Financial Management
Exam Materials
Course Introduction
Financial Management introduces the fundamental principles and techniques used to make effective financial decisions in organizations. The course covers topics such as financial statement analysis, time value of money, risk and return, capital budgeting, cost of capital, and working capital management. Students will learn how to analyze financial data, assess investment opportunities, and develop strategies for long-term financial planning and value creation. Emphasis is placed on practical applications and problem-solving to equip students with the skills needed to manage resources and maximize shareholder wealth in dynamic and competitive environments.
Recommended Textbook
Multinational Business Finance 14th Edition by David
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18 Chapters
1239 Verified Questions
1239 Flashcards
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Page 2
K. Eiteman
Chapter 1: Multinational Financial Management: Opportunities and Challenges
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66 Verified Questions
66 Flashcards
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Sample Questions
Q1) The theory that suggests specialization by country can increase worldwide production is:
A) the theory of comparative advantage.
B) the theory of foreign direct investment.
C) the international Fisher effect.
D) the theory of working capital management.
Answer: A
Q2) Comparative advantage is one of the underlying principles driving the growth of global business.
A)True
B)False
Answer: True
Q3) A well-established,large,Brazil-based MNE will probably be most adversely affected by which of the following elements of firm value?
A) an open marketplace
B) high-quality strategic management
C) access to capital
D) access to qualified labor pool
Answer: C
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Chapter 2: The International Monetary System
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Sample Questions
Q1) In January 2002,the Argentine Peso changed in value from Peso1.00/$ to Peso1.40/$,thus,the Argentine Peso ________ against the U.S.dollar.
A) strengthened B) weakened C) remained neutral
D) all of the above
Answer: B
Q2) A currency board exists when a country's central bank commits to back a fraction of its money base with foreign reserves at all times.
A)True
B)False
Answer: False
Q3) The People's Republic of China has two official currencies,the Chinese renminbi (RMB)and the yuan (CNY).
A)True
B)False
Answer: False
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Chapter 3: The Balance of Payments
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Sample Questions
Q1) One of the motivations for capital controls is to insulate an economy from foreign political risks.
A)True
B)False
Answer: False
Q2) If China wished to reduce their accumulation of foreign exchange reserves they could:
A) allow their currency, the yuan, to float freely in the market place.
B) reduce their current account surplus by importing more goods than they export.
C) undertake both of the activities identified in choices A and B.
D) dig a big hole and bury the reserves.
Answer: C
Q3) The BOP should always balance.
A)True
B)False
Answer: False
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Chapter 4: Financial Goals and Corporate Governance
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Sample Questions
Q1) The stakeholder capitalism model does not assume that equity markets are either efficient or inefficient.
A)True
B)False
Q2) Which of the following is NOT an important concept when distinguishing between international and domestic financial management?
A) corporate governance
B) culture, history, and institutions
C) political risk
D) All of the above are important distinguishing concepts.
Q3) Agency theory states that unsystematic risk can be eliminated through diversification.
A)True
B)False
Q4) Anglo-American markets is a term used to describe business markets in:
A) North, Central, and South America.
B) the United States, Canada, and Western Europe.
C) the United States, United Kingdom, Canada, Australia and New Zealand.
D) the United States, France, Britain, and Germany.
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Chapter 5: The Foreign Exchange Market
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Sample Questions
Q1) The low level of interest rates around the globe in recent years,combined with slowing economic growth and new debt issuances,has had a dampening impact on the swap market.
A)True
B)False
Q2) ________ make money on currency exchanges by the difference between the ________ price,or the price they offer to pay,and the ________ price,or the price at which they offer to sell the currency.
A) Dealers; ask; bid
B) Dealers; bid; ask
C) Brokers; ask; bid
D) Brokers; bid; ask
Q3) Refer to Table 5.1.The current spot rate of dollars per pound as quoted in a newspaper is ________ or ________.
A) £1.4484/$; $0.6904/£
B) $1.4481/£; £0.6906/$
C) $1.4484/£; £0.6904/$
D) £1.4487/$; $0.6903/£
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7
Chapter 6: International Parity Conditions
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Sample Questions
Q1) The theory of ________ states that the difference in the national interest rates for securities of similar risk and maturity should be equal to but opposite in sign to the forward rate discount or premium for the foreign currency,except for transaction costs.
A) international Fisher Effect
B) absolute PPP
C) interest rate parity
D) the law of one price
Q2) A country's currency that strengthened relative to another country's currency by more than that justified by the differential in inflation is said to be ________ in terms of PPP.
