Corporate Finance
Study Guide Questions
Course Introduction
Corporate Finance is a foundational course that explores how corporations manage their financial resources to maximize shareholder value. The curriculum covers essential topics such as time value of money, capital budgeting, risk and return, cost of capital, financial analysis, and capital structure decisions. Students learn to evaluate investment opportunities, assess financing options, and understand the role of financial markets in corporate decision-making. Through case studies and practical applications, the course equips learners with the analytical tools necessary for making strategic financial decisions in real-world business contexts.
Recommended Textbook
Fundamentals of Multinational Finance 4th Edition by Michael
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19 Chapters
1084 Verified Questions
1084 Flashcards
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Page 2
H. Moffett
Chapter 1: Current Multinational Challenges and the Global Economy
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33 Verified Questions
33 Flashcards
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Sample Questions
Q1) Typically,a firm in its domestic stage of globalization has all financial transactions in its domestic currency.
A)True
B)False
Answer: True
Q2) Refer to Table 1.1.If each country specializes in their production with Austria producing only digital cameras and Russia producing only snowboards,at a trading rate of three snowboards per digital camera,how many cameras and snowboards will be available to be consumed in Austria if they trade 3,000 cameras to Russia?
A)9,000 snowboards and 5,000 digital cameras
B)3,000 snowboards and 3,000 digital cameras
C)3,000 snowboards and 9,000 digital cameras
D)There is not enough information to answer this question.
Answer: A
Q3) Comparative advantage shifts over time as less developed countries become more developed and realize their latent opportunities.
A)True
B)False
Answer: True
3
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Chapter 2: Financial Goals and Corporate Governance
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Sample Questions
Q1) The Board of Directors
A)consists exclusively of the officers of the corporation.
B)is the legal body which is accountable for the governance of the corporation.
C)are not subject to the external forces of the marketplace.
D)is appointed by the Securities and Exchange Commission (SEC).
Answer: B
Q2) The Shareholder Wealth Maximization Model
A)combines the interests and inputs of shareholders, creditors, management, employees, and society.
B)is being usurped by the Corporate Wealth Maximization Model as those types of MNEs dominate their global industry segments.
C)clearly places shareholders as the primary stakeholder.
D)is the dominant form of corporate management in the European-Japanese governance system.
Answer: C
Q3) Systematic risk can be eliminated through portfolio diversification.
A)True
B)False
Answer: False
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Page 4
Chapter 3: The International Monetary System
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Sample Questions
Q1) Since the launch of the euro in January of 1999,one nation has joined the original 11 members and three nations have dropped the euro as their official currency.
A)True
B)False
Answer: False
Q2) The euro was launched in January 1999 with an official initial value against the dollar of $1.16/ .As of January 2011 the currency exchange rate was $1.40/ .Thus,over this time period the euro has ________ against the dollar by a total of ________.
A)appreciated; 82.86%
B)appreciated; 20.69%
C)depreciated; 82.86%
D)depreciated; 20.69%
Answer: B
Q3) Because there is now a European Central Bank (ECB),the members of the European Monetary Union have done away with their individual central banks.
A)True
B)False
Answer: False
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Chapter 4: The Balance of Payments
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Sample Questions
Q1) A positive current account balance (surplus)contributes directly to increasing the measure of GDP.
A)True
B)False
Q2) Balance of payment (BOP)data may be important for any of the following reasons:
A)BOP data helps to forecast a country's market potential, especially in the short run.
B)The BOP is an important indicator of a country's foreign exchange rate.
C)Changes in a country's BOP may signal a change in controls over payment of dividends and interest.
D)All of the above.
Q3) In a static (accounting)sense,a nation's GDP can be represented by the following equation: where C = consumption spending,I = investment spending,G = government spending,X = exports of goods and services,and M = imports of goods and services.
A)GDP = C + I + G + M - X
B)GDP = C + I + G + X - M
C)GDP = C + I - G + X - M
D)GDP = C + I + G + X + M
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Page 6
Chapter 5: Current Multinational Financial Challenges: the
Credit Crisis of 2007 - 2009
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Sample Questions
Q1) Which of the following would be a good example of a structured investment vehicle (SIV)?
