Financial Management
Question Bank
Course Introduction
Financial Management is a course that introduces students to the principles and practices involved in managing the financial resources of an organization. It covers key topics such as financial analysis, planning, and control; time value of money; risk and return; capital budgeting; cost of capital; and sources of long-term and short-term financing. The course also explores the role of financial markets, institutions, and instruments, and develops analytical skills necessary for effective decision-making in areas such as investment, financing, and dividend policy. Through case studies and practical applications, students gain an understanding of how financial decisions impact the overall strategy and performance of a business.
Recommended Textbook
Multinational Business Finance 15th Edition by David K. Eiteman
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18 Chapters
1227 Verified Questions
1227 Flashcards
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Chapter 1: Multinational Financial Management: Opportunities and Challenges
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73 Verified Questions
73 Flashcards
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Sample Questions
Q1) The modern eurocurrency market was born shortly after:
A) World War II.
B) World War I.
C) Korean War.
D) Bosnian War.
Answer: A
Q2) It would be safe to make the statement that modern telecommunications now take business activities to labor rather than moving labor to the places of business.
A)True
B)False
Answer: True
Q3) Which of the following factors of production DO NOT flow freely between countries?
A) raw materials
B) financial capital
C) (non-military) technology
D) All of the above factors of production flow freely among countries.
Answer: A
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Page 3
Chapter 2: The International Monetary System
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Sample Questions
Q1) Under the terms of Bretton Woods, countries tried to maintain the value of their currencies to within 1% of a hybrid security made up of the U.S. dollar, British pound, and Japanese yen.
A)True
B)False
Answer: False
Q2) Another name for the International Bank for Reconstruction and Development is:
A) the Recon Bank.
B) the European Monetary System.
C) the Marshall Plan.
D) the World Bank.
Answer: D
Q3) Today, the United States has been ejected from the International Monetary Fund for refusal to pay annual dues.
A)True
B)False
Answer: False
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Chapter 3: The Balance of Payments
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Sample Questions
Q1) A country with a managed float that wishes to WEAKEN its currency may choose to raise domestic interest rates to attract additional capital from abroad.
A)True
B)False
Answer: False
Q2) The BOP must be in balance, but the current account need not be.
A)True
B)False
Answer: False
Q3) The largest single component of the United States current account is:
A) current transfers.
B) income payments and receipts.
C) goods (merchandise) imports and exports.
D) services imports and exports.
Answer: C
Q4) In general, as a country's income increases, so does the demand for imports.
A)True
B)False
Answer: False
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Chapter 4: Financial Goals and Corporate Governance
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Sample Questions
Q1) U.S. listings of publicly traded firms as a percentage of worldwide listings of such firms INCREASED from 11% in 1996 to approximately 33% in 2015.
A)True
B)False
Q2) Dividend yield is the change in the share price of stock as traded in the public equity markets.
A)True
B)False
Q3) 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).
Q4) In finance, an efficient market is one in which:
A) prices are assumed to be correct.
B) prices adjust quickly and accurately to new information.
C) prices are the best allocators of capital in the macro economy.
D) all of the above
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6
Chapter 5: The Foreign Exchange Market
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Sample Questions
Q1) The greatest volume of daily foreign exchange transactions are:
A) spot transactions.
B) forward transactions.
C) swap transactions.
D) This question is inappropriate because the volume of transactions are approximately equal across the three categories above.
Q2) A bid is the price in one currency at which a dealer will buy another currency. An ask is the price at which a dealer will sell the other currency. Dealers bid (buy) at one price and ask (sell) at a slightly higher price, making their profit from the spread between the prices. List and explain three reasons/factors that could make the spread small.
Q3) Which of the following is NOT true regarding the market for foreign exchange?
A) The market provides the physical and institutional structure through which the money of one country is exchanged for another.
B) The rate of exchange is determined in the market.
C) Foreign exchange transactions are physically completed in the foreign exchange market.
D) All of the above are true.
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Chapter 6: International Parity Conditions
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Sample Questions
Q1) Assume a nominal interest rate on one-year U.S. Treasury Bills of 2.60% and a real rate of interest of 1.00%. Using the Fisher Effect Equation, what is the approximate expected rate of inflation in the U.S. over the next year?
A) 2.10%
B) 2.05%
C) 1.60%
D) 1.00%
Q2) All that is required for a covered interest arbitrage profit is for interest rate parity to not hold.
