationships and Forecasting Foreign Exchange Rates
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Q1) If foreign exchange markets are efficient,all of the following will hold except:
A) Exchange rates change only when new information arrives.
B) Exchange rates change randomly.
C) Incremental changes of exchange rates depend on the current level of the exchange rate.
D) The current exchange rate reflects all relevant information.
Q2) Interest Rate Parity (IRP)is best defined as:
A) when a government brings its domestic interest rate in line with other major financial markets.
B) when the central bank of a country brings its domestic interest rate in line with its major trading partners.
C) a zero arbitrage condition that must hold when international financial markets are in equilibrium.
D) None of these
Q3) The international Fisher effect is the same as the:
A) uncovered interest rate parity.
B) covered interest rate parity.
C) purchasing power parity.
D) efficient Fisher effect.
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Chapter 6: International Banking and Money Market
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Q1) Find the VAR for a portfolio of $100M with daily standard deviation on return of 0.5% over 30-day period.Note: z<sub>1%</sub> = 2.326
A) Below $5M
B) Between $5M and $10M
C) Between $10M and $20M
D) Above $20M
Q2) Japanese yen deposited in U.S.bank are called
A) Americoyen
B) Dollaroyen
C) Euroyen
D) Worldyen
Q3) Eurodollars refers to US dollar deposits when the depository bank is located outside of:
A) Europe
B) Europe, and the Caribbean
C) Europe, the Caribbean, or Asia
D) the United States
Q4) Explain Eurocommerical papers.
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Chapter 7: International Bond Market
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Q1) Assume Bank of Montreal has two zero-coupon bonds outstanding,each for a face value $100,000,000.Bond A matures in 10 years and sells at a discount of 35% off face value and bond B matures in 20 years and sells at a discount of 60% off face value.Calculate the implied yield to maturity of each bond.
Q2) An underwriting syndicate consists of all of the following except:
A) lead manager
B) managing group
C) underwriting syndicate
D) managing syndicate
Q3) A "global bond" issue:
A) is a very large international bond offering by several borrowers pooled together. B) is a very large international bond offering by a single borrower that is simultaneously sold in several national bond markets.
C) has higher yields for the purchasers.
D) has a lower liquidity.
Q4) ABC Corporation,a Canadian firm,wants to float a bond issue in the United Kingdom.Which choices does the company have?
Discuss the main characteristics of each option.What do you recommend?
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Page 9
Chapter 8: International Equity Markets
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Sample Questions
Q1) Which ADRs are listed on a US exchange?
A) Level I only
B) Level I and II only
C) Level II and III only
D) Level III only
Q2) American Depository Receipts have all of the following characteristics except:
A) They are bearer shares.
B) They are quoted in US dollars.
C) Dividends on ADRs are paid in US dollars.
D) ADR trades clear in three business days.
Q3) Assume Nestle is trading for SF200 in Zurich and Nestle ADRs (4 ADRs per share)are trading for $40 on the New York Stock exchange.There is no arbitrage possible.What is the current SF/US$ exchange rate?
A) SF 0.8/$
B) SF 1/$
C) SF 1.25/$
D) SF 4/$
Q4) What factors go into the decision to cross-list on a foreign exchange?
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Chapter 9: Futures and Options on Foreign Exchange
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Q1) Suppose the Canadian Wheat Pool wants to hedge a US dollar payable using futures contracts that trade on the Chicago Mercantile exchange.
A) The Wheat Pool should buy Canadian dollar futures.
B) The Wheat Pool should sell Canadian dollar futures.
C) The Wheat Pool cannot hedge this position.
D) The Wheat Pool should not use the Chicago Mercantile exchange.
Q2) Comparing "forward" and "futures" exchange contracts,we can say that:
A) they are both "marked-to-market" daily.
B) their major difference is in the way the underlying asset is priced for spot purchase or sale.