A)issue commercial paper to purchase long-term notes
B)issue long-term notes to purchase commercial paper
C)issue long-term bonds to fund mortgage securities
D)All of the above are good examples of an SIV.
Q2) The Credit Default Swap
A)was designed to shift the risk of default to a third party.
B)was a way to bet whether a specific mortgage or security would either fail to pay on time or fail to pay at all.
C)could be used as a speculative investment or a hedge against risk.
D)could be all of the above.
Q3) Portfolio Theory has proven to be remarkably accurate in the idea that,whereas a single large subprime borrower constituted significant risk,a portfolio of subprime borrowers which was securitized did not.
A)True
B)False
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Chapter 6: The Foreign Exchange Market
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Sample Questions
Q1) What are some of the reasons central banks and treasuries enter the foreign exchange markets,and in what important ways are they different from other foreign exchange participants?
Q2) A common type of swap transaction in the foreign exchange market is the ________ where the dealer buys the currency in the spot market and sells the same amount back to the same bank in the forward market.
A)"forward against spot"
B)"forspot"
C)"repurchase agreement"
D)"spot against forward"
Q3) The U.S.dollar suddenly changes in value against the euro moving from an exchange rate of $0.8909/euro to $0.08709/euro.Thus,the dollar has ________ by ________.
A)appreciated; 2.30%
B)depreciated; 2.30%
C)appreciated; 2.24%
D)depreciated; 2.24%
Q4) Define spot,forward,and swap transactions in the foreign exchange market and give an example of how each could be used.
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Page 8
Chapter 7: International Parity Conditions
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Sample Questions
Q1) One-year interest rates are currently 2.50% in the United States and 3.70% in Great Britain.The current spot rate between the pound and dollar is $1.9000/£.What is the expected spot rate in one year if the international Fisher effect holds?
A)$1.9000/£
B)$1.9222/£
C)$1.8780/£
D)$1.8500/£
Q2) The authors describe an application of uncovered interest arbitrage (UIA)known as "yen carry trade." Define UIA and describe the example of yen carry trade.Why would an investor engage in the practice of yen carry trade and is there any risk of loss or lesser profit from this investment strategy?
Q3) If an identical product can be sold in two different markets,and no restrictions exist on the sale or transportation costs,the product's price should be the same in both markets.This is know as
A)relative purchasing power parity.
B)interest rate parity.
C)the law of one price.
D)equilibrium.
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Chapter 8: Foreign Currency Derivatives and Swaps
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Sample Questions
Q1) Futures contracts require that the purchaser deposit an initial sum as collateral.This deposit is called a
A)collateralized deposit.
B)marked market sum.
C)margin.
D)settlement.
Q2) A firm with variable-rate debt that expects interest rates to rise may engage in a swap agreement to
A)pay fixed-rate interest and receive floating rate interest.
B)pay floating rate and receive fixed rate.
C)pay fixed rate and receive fixed rate.
D)pay floating rate and receive floating rate.
Q3) The writer of the option is referred to as the seller,and the buyer of the option is referred to as the holder.
A)True
B)False
Q4) In option valuation,total value is equal to the intrinsic value plus the time value of the option.Define the latter two terms.
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10
Chapter 9: Foreign Exchange Rate Determination and Forecasting
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Sample Questions
Q1) ________ is the alteration of economic or financial fundamentals which are thought to be drivers of capital to flow in and out of specific currencies.
A)Proportional intervention
B)Direct intervention
C)Indirect intervention
D)Hopeless intervention
Q2) Technical analysis of exchange rates developed in part due to the forecasting inadequacies of fundamental exchange rate theories.
A)True
B)False
Q3) The authors claim that theoretical and empirical studies appear to show that fundamentals do apply to the long-term for foreign exchange.
A)True
B)False
Q4) Describe the asset market approach to exchange rate determination.How is this consistent with economic theory of (say,security)prices in general?
Q5) Describe the Russian ruble collapse through August of 1998.