A)True
B)False
Q3) ________ states that differential rates of inflation between two countries tend to be offset over time by an equal but opposite change in the spot exchange rate.
A) The Fisher Effect
B) The International Fisher Effect
C) Absolute Purchasing Power Parity
D) Relative Purchasing Power Parity
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8
Chapter 7: Foreign Currency Derivatives: Futures and Options
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Sample Questions
Q1) Currency futures contracts have become standard fare and trade readily in the world money centers.
A)True
B)False
Q2) As a general statement, it is safe to say that businesses generally use the ________ for foreign currency option contracts, and individuals and financial institutions typically use the ________.
A) exchange markets; over-the-counter
B) over-the-counter; exchange markets
C) private; government sponsored
D) government sponsored; private
Q3) A put option on yen is written with a strike price of ¥105.00/$. Which spot price maximizes your profit if you choose to exercise the option before maturity?
A) ¥100/$
B) ¥105/$
C) ¥110/$
D) ¥115/$
Q4) List and explain three "Greek" elements and their impact on a call option premium.
Page 9
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Chapter 8: Interest Risk and Swaps
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Sample Questions
Q1) A swap agreement may involve currencies or interest rates, but never both.
A)True
B)False
Q2) Which of the following would be considered an example of a currency swap?
A) exchanging a dollar interest obligation for a British pound obligation
B) exchanging a eurodollar interest obligation for a dollar obligation
C) exchanging a eurodollar interest obligation for a British pound obligation
D) All of the above are examples of a currency swap.
Q3) A basis point is one-tenth of one percent.
A)True
B)False
Q4) An interbank-traded contract to buy or sell interest rate payments on a notional principal is called a/an:
A) forward rate agreement.
B) interest rate future.
C) interest rate swap.
D) none of the above
Q5) For a corporate borrower, it is especially important to distinguish between credit risk and repricing risk. Explain both types of risks.
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Chapter 9: Foreign Exchange Rate Determination and Intervention
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Sample Questions
Q1) The roots of the Asian currency crisis extended from a fundamental change in the economics of the region, the transition of many Asian nations from being net importers to net exporters.
A)True
B)False
Q2) The ________ approach states that the exchange rate is determined by the supply and demand for national currency stocks, as well as the expected future levels and rates of growth of monetary stock.
A) balance of payments
B) monetary
C) asset market
D) law of one price
Q3) The fall in the value of the domestic currency will sharply reduce the purchasing power of foreign tourists in the country whose currency values are falling.
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?
Page 11
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Chapter 10: Transaction Exposure
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Sample Questions
Q1) ________ exposure deals with cash flows that result from existing contractual obligations.
A) Operating
B) Transaction
C) Translation
D) Economic
Q2) Which of the following is NOT cited as a good reason for hedging currency exposures?
A) Reduced risk of future cash flows is a good planning tool.
B) Reduced risk of future cash flows reduces the probability that the firm may not meet required cash flows.
C) Currency risk management increases the expected cash flows to the firm.
D) Management is in a better position to assess firm currency risk than individual investors.
Q3) In efficient markets, interest rate parity should assure that the costs of a forward hedge and money market hedge should be approximately the same.
A)True
B)False
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Chapter 11: Translation Exposure
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Sample Questions
Q1) Gains or losses caused by translation adjustments when using the current rate method are reported separately on the:
A) consolidated statement of cash flow.
B) consolidated income statement.
C) consolidated balance sheet.
D) none of the above
Q2) ________ occur as a result of changes in the value of currency, whereas ________ occur as a result of ongoing business activities.
A) Operating gains or losses; translation gains or losses
B) Swap losses; translation gains or losses
C) Translation gains or losses; operating gains or losses
D) all of the above
Q3) The value contribution of a subsidiary of a multinational firm to the firm can be reported in the income statement or balance sheet of the consolidated firm. Explain the reporting of the changes in the value of a subsidiary as a result of the change in an exchange rate - changes to the income and the assets of the subsidiary - in the consolidated financial statements of the parent company.
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13
Chapter 12: Operating Exposure
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Sample Questions
Q1) Another name for operating exposure is ________ exposure.
A) economic
B) competitive
C) strategic
D) all of the above
Q2) A ________ resembles a back-to-back loan except that it does not appear on a firm's balance sheet.
