Finance for Multinational Enterprises Final Exam
Course Introduction
Finance for Multinational Enterprises explores the financial strategies, risks, and opportunities unique to organizations operating across international borders. This course covers topics such as foreign exchange markets, currency risk management, international capital budgeting, cross-border financing, and global investment decisions. Students will analyze how multinational corporations navigate differences in tax laws, political and economic environments, and regulatory frameworks to optimize financial performance. Through case studies and real-world examples, learners will gain practical skills in managing the financial complexities faced by businesses with a global footprint.
Recommended Textbook
International Financial Management 13th Edition by Jeff Madura
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Page 2
Chapter 1: Multinational Financial Management: An Overview
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Sample Questions
Q1) An MNC may be more exposed to agency problems if most of its shares are held by:
A)a few mutual funds.
B)a widely dispersed set of individual investors.
C)a few pension funds.
D)all of the above would prevent agency problems.
Answer: B
Q2) One form of exposure to political risk is terrorism
A)True
B)False
Answer: True
Q3) When the parent's home currency is weak, remitted funds from foreign subsidiaries will convert to a smaller amount of the home currency.
A)True
B)False
Answer: False
Q4) The goal of a multinational corporation (MNC) is the maximization of shareholder wealth.
A)True
B)False
Answer: True
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Chapter 2: International Flow of Funds
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Q1) Without international capital flows, there would be ____ funding available in the United States across all risk levels, and the cost of funding would be ____ regardless of the firm's risk level.
A)more; lower
B)more; higher
C)less; lower
D)less; higher
Answer: D
Q2) An American tourist visiting Germany and spending money there (for lodging, food, etc.) will reduce the U.S. current account deficit and reduce Germany's current account balance.
A)True
B)False
Answer: False
Q3) Regarding the U.S. balance of payments, capital account items are relatively minor compared to the financial account items.
A)True
B)False
Answer: True
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Page 4
Chapter 3: International Financial Markets
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Q1) The Greece credit crisis in the 2012-2015 period refers to Greece being unable to obtain loans from any banks or governments.
A)True
B)False
Answer: False
Q2) In general, common-law countries such as the United States, Canada, and the United Kingdom allow for more legal protection of shareholders than civil-law countries such as France and Italy.
A)True
B)False
Answer: True
Q3) Which of the following is true of international money market securities?
A)The securities may be exposed to exchange rate risk.
B)The securities are perceived to be very risky.
C)The securities issued by corporations are not subject to credit (default) risk.
D)The securities have a maturity of one to five years.
Answer: A
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Chapter 4: Exchange Rate Determination
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Q1) A financial institution that expects a particular foreign currency to appreciate may try to benefit from its expectation by borrowing funds in that currency and repaying the loan aFter the exchange rate changes in the expected manner.
A)True
B)False
Q2) ____ are not a factor that causes currency supply and demand schedules to change.
A)Relative inflation rates
B)Relative interest rates
C)Relative income levels
D)Expectations
E)All of the above are factors that cause currency supply and demand schedules to change.
Q3) The main effect of interest rate movements on exchange rates is through their effect on international trade.
A)True
B)False
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6
Chapter 5: Currency Derivatives
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Sample Questions
Q1) Currency options sold through an options exchange contain:
A)a commitment to the owner, and are standardized.
B)a commitment to the owner, and can be tailored to the owner's desire.
C)a right but not a commitment to the owner, and can be tailored to the owner's desire.
D)a right but not a commitment to the owner, and are standardized
Q2) A currency put option is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.
A)True
B)False
Q3) The 90-day forward rate for the euro is $1.07, while the current spot rate of the euro is $1.05. What is the annualized forward premium or discount of the euro?
A)1.9 percent discount
B)1.9 percent premium
C)7.6 percent premium
D)7.6 percent discount
Q4) Options can be traded on an exchange or over the counter
A)True
B)False
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Page 7
Chapter 6: Government Influence on Exchange Rates
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Q1) Which of the following is not true regarding government intervention?
A)Under the direct method of intervention, an appreciation of the dollar would be accomplished by exchanging dollars for foreign currencies.
B)Under nonsterilized intervention, the Fed would intervene in the foreign exchange market without adjusting the money supply.
C)Under sterilized intervention, the Fed would intervene simultaneously in the foreign exchange and Treasury markets.
D)Under indirect intervention, the Fed would attempt to affect the dollar's value by indirectly influencing the factors that determine it, such as interest rates.
E)All of the above are true.
Q2) The Bretton Woods Agreement created a system under which exchange rates are determined by market forces without intervention by various governments.
A)True
B)False
Q3) Dollarization refers to the replacement of local currency with U.S. dollars.
A)True
B)False
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8
Chapter 7: International Arbitrage and Interest Rate Parity
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Q1) Assume that the euro's interest rates are higher than U.S. interest rates, and that interest rate parity exists. Which of the following is true?
A)Americans using covered interest arbitrage earn the same rate of return as Germans who attempt covered interest arbitrage.
B)Americans who invest in the United States earn the same rate of return as Germans who attempt covered interest arbitrage.
