Financial Management Review
Questions
Course Introduction
Financial Management is a foundational course that introduces students to the principles and techniques necessary for effective financial decision-making within organizations. It covers key topics such as financial analysis, planning and forecasting, working capital management, capital budgeting, risk and return assessment, and long-term financing decisions. Through case studies and real-world applications, students will learn how to evaluate investment opportunities, manage corporate funds, and maximize shareholder value, gaining essential skills for careers in finance, accounting, and business management.
Recommended Textbook
Multinational Business Finance 13th Edition by
David K. Eiteman
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20 Chapters
1145 Verified Questions
1145 Flashcards
Source URL: https://quizplus.com/study-set/3366
Page 2
Chapter 1: Current Multinational Challenges and the Global Economy
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50 Verified Questions
50 Flashcards
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Sample Questions
Q1) Comparative advantage shifts over time as less developed countries become more developed and realize their latent opportunities.
A)True
B)False
Answer: True
Q2) Typically, a "greenfield" investment abroad is considered a greater foreign investment having a greater foreign presence than a joint venture with a foreign firm.
A)True
B)False
Answer: True
Q3) Multinational enterprises (MNEs)are firms, both for profit companies and not-for-profit organizations, that have operations in more than one country, and conduct their business through foreign subsidiaries, branches, or joint ventures with host country firms.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Corporate Ownership, Goals, and Governance
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63 Verified Questions
63 Flashcards
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Sample Questions
Q1) Which of the following is NOT typically associated with the public ownership of business organizations?
A)the state
B)the government
C)families
D)civil society
Answer: C
Q2) State Owned Enterprises (SOEs)by their very name cannot be traded on stock exchanges because they are government owned.
A)True
B)False
Answer: False
Q3) The problems that may arise due to the separation of ownership and management in large business organizations is know as:
A)separation anxiety.
B)the agency problem.
C)corporate disconnect theory.
D)none of the above
Answer: B
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Page 4
Chapter 3: The International Monetary System
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Sample Questions
Q1) Based on the premise that, other things equal, countries would prefer a fixed exchange rate, which of the following statements is NOT true?
A)Fixed rates provide stability in international prices for the conduct of trade.
B)Fixed exchange rate regimes necessitate that central banks maintain large quantities of international reserves for use in the occasional defense of the fixed rate.
C)Fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies.
D)Stable prices aid in the growth of international trade and lessen exchange rate risks for businesses.
Answer: C
Q2) Which of the following is NOT an attribute of the "ideal" currency?
A)monetary independence
B)full financial integration
C)exchange rate stability
D)All are attributes of an ideal currency.
Answer: D
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Chapter 4: The Balance of Payments
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Sample Questions
Q1) What is the Official Reserves Account (ORA), and why is it more important for countries under a fixed exchange rate regime than for ones under a floating exchange rate regime?
Q2) Portfolio investment is capital invested in activities that are ________ rather than made for ________.
A)short term; the long term
B)long term; profit
C)profit motivated; control
D)control motivated; profit
Q3) The ________ includes all international economic transactions with income or payment flows occurring within the year.
A)capital account
B)current account
C)financial account
D)IMF account
Q4) Significant amounts of United States Treasury issues are purchased by foreign investors, therefore the U.S. must earn foreign currency to repay this debt.
A)True
B)False
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Chapter 5: The Continuing Global Financial Crisis
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Sample Questions
Q1) The typical TED spread, the difference between the LIBOR and the interest rate swap index, is typically about ________ basis points.
A)350
B)180
C)120
D)80
Q2) The international credit crisis began in full force in September 2008.
A)True
B)False
Q3) From 1990 through 2007, the amount of securitized loans outstanding dropped from over $25 trillion to less than $5 trillion and was a key element in the loss of market liquidity.
A)True
B)False
Q4) Even though household debt as a percentage of disposable income rose rapidly in the United States in early 2000s, the rate was even greater in Britain, topping out at over 170% in 2008.
A)True
B)False
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Chapter 6: The Foreign Exchange Theory and Markets
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Sample Questions
Q1) If the direct quote for a U.S. investor for British pounds is $1.43/£, then the indirect quote for the U.S. investor would be ________ and the direct quote for the British investor would be ________.
A)£0.699/$; £0.699/$
B)$0.699/£; £0.699/$
C)£1.43/£; £0.699/$
D)£0.699/$; $1.43/£
Q2) A forward contract to deliver British pounds for U.S. dollars could be described either as ________ or ________.