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Chapter 10: Transaction and Translation Exposure
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69 Verified Questions
69 Flashcards
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Sample Questions
Q1) The key arguments in opposition to currency hedging such as market efficiency,agency theory,and diversification do not have financial theory at their core.
A)True
B)False
Q2) Losses from ________ exposure generally reduce taxable income in the year they are realized.________ exposure losses are not cash losses and therefore,are not tax deductible.
A)transaction; Operating
B)accounting; Operating
C)accounting; Transaction
D)transaction; Translation
Q3) ________ exposure measures the change in the present value of the firm resulting from unexpected changes in exchange rates.
A)Operating
B)Transaction
C)Translation
D)Accounting
Q4) Describe a balance sheet hedge and give at least two examples of when such a hedge could be justified.
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Chapter 11: Operating Exposure
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Sample Questions
Q1) A British firm and a U.S.Corporation each wish to enter into a currency swap hedging agreement.The British firm is receiving U.S.dollars from sales in the U.S.but wants pounds.The U.S.firm is receiving pounds from sales in Britain but wants dollars.Which of the following choices would best satisfy the desires of the firms?
A)The British firm pays dollars to a swap dealer and receives pounds from the dealer. The U.S. firm pays pounds to the swap dealer and receives dollars.
B)The U.S. firm pays dollars to a swap dealer and receives pounds from the dealer. The British firm pays pounds to the swap dealer and receives dollars.
C)The British firm pays pounds to a swap dealer and receives pounds from the dealer. The U.S. firm pays dollars to the swap dealer and receives dollars.
D)The British firm pays dollars to a swap dealer and receives dollars from the dealer. The U.S. firm pays pounds to the swap dealer and receives pounds.
Q2) Swap agreements are treated as line items on the balance sheet via U.S.accounting methods.
A)True
B)False
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13
Chapter 12: The Global Cost and Availability of Capital
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Sample Questions
Q1) Relatively high costs of capital are more likely to occur in ________.
A)highly illiquid domestic securities markets
B)highly liquid domestic securities markets
C)unsegmented domestic securities markets
D)none of the above
Q2) ________ risk is a function of the variability of expected returns of the firm's stock relative to the market index and the measure of correlation between the expected returns of the firm and the market.
A)Systematic
B)Unsystematic
C)Total
D)Diversifiable
Q3) A national securities market is segmented if the required rate of return on securities in that market differs from comparable securities traded in other,unsegmented markets.
A)True
B)False
Q4) What motivates portfolio investors to purchase and hold foreign securities in their portfolio?
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14
Chapter 13: Sourcing Equity and Debt Globally
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80 Verified Questions
80 Flashcards
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Sample Questions
Q1) Most financial theorists believe that the optimal capital structure is a ________ with a debt to total value ratio somewhere around ________.
A)point; 50%
B)point; 25%
C)range; 30%-60%
D)range; 10%-40%
Q2) The authors note empirical evidence that shows cross-listing foreign shares of stock on U.S.exchanges has a positive stock price effect.________ for the listing of ADRs.
A)There is no stock price reaction
B)There is a negative stock price reaction
C)There is a positive stock price reaction
D)None of the above is true.
Q3) Financial practice suggests that there is a range for an optimal capital structure for a firm within an industry rather than a specific optimal ratio of debt to equity.
A)True
B)False
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15
Chapter 14: Multinational Tax Management
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Sample Questions
Q1) Refer to Instruction 14.1.If the U.S.has a bilateral trade agreement with the host country that calls for the total tax paid to be equal to the maximum amount that could be paid in the highest taxing country,what is the total amount of income taxes Rogue River Exporters will pay to the host country,and how much will they pay in U.S income taxes on the foreign earned income?
A)$25,000; $10,000
B)$25,000; $26,250
C)$35,000; $0
D)None of the above
Q2) The United States taxes the domestic and remitted foreign earnings of U.S.based MNEs no matter where the earnings occurred.This is an example of a ________ approach to levying taxes.
A)worldwide
B)territorial
C)neutral
D)equitable
Q3) What is a value-added tax? Where is this type of tax in wide usage? Why do you suppose this form of taxation has not been widely accepted in the United States?