C) a futures contract is negotiated by open outcry between floor brokers or traders and is traded on unorganized exchanges, while forward contract is tailor-made by a domestic bank for its clients and is traded OTC.
D) futures contract is negotiated by open outcry between floor brokers or traders and is traded on organized exchanges, while forward contract is tailor-made by an international bank for its clients and is traded OTC.
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11
Chapter 10: Interest Rate and Currency Swaps
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Q1) Which of the following is NOT true about swap banks?
A) A swap bank can be an international commercial bank.
B) A swap bank can be an investment bank.
C) A swap bank can be a central bank.
D) A swap bank can be an independent operator.
Q2) Examples of "single-currency interest rate swap" and "cross-currency interest rate swap" is/are:
A) fixed-for-floating rate interest rate swap, where one counterparty exchanges the principal payment of a floating-rate debt obligations for fixed-rate principal payment of the other counter party.
B) fixed-for-fixed rate debt service (currency swap), where one counterparty exchanges the debt service obligations of a bond denominated in one currency for the debt service obligations of the other counter party denominated in same currency.
C) fixed-for-floating rate interest rate swap, where one counterparty exchanges the interest payments of a floating-rate debt obligations for fixed-rate interest payments of the other counter party.
D) None of these
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Page 12
Chapter 11: International Portfolio Investment
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Sample Questions
Q1) Which of the following characterizes international investor behaviour?
A) Investors are fully diversified.
B) Investors hold optimal international portfolios.
C) Investors show a home bias in their portfolio holdings.
D) Investors don't invest in international stocks.
Q2) Investors can use of the following to diversify their portfolios internationally except:
A) International mutual funds
B) ADRs
C) WEBS
D) STAS
Q3) The home bias effect is the investors' disproportionate investment in:
A) any Residential and commercial real estate.
B) real estate in which the assessed value of the building is higher than the assessed value of the land.
C) real estate in which the ratio of the assessed value of the building to the assessed value of the land is higher than the average in the same jurisdiction.
D) None of these.
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Chapter 12: Management of Economic Exposure
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Q1) After the appreciation of the Canadian dollar,firm ABC loses market share in the United States because American firms can sell their products at a lower price.This is an example of:
A) Competitive effect.
B) Conversion effect.
C) Exchange rate effect.
D) Unfair competition.
Q2) Banff Inc.is headquartered in Calgary and produces high-end living room furniture.The firm has a subsidiary in Germany.The wooden frames of the sofas are made in Calgary by an independent contractor and then shipped to Germany.The German subsidiary then upholsters the sofas using Belgium fabrics.Each frame costs the subsidiary C$1,500.The materials and labour for the upholstery amount to euro 2,000 per sofa.Fixed overhead costs are euro 1,500,000 for the subsidiary.Banff Inc.expects to be able to sell 3,000 Sofas for 5,000 euros each.The firm can depreciate 1,000,000 euros per year.The German income tax rate is 40%.The current exchange rate is C$1.5/euro.How would the operating cash flows (expressed in Canadian dollars)change if the exchange rate is C$1.6/euro,all else equal?
Q3) How can operating exposure be managed?
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14
Chapter 13: Management of Transaction Exposure
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Q1) Encana Inc,a Canadian firm has a US dollar receivable which it hedges using a forward market contract.The Canadian dollar is quoted directly.Which of the following statements is true?
A) If the spot rate is greater than the forward rate at maturity, Encana is better off with the hedge than without the hedge.
B) If the spot rate is less than the forward rate at maturity, Encana is better off with the hedge than without the hedge.
C) If the spot rate is equal to the forward rate at maturity, Encana is better off with the hedge than without the hedge.
D) Need more information
Q2) In evaluating the pros and cons of corporate risk management,"market imperfections" refer to:
A) information asymmetry, differential transaction costs, default costs, and progressive corporate taxes.
B) leading and lagging, receivables and payables, and diversification costs.