A) overvalued
B) over compensating
C) undervalued
D) under compensating
Q3) If the forward exchange rate is an unbiased predictor of future spot rates,then future spot rates will always be equal to current forward rates.
A)True
B)False
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8
Chapter 7: Foreign Currency Derivatives: Futures and Options
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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) Dash Brevenshure works for the currency trading unit of ING Bank in London.He speculates that in the coming months the dollar will rise sharply vs.the pound.What should Dash do to act on his speculation?
A) Buy a call on the pound.
B) Sell a call on the pound.
C) Buy a put on the pound.
D) Sell a put on the pound.
Q3) Define and explain the logic for the time value of an option.Explain the value of the time value of an option for deep out-of-the money and deep in-the-money options.
Q4) Why are foreign currency futures contracts more popular with individuals and banks while foreign currency forwards are more popular with businesses?
Q5) List and explain three "Greek" elements and impacts on a call option premium.
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Chapter 8: Interest Risk and Swaps
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Sample Questions
Q1) One of the reasons companies use interest rate swaps is because they are interested in opportunities to lower the cost of their debt.
A)True
B)False
Q2) Refer to Instruction 8.1.Choosing strategy #3 will:
A) guarantee the lowest average annual rate over the next three years.
B) eliminate credit risk but retain repricing risk.
C) maintain the possibility of lower interest costs, but maximizes the combined credit and repricing risks.
D) preclude the possibility of sharing in lower interest rates over the three-year period.
Q3) The real exposure of an interest or currency swap is not the total notional principal,but the mark-to-market values of differentials in interest or currency interest payments since the inception of the swap agreement.
A)True
B)False
Q4) A swap agreement may involve currencies or interest rates,but never both.
A)True
B)False
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Chapter 9: Foreign Exchange Rate Determination
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Sample Questions
Q1) If a central bank wishes to "defend its currency," it might follow an expansive monetary policy,which would drive real rates of interest up.
A)True
B)False
Q2) Which of the following did NOT contribute to the Russian currency crisis of 1998?
A) an accelerated flight of capital
B) generally deteriorating economic conditions
C) a surprisingly healthy government surplus that was neither funding internal investment nor external debt service
D) all of the above
Q3) It is safe to say that most determinants of the spot exchange rate are also affected by changes in the spot rate.i.e.,they are linked AND mutually determined.
A)True
B)False
Q4) Foreign exchange forecasting can be either long-term,or short-term in duration.Compare and contrast the motivation for and the techniques a forecaster might use for each of the time periods.
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11
Chapter 10: Transaction Exposure
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Sample Questions
Q1) Each of the following is another name for operating exposure EXCEPT:
A) economic exposure.
B) strategic exposure.
C) accounting exposure.
D) competitive exposure.
Q2) A U.S.firm sells merchandise today to a British company for £150,000.The current exchange rate is $1.55/£ ,the account is payable in three months,and the firm chooses to avoid any hedging techniques designed to reduce or eliminate the risk of changes in the exchange rate.If the exchange rate changes to $1.52/£ the U.S.firm will realize a ________ of ________.
A) loss; $4,500
B) gain; $4,500
C) loss; £4,500
D) gain; £4,500
Q3) Hedging can be advantageous to shareholders because management is in a better position than shareholders to recognize disequilibrium conditions and to take advantage of single opportunities to enhance firm value through selective hedging.
A)True
B)False
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Page 12
Chapter 11: Translation Exposure
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54 Flashcards
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Sample Questions
Q1) If the British subsidiary of a European firm has net exposed assets of £125,000,and the pound increases in value from 1.40/£ to 1.44/£,the European firm has a translation:
A) gain of 5,000.
B) loss of 5,000.
C) gain of £5,000.
D) loss of £5,000.
Q2) : The current rate method and the temporal method are two basic methods for translation that are employed worldwide
A)True
B)False
Q3) A/An ________ subsidiary is one in which the firm operates as an extension of the parent company with cash flows highly interrelated with the parent.
A) self-sustaining foreign
B) integrated foreign entity
C) foreign
D) none of the above
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 12: Operating Exposure
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Sample Questions
Q1) Most swap dealers arrange swaps so that each firm that is a party to the transaction knows who the counterparty is.
A)True
B)False
Q2) When disequilibria in international markets occur,management can take advantage by:
A) doing nothing if they are already diversified and able to realize beneficial portfolio effects.
B) recognizing disequilibria faster than purely domestic competitors.
C) shifting operational of financing activities to take advantage of the disequilibria.