C)Americans who invest in the United States earn the same rate of return as Germans who invest in Germany
D)A and B
E)None of the above
Q2) The interest rate on yen is 7 percent. The interest rate in the United States is 9 percent. The yen's forward rate should exhibit a premium of about 2 percent.
A)True
B)False
Q3) The yield curve of every country has its own unique shape
A)True
B)False
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Chapter 8: Relationships among Inflation, Interest Rates, and Exchange Rates
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Q1) The international Fisher effect (IFE) suggests that the currencies with relatively high interest rates will appreciate because those high rates will attract investment and increase the demand for that currency.
A)True
B)False
Q2) If the IFE theory holds, that means that covered interest arbitrage is not feasible.
A)True
B)False
Q3) Because there are a variety of factors in addition to inflation that affect exchange rates, this will:
A)reduce the probability that PPP will hold.
B)increase the probability that PPP will hold.
C)increase the probability the IFE will hold.
D)B and C
Q4) Purchasing power parity (PPP) focuses on the relationship between nominal interest rates and exchange rates between two countries.
A)True
B)False
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Chapter 9: Forecasting Exchange Rates
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Q1) Usually, fundamental forecasting is used for short-term forecasts, while technical forecasting is used for longer-term forecasts.
A)True
B)False
Q2) According to the text, research generally supports ____ in foreign exchange markets.
A)weak-form efficiency
B)semistrong-form efficiency
C)strong-form efficiency
D)A and B
E)B and C
Q3) Silicon Co. has forecasted the Canadian dollar for the most recent period to be $0.73. The realized value of the Canadian dollar in the most recent period was $0.80. Thus, the absolute forecast error as a percentage of the realized value was ____ percent.
A)9.6 B)-9.6 C)8.8 D)-8.8
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Page 11
Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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Q1) Assume that the British pound and Swiss franc are highly correlated. A U.S. firm anticipates the equivalent of $1 million cash outflows in francs and the equivalent of $1 million cash outflows in pounds. During a ____ cycle, the firm is ____ affected by its exposure.
A)strong dollar; favorably B)weak dollar; not C)strong dollar; not D)weak dollar; favorably
Q2) Vada, Inc. exports computers to Australia invoiced in U.S. dollars. Its main competitor is located in Japan. Vada is subject to:
A)economic exposure.
B)transaction exposure.
C)translation exposure.
D)economic and transaction exposure.
Q3) In general, translation exposure is larger with MNCs that have a larger proportion of earnings generated by foreign subsidiaries.
A)True
B)False
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Chapter 11: Managing Transaction Exposure
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Sample Questions
Q1) Sometimes the overall performance of an MNC may already be insulated by offsetting effects between subsidiaries, and it may not be necessary to hedge the position of each individual subsidiary.
A)True
B)False
Q2) A futures hedge involves taking a money market position to cover a future payables or receivables position.
A)True
B)False
Q3) When a perfect hedge is not available to eliminate transaction exposure, the firm may consider methods to at least reduce exposure, such as ____.
A)leading
B)lagging
C)cross-hedging
D)currency diversification
E)all of the above
Q4) Most MNCs can completely hedge all of their transactions.
A)True
B)False
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Chapter 12: Managing Economic Exposure and Translation Exposure
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Sample Questions
Q1) In general, it is more difficult to effectively hedge economic or translation exposure than to hedge transaction exposure.
A)True
B)False
Q2) With regard to hedging translation exposure, translation losses ____, and gains on forward contracts used to hedge translation exposure ____.
A)are not tax deductible; are taxed
B)are tax deductible; are taxed
C)are not tax deductible; are not taxed
D)are tax deductible; are not taxed
Q3) The translation gain (or loss) is simply a paper gain (or loss). Conversely, the gain (or loss) resulting from a hedge strategy is a real gain (or loss).
A)True
B)False
Q4) All MNCs are subject to transaction exposure.
A)True
B)False
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Chapter 13: Direct Foreign Investment
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Sample Questions
Q1) From the concept of an "efficient frontier," the point on a frontier that is optimal for all firms:
A)is the top point.
B)is the point closest to the vertical axis.
C)is the point halfway between the two end points.
D)cannot be determined since firms vary in their willingness to accept risk.
Q2) Which of the following purchases does not represent direct foreign investment?
A)machinery to be used in manufacturing
B)a tract of land
C)bonds and other financial assets
D)a manufacturing plant
Q3) The most important cost-related motive for direct foreign investment is diversification across product markets.
A)True
B)False
Q4) Once a decision to establish a foreign subsidiary has been made, it is irreversible. Therefore, no periodic monitoring of the project is necessary.
A)True
B)False
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Chapter 14: Multinational Capital Budgeting
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Sample Questions
Q1) Refer to Exhibit 14-1. What is the net present value of the Norwegian project?
A)-$803,848
B)$5,803,848
C)$1,048,829
D)none of the above
Q2) When evaluating international project cash flows, which of the following factors is relevant?
A)future inflation
B)blocked funds
C)exchange rates
D)all of the above
Q3) Fixed costs are expenses that are not affected by consumer demand, so they can be estimated without an estimate of that demand when doing multinational capital budgeting.