C) economic costs, noneconomic costs, arbitrage costs, and hedging costs.
D) management costs, corporate costs, liquidity costs, and trading costs.
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Page 15
Chapter 14: Management of Translation Exposure
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Q1) XYZ Corporation,a Canadian parent firm,has a wholly owned sales affiliate,ABC Ltd.,in the United Kingdom.The affiliate was established to service to the local market. Assume that:
1)the functional currency of ABC is the pound
2)the reporting currency is the dollar
3)the initial exchange rate $1.00 = £ 0.67
ABC's nonconsolidated balance sheets and the footnotes to the financial statements indicate that ABC owes the parent firm £200,000.Assume that,XYZ had made an investment of $300,000 in the affiliate.Under CICA 1650,the intercompany debt and investment will appear on the consolidated balance sheet as:
A) £200,000.
B) $201,493.
C) $298,507.
D) None of these.
Q2) The Canadian methods for consolidating the financial reports of an MNC are:
A) short/long term method and current/future method.
B) current/non-current method and short/long term method.
C) temporal method and current rate method.
D) temporal method and economic/non-economic method.
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Page 16
Chapter 15: Foreign Direct Investment and Cross-Border Acquisitions
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Q1) The key factors that are important in a firm's decision to invest overseas are:
A) Trade barriers, perfect labor market, and tangible assets.
B) product integration, product life cycle, and shareholder unification services.
C) profit maximization, global prestige, and competition.
D) Trade barriers, imperfect labor market, intangible assets, vertical integration, product life cycle, and shareholder diversification.
Q2) Greenfield investment:
A) is an investment in agricultural industry.
B) is an investment in a an environmentally friendly technology.
C) can be a result of a cross-border acquisition of any existing and operational business abroad.
D) None of these.
Q3) Operational risk refers to the risk which arises from the uncertainty about:
A) the host's country's policies affecting the local operations of an MNC.
B) the host's country's policy regarding ownership and control of local operations.
C) cross-border flows of capital, payment, know-how, and the like.
D) None of these.
Q4) How can Export Development Canada (EDC)help firms to deal with political risk?
Page 17
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Chapter 16: International Capital Structure and the Cost of Capital
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Q1) Assume that A-Plus Corporation is a leveraged company with a marginal income tax rate of 30%,an average income tax rate of 25%,and before tax-cost of borrowing of 5%.The firm's domestic beta is 1.4 and its world market beta is 0.8.The domestic market return is 12% and the world market return is 14%.The risk-free rate is 4%.The firm's debt-to-equity ratio is 1:3.Determine the firm's weighted average cost of capital if capital markets are integrated.
Q2) A major factor in determining the optimal capital structure is:
A) the trade-off between the interest rate costs of debt and the possible bankruptcy costs associated with equity.
B) the trade-off between the tax advantage of debt and the possible bankruptcy costs associated with equity.
C) the trade-off between the tax advantage of debt and the possible bankruptcy costs associated with debt.
D) the trade-off between the interest rate costs of equity and the possible bankruptcy costs associated with equity.
Q3) What are the alternative financial structures for a subsidiary? Which of the alternatives is the best?
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Page 18
Chapter 17: International Capital Budgeting
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Q1) The adjusted present value (APV)model that is suitable for an MNC is the basic net present value (NPV)model expanded to:
A) distinguish between the market value of a levered firm and the market value of an unlevered firm.
B) discern the blocking of certain cash flows by the host country from being legally remitted to the parent.
C) consider foreign currency fluctuations or extra taxes imposed by the host country on foreign exchange remittances.
D) All of these.
Q2) The discount rates to use for the APV calculations are:
A) Cost of levered equity for (I) and cost of debt for (II), (III), (IV) and (V)
B) Cost of levered equity for (I) and cost of unlevered equity for (II), (III), (IV) and (V)
C) Cost of unlevered equity for (I) and cost of levered equity for (II), (III), (IV) and (V)
D) Cost of unlevered equity for (I) and cost of debt for (II), (III), (IV) and (V)
Q3) Which cash flows are relevant for the international capital budgeting analysis?