D) all of the above
Q3) Which of the following is NOT an example of diversification in financing?
A) raising funds in more than one market
B) raising funds in more than one country
C) diversifying sales
D) All of the above qualify.
Q4) The higher the price elasticity of demand,the higher the degree of pass-through.
A)True
B)False
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Chapter 13: The Global Cost and Availability of Capital
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Sample Questions
Q1) A firm whose equity has a beta of 1.0:
A) has greater systematic risk than the market portfolio.
B) stands little chance of surviving in the international financial market place.
C) has less systematic risk than the market portfolio.
D) None of the above is true.
Q2) Which of the following statements is NOT true?
A) International diversification benefits induce investors to demand foreign securities.
B) An international security adds value to a portfolio if it reduces risk without reducing return.
C) Investors will demand a security that adds value.
D) All of the above are true.
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%
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Chapter 14: Raising Equity and Debt Globally
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Sample Questions
Q1) Depositary receipts traded outside the United States are called ________ depositary receipts.
A) Euro
B) Global
C) American
D) none of the above
Q2) ________ are negotiable certificates issued by a bank to represent the underlying shares of stock,which are held in trust at a foreign custodian bank.
A) Negotiable CDs
B) International mutual funds
C) Depositary receipts
D) Eurodeposits
Q3) Which of the following high profile euroequity issue was NOT also a privatization?
A) British Telecommunications
B) Gucci
C) YPF Sociedad Anónima
D) Telefonos de Mexico
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Chapter 15: Multinational Tax Management
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Sample Questions
Q1) 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/an ________ approach to levying taxes.
A) worldwide
B) territorial
C) neutral
D) equitable
Q2) Tax haven subsidiaries of MNEs are categorically referred to as international offshore financial centers.
A)True
B)False
Q3) Maximizing local profits in joint ventures overseas could be suboptimal from the overall view of the MNE.
A)True
B)False
Q4) In a typical naked corporate inversion transaction the corporation's effective global tax liability is reduced but the effective control does not change.
A)True
B)False
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Chapter 16: International Trade Finance
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75 Verified Questions
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Sample Questions
Q1) The fundamental dilemma of foreign trade is being unwilling to trust a stranger in a foreign land.
A)True
B)False
Q2) The primary advantage of a letter of credit is that it reduces risk.
A)True
B)False
Q3) The Export-Import Bank (also called Eximbank)is an independent agency of the U.S.government,established in 1934 to stimulate and facilitate the foreign trade of the United States.
A)True
B)False
Q4) The European Union recommends maximum credit terms for many items including,for example,heavy capital goods (five years),light capital goods (three years),and consumer durable goods (one year).
A)True
B)False
Q5) What is a banker's acceptance? How are they initiated? Why are they desirable for the exporter?
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Chapter 17: Foreign Direct Investment and Political Risk
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Sample Questions
Q1) The L in OLI refers to an advantage in a firm's home market that is a:
A) liability in the domestic market.
B) location-specific advantage.
C) longevity in a particular market.
D) none of the above
Q2) Which of the following is NOT true regarding behavioral observations of firms making a decision to invest internationally?
A) MNEs initially invest in countries with a similar "national psychic."
B) Firms eventually take greater risks in terms of the national psychic of countries in which they invest.
C) Initial investments tend to be much larger than subsequent ones.
D) All of the above have been observed.
Q3) A/An ________ would be an example of an internalization advantage for an MNE.
A) patent
B) economy of scale
C) unique source of raw materials
D) possession of proprietary information
Q4) What are blocked funds? List and explain two of the three methods the authors list in this chapter for dealing with blocked funds.
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Chapter 18: Multinational Capital Budgeting and Cross-Border Acquisitions
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Sample Questions
Q1) The predictability of the project's revenue stream is essential in securing project financing.Which of the following is NOT a typical contract provisions that are intended to assure adequate cash flow?
A) quantity and quality of the project's output
B) a pricing formula
C) circumstances that permit changes in the contract
D) fronting loan
Q2) The authors highlight a strong theoretical argument in favor of analyzing any foreign project from the viewpoint of the parent.Provide at least three reasons why the parent's viewpoint is superior to the local viewpoint and give an example of when the local viewpoint fails to maximize the value of the firm.
Q3) When a multinational firm invests abroad,it is common to develop two capital budgets: one from the project viewpoint,and one from the parent viewpoint.
A)True
B)False
Q4) Explain how political risk and exchange rate risk increase the uncertainty of international projects for the purpose of capital budgeting.
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