A)True
B)False
Q4) In multinational capital budgeting, depreciation is treated as a cash outflow.
A)True
B)False
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Chapter 15: International Corporate Governance and Control
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Sample Questions
Q1) A call option on real assets represents a proposed project that contains an option of pursuing an additional venture.
A)True
B)False
Q2) Other things being equal, a foreign subsidiary in China would more likely be divested by the U.S. parent if new information caused the parent to suddenly anticipate that:
A)the Chinese yuan would depreciate in the future.
B)the Chinese yuan would appreciate in the future.
C)the Chinese yuan would remain somewhat stable in the future.
D)none of the above; the value of the Chinese yuan has no impact on the feasibility of a divestiture.
Q3) Even aFter an MNC's accept/reject decision of a foreign acquisition has been made, it should be reassessed at various times. In fact, this analysis may indicate that a previously accepted project should be divested.
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) Unlike project risk, country risk cannot be incorporated into the capital budgeting analysis of a proposed project by adjustment of the discount rate or by adjustment of the estimated cash flows.
A)True
B)False
Q3) A macro-assessment of country risk:
A)is adjusted for the particular business of the firm involved.
B)excludes aspects relevant to a particular firm or project.
C)A and B
D)none of the above
Q4) Higher interest rates tend to increase the growth of an economy and increase the demand for an MNC's products.
A)True
B)False
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Chapter 17: Multinational Cost of Capital and Capital Structure
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Sample Questions
Q1) Capital asset pricing theory suggests that ____ risk of projects can be ignored and that ____ risk is relevant.
A)unsystematic; unsystematic
B)unsystematic; systematic
C)systematic; unsystematic
D)systematic; systematic
Q2) One argument for why subsidiaries should be wholly owned by the MNC parent is that parent ownership avoids a potential conflict of interest between the:
A)parent's managers and board of directors.
B)parent and managers at the subsidiary who are minority shareholders.
C)parent and existing creditors.
D)subsidiary's managers and creditors.
Q3) According to your text, which of the following is not a factor that increases an MNC's cost of capital?
A)higher exposure to exchange rate risk
B)higher exposure to country risk
C)an increase in the risk-free interest rate
D)an increase in the size of the MNC
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Chapter 18: Long-Term Debt Financing
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Q1) A U.S. firm could issue bonds denominated in euros and partially hedge against exchange rate risk by:
A)invoicing its exports in U.S. dollars.
B)requesting that any imports ordered by the firm be invoiced in U.S. dollars.
C)invoicing its exports in euros.
D)requesting that any imports ordered by the firm be invoiced in euros.
Q2) A(n) _____ yield curve for a country means that annualized yields there are ____ for short-term debt than for long-term debt.
A)upward-sloping; higher
B)flat; lower
C)downward-sloping; lower
D)upward-sloping; lower
Q3) The yields offered on newly issued bonds tend to be:
A)lower in less developed countries where labor costs are low.
B)relatively high in countries such as Japan and the United States because the credit risk premium is much higher there than in other countries.
C)the same across countries at a given point in time.
D)none of the above
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Page 20
Chapter 19: Financing International Trade
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Q1) Factoring involves the sale of accounts receivable to a third party, called a factor, for a discount.
A)True
B)False
Q2) Under a letter of credit (L/C) arrangement, the ______issues the L/C and sends it to the ____ .
A)importer's government; exporter's government
B)importer's bank; exporter's bank
C)exporter's government; importer's government
D)exporter's bank; exporter's government
Q3) According to the text, international trade activity has generally ____ over time. This should cause the popularity of trade finance techniques to ____ over time.
A)increased; increase
B)increased; decrease
C)decreased; increase
D)decreased; decrease
Q4) There is an active secondary market for banker's acceptances.
A)True
B)False
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Chapter 20: Short-Term Financing
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Q1) Which of the following is not a source of external short-term financing for MNCs?
A)Eurobonds
B)Euro-commercial paper
C)Euronotes
D)ADRs
E)A and D
Q2) If movements of two currencies with low interest rates are highly negatively correlated, then financing in a portfolio of currencies would not be very beneficial. That is, financing with such a portfolio would not be very different from financing with a single foreign currency.
A)True
B)False
Q3) Euronotes are underwritten by:
A)European central banks.
B)commercial banks.
C)the International Monetary Fund.
D)the Federal Reserve System.
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Chapter 21: International Cash Management
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Q1) An MNC has determined that the degree of appreciation for the Singapore dollar that equates the foreign and domestic yield is 2 percent. If the Singapore dollar appreciates by less than 2 percent, the investment in Singapore will be more attractive.
A)True
B)False
Q2) According to the text:
A)banks in the United States are prohibited from facilitating cash transfers for MNCs. B)banks in most non-U.S. countries are more advanced than those in the United States in facilitating cash transfers for MNCs.
C)an MNC with subsidiaries in several different countries has no problems in coordinating its cash transfers since a uniform global banking system exists.
D)none of the above
Q3) Which of the following is not a technique to optimize cash flows?
A)Accelerate cash inflows
B)Minimize currency conversion costs
C)Manage blocked funds
D)All of the above are techniques to optimize cash flows
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