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Chapter 18: Multinational Cash Management
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Q1) Soleil Inc.has an affiliate in Brazil and one in South Africa.The entire production of the South Africa affiliate is sold to the affiliate in Brazil which sells the final product to customers.The Brazilian affiliate has sales of 1000 and overhead costs of 100.The cost of goods sold in South Africa is 500 and overhead amounts to 300.The income tax rates are 40 percent in Brazil and 20 percent in South Africa.Assume that neither South Africa nor Brazil put any restrictions on the transfer price.What is the optimal transfer price? What are the total taxes paid?
Q2) The United States decides to block funds leaving the country.What is the optimum transfer price?
A) $6,000.
B) $7,000.
C) $9,000.
D) $10,000.
Q3) Explain why governments regulate transfer prices for international transactions.What are the major rules that are applied?
Q4) If inter-affiliate cash flows are uncorrelated with one another,what is the standard deviation of the portfolio of cash held by the centralized depository for the following affiliate members:
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Page 20
Chapter 19: Exports and Imports
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Q1) A bill of lading is:
A) a guarantee from the importer's bank that is will act on behalf of the importer and pay the exporter for the merchandise if all relevant documents are presented.
B) is a written order instructing the importer or his agent to pay the amount specified on its face on a certain date.
C) is a document issued by the common carrier specifying that it has received the goods for shipment.
D) is a negotiable money market instrument for which a secondary market exists.
Q2) A form of barter in which the counterparties contract to purchase a certain amount of goods and services from one another is called:
A) counterpuchase.
B) clearing arrangement.
C) barter.
D) offset.
Q3) The time from acceptance to maturity on a banker's acceptance (B/A)is 90 days,the importing bank's acceptance commission is 1 percent and the B/A's discounted value at the time of acceptance is $1,000,000.What is the 90-day B/A rate if the value at maturity is $1,034,000?
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Chapter 20: International Tax Environment
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Q1) To tax national residents of a country on their worldwide income is called:
A) worldwide or residential taxation.
B) worldwide or source taxation.
C) territorial or residential taxation.
D) territorial or source taxation.
Q2) Value-added tax (VAT)is:
A) a direct national tax levied on the value added in the production of a good (or service) as it moves through various stages of production.
B) an direct national tax levied on the value added in the production of a good (or service) as it moves through various stages of production.
C) the equivalent of imposing international sales tax.
D) an indirect national tax levied on the value added in the production of a good (or service) as it moves through various stages of production.
Q3) Calculate the American foreign tax credit for a subsidiary in Germany.Assume that the German income tax rate is 50%,the American income tax rate is 35%,and the withholding tax rate is 10%.The taxable income in Germany is 500.Assume that all income is remitted to the parent immediately.
Q4) What are the major ways in which countries levy taxes?
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Page 22
Chapter 21: Corporate Governance Around the World
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Q1) Concentrated corporate ownership is most prevalent in:
A) Japan.
B) the United Kingdom.
C) the United States.
D) Australia.
Q2) Debt may be beneficial for the following reasons except:
A) because it reduces free cash flows.
B) because of its disciplinary effect on managers.
C) because the interest payments benefit shareholders.
D) because interest has to be paid to avoid bankruptcy.
Q3) Discuss the major advantage and key weakness of a public corporation.
Q4) Sarbanes-Oxley Act of 2002 stipulates that:
A) a public accounting oversight board be created.
B) the company should appoint independent financial experts to its audit committee.
C) CEO and CFO sign off the company's financial statements.
D) All of these.
Q5) Discuss the concept of "private benefits of corporate control".
Q6) How can listing overseas benefit the corporate governance of a public company?
Q7) Explain the agency problem and how it can be remedied.
Page 23
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