A) forward loan
B) currency hedge
C) counterparty
D) currency swap
Q3) Which one of the following management techniques is likely to best offset the risk of long-run exposure to receivables denominated in a particular foreign currency?
A) Borrow money in the foreign currency in question.
B) Lend money in the foreign currency in question.
C) Increase sales to that country.
D) Increase sales in this country.
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Chapter 13: 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) Other things equal, an increase in the firm's tax rate will increase the WACC for a firm that has both debt and equity financing.
A)True
B)False
Q3) According to your authors, diversifying cash flows internationally may help MNEs reduce the variability of cash flows because:
A) of a lack of competition among international firms.
B) of an offset to cash flow variability caused by exchange rate variability.
C) returns are not perfectly correlated between countries.
D) none of the above
Q4) There are potential benefits and risks from raising capital on global markets. Discuss the pros and cons in terms of risk of raising capital on global markets.
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Chapter 14: Funding the Multinational Firm
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Sample Questions
Q1) Which of the following high profile euroequity issues was NOT also a privatization?
A) British Telecommunications
B) Gucci
C) YPF Sociedad Anónima
D) Telefonos de Mexico
Q2) Eurobonds offer tax anonymity.
A)True
B)False
Q3) Most firms raise their initial capital in foreign markets.
A)True
B)False
Q4) Private equity funds (PEF) differ from traditional venture capital (VC) funds in that:
A) VC operates mainly in lesser-developed countries while PEF do not.
B) VC typically invests in family business whereas PEF do not.
C) VC is almost unavailable to emerging markets while PEF capital is available.
D) All of the above are true.
Q5) Private equity funds differ from traditional venture capital funds. List and discuss three differences between them.
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Chapter 15: Multinational Tax Management
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Sample Questions
Q1) All the OECD countries depend on individual income taxes for a very large part of their tax proceeds.
A)True
B)False
Q2) Of the following, which is NOT cited by the authors as an example of tax haven?
A) Ireland
B) Bermuda
C) Cayman Islands
D) Bahamas
Q3) Tax treaties typically result in reduced withholding tax rates between the two signatory countries.
A)True
B)False
Q4) In the mid-1980s, the U.S. led the way to higher corporate income tax rates worldwide. Today, most of the G7 nations have surpassed the U.S. and have higher corporate income tax rates than the U.S.
A)True
B)False
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Page 17
Chapter 16: International Trade Finance
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Sample Questions
Q1) The ________ is the instrument normally used to actually effect payment in international commerce.
A) banker's acceptance
B) bill of exchange
C) bill of lading
D) letter of credit
Q2) The first owner of the bankers' acceptance created from an international trade transaction will be the importer, who receives the endorsed draft back after the bank has stamped it "accepted."
A)True
B)False
Q3) The Eximbank does all of the following EXCEPT:
A) guarantees lease transactions.
B) supplies counseling for exporters in finding financing for U.S. goods.
C) finances the cost involved in the preparation of feasibility studies for non-U.S. clients
D) provides letters of credit for U.S. exporters.
Q4) What is the major difference between "currency risk" and "risk of noncompletion"?
How are these risks handled in a typical international trade transaction?
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Chapter 17: Foreign Direct Investment and Political Risk
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Sample Questions
Q1) Which of the following is NOT a potential disadvantage of licensing relative to FDI?
A) possible loss of quality control
B) establishment of a potential competitor in third-country markets
C) possible improvement of the technology by the local licensee, which then enters the original firm's home market
D) All of the above are potential disadvantages to licensing.
Q2) A country can react to the potential for blocked funds prior to making an investment, during operations, or by investing in the local country in assets than maintain their value.
A)True
B)False
Q3) 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
Q4) What are the advantages and disadvantages of serving a foreign market through a greenfield foreign direct investment compared to an acquisition of a local firm in the target market?
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Chapter 18: Multinational Capital Budgeting and Cross-Border Acquisitions
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Sample Questions
Q1) A foreign firm that is 20% to 49% owned by a parent is called a/an:
A) subsidiary.
B) affiliate.
C) partner.
D) rival.
Q2) Refer to Instruction 18.1. What is the IRR of the Velo Rapid Revolutions expansion?
A) 14.4%
B) 10.3%
C) 12.0%
D) 8.6%
Q3) Which of the following is NOT a typical pitfall of cross-border acquisitions?
A) paying too much
B) excessive financing costs
C) melding corporate cultures
D) all of the above are pitfalls
Q4) 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
20
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