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Page 16
Chapter 15: Foreign Direct Investment and Political Risk
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Sample Questions
Q1) A ________ is a shared ownership in a foreign business.
A)licensing agreement
B)greenfield investment
C)joint venture
D)wholly-owned affiliate
Q2) The I in OLI refers to an advantage in a firm's home market that is an ________.
A)internalization
B)industry-specific advantage
C)international abnormality
D)none of the above
Q3) Of the following,which was NOT identified by the authors as a type of cultural difference that MNEs must consider when expanding to foreign countries?
A)differences in human resource norms
B)differences in religious heritage
C)differences in allowable ownership structures
D)All of the above must be considered.
Q4) Identify and define the two behavioral theories of Foreign Direct Investment as identified by the authors.
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17
Chapter 16: Multinational Capital Budgeting and Cross-Border Acquisitions
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Sample Questions
Q1) Hydrotech Manufacturing of Houston Texas expects to receive dividends each year from a foreign subsidiary for the next 5 years. The dividend is expected to grow at a rate of 7% per year. If the euro appreciates in value against the dollar at a rate of 2% per year over the life of the dividends,then the present value of the euro dividends to Hydrotech will be ________ if there had been no change in the relative values of the euro and dollar.
A)less than B)greater than C)the same as D)There is not enough information to answer this question.
Q2) When dealing with international capital budgeting projects,the value of the project is NOT sensitive to the firm's cost of capital.
A)True
B)False
Q3) There are no important differences between domestic and international capital budgeting methods.
A)True
B)False
Q4) What is project financing and what are the factors critical to its success?
Page 18
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Chapter 17: International Portfolio Theory and Diversification
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Sample Questions
Q1) Portfolio diversification can eliminate 100% of risk.
A)True
B)False
Q2) The Treynor Measure of portfolio performance calculates the average return of the portfolio above that of the A)market, per unit of portfolio risk.
B)risk-free rate, per unit of beta.
C)none of the above.
Q3) A U.S.investor makes an investment in Britain and earns 14% on the investment while the British pound appreciates against the U.S.dollar by 8%.What is the investor's total return?
A)22.00%
B)23.12%
C)6.00%
D)4.88%
Q4) If an investor is able to determine a global beta for his portfolio and holds a portfolio that is well-diversified with international investments,which performance measure is more appropriate,the Sharpe Measure or the Treynor Measure? Why? Explain each performance measure.
Page 19
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Chapter 18: Working Capital Management
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Sample Questions
Q1) What are the advantages to the parent firm of unbundling the remittance of profits?
Q2) An Edge Act corporation is a subsidiary of a U.S.bank located outside of the U.S.and incorporated to engage in international banking and financing operations.
A)True
B)False
Q3) Which of the following statements is true?
A)A/R provide part of the funding for inventory.
B)A/P provide part of the funding for A/R and inventory.
C)Inventory pays for A/R and A/P.
D)None of the above is true.
Q4) For disbursement purposes,it is to the benefit of the firm to minimize float.
A)True
B)False
Q5) The Society for Worldwide Financial Telecommunications (SWIFT)is an interbank communications system that carries over 1.0 billion messages per year.
A)True
B)False
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Chapter 19: International Trade Finance
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Sample Questions
Q1) In the United States,the Foreign Credit Insurance Corporation
A)is a subsidiary of the Export-Import Bank.
B)provides letters of credit for U.S. importers.
C)provides letters of credit for U.S. exporters.
D)provides policies that protect U.S. exporters against default by foreign importers.
Q2) In a letter of credit,the bank substitutes its credit for that of the importer and promises to pay if certain documents are submitted to the bank.
A)True
B)False
Q3) Explain what a letter of credit (L/C)is,who the principle parties are,what the principle advantage is,and how the L/C facilitates international trade.
Q4) Refer to Instruction 19.1.________ is an unsecured promissory note.
A)A banker's acceptance
B)An overdraft
C)A securitized loan
D)Commercial paper
Q5) What is the Import-Export Bank and how can it aid in export financing?
Q6) What is the trade dilemma and how is the dilemma generally solved?
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