A)buying dollars forward; buying pounds forward
B)selling pounds forward; selling dollars forward
C)selling pounds forward; buying dollars forward
D)selling dollars forward; buying pounds forward
Q3) Currency trading is a service center rather than a profit center for commercial and investment banks.
A)True
B)False
Q4) Define spot, forward, and swap transactions in the foreign exchange market and give an example of how each could be used.
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Chapter 7: International Parity Conditions
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Sample Questions
Q1) The current U.S. dollar-yen spot rate is ¥125/$. If the 90-day forward exchange rate is ¥127/$ then the yen is at a forward premium.
A)True
B)False
Q2) ________ states that the spot exchange rate should change in an equal amount but in the opposite direction to the difference in interest rates between two countries.
A)Fisher-open
B)Fisher-closed
C)The Fisher Effect
D)none of the above
Q3) 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?
Q4) If exchange markets were not efficient, it would pay for a firm to spend resources on forecasting exchange rates.
A)True
B)False
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Page 9
Chapter 8: Foreign Currency Derivatives and Swaps
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85 Flashcards
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Sample Questions
Q1) Refer to Instruction 8.1. After the fact, under which set of circumstances would you prefer strategy #3? (Assume your firm is borrowing money.)
A)Your credit rating stayed the same and interest rates went up.
B)Your credit rating stayed the same and interest rates went down.
C)Your credit rating improved and interest rates went down.
D)Not enough information to make a judgment.
Q2) The potential exposure that any individual firm bears that the second party to any financial contract will be unable to fulfill its obligations under the contract is called:
A)interest rate risk.
B)credit risk.
C)counterparty risk.
D)clearinghouse risk.
Q3) The price at which an option can be exercised is called the:
A)premium.
B)spot rate.
C)strike price.
D)commission.
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10
Chapter 9: Foreign Exchange Rate Determination and Forecasting
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Sample Questions
Q1) Which of the following is NOT a motivation for a government or central bank to manipulate domestic currency valuation?
A)fight inflation
B)slow too rapid economic growth
C)spur too slow economic growth
D)All of the above are motivations for the government or central bank to manipulate currency values.
Q2) Technical analysts, traditionally referred to as chartists, focus on fundamental data to determine past trends that are expected to continue into the future.
A)True
B)False
Q3) Short-term foreign exchange forecasts are often motivated by such activities as ________ whereas long-term forecasts are more likely motivated by ________.
A)long-term investment; long-term capital appreciation
B)long-term capital appreciation; desire to hedge a receivable
C)the desire to hedge a payable; the desire for long-term investment
D)the desire for long-term investment; the desire to hedge a payable
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Page 11
Chapter 10: Transaction Exposure
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Sample Questions
Q1) Currency risk management techniques include forward hedges, money market hedges, and option hedges. Draw a diagram showing the possible outcomes of these hedging alternatives for a foreign currency receivable contract. In your diagram, be sure to label the X and Y-axis, the put option strike price, and show the possible results for a money market hedge, a forward hedge, a put option hedge, and an uncovered position. (Note: Assume the forward currency receivable is British pounds and the put option strike price is $1.50/£, the price of the option is $0.04 the forward rate is $1.52/£ and the current spot rate is $1.48/£.)
Q2) Transaction exposure and operating exposure exist because of unexpected changes in future cash flows. The difference between the two is that ________ exposure deals with cash flows already contracted for, while ________ exposure deals with future cash flows that might change because of changes in exchange rates.
A)transaction; operating
B)operating; transaction
C)operating; accounting
D)none of the above
Q3) Hedging, or reducing risk, is the same as adding value or return to the firm.
A)True
B)False
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Page 12
Chapter 11: Translation Exposure
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52 Flashcards
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Sample Questions
Q1) ________ gains and losses are "realized" whereas ________ gains and losses are only "paper."
A)Translation; transaction
B)Transaction; translation
C)Translation; operating
D)none of the above
Q2) Translation exposure may also be called ________ exposure.
A)transaction
B)operating
C)accounting
D)currency
Q3) Under the U.S. method of translation procedures, if the financial statements of the foreign subsidiary of a U.S. company are maintained in the local currency, and the U.S. dollar is the functional currency, then:
A)translation is not required.
B)translation is accomplished through the current rate method.
C)translation is accomplished through the temporal method.
D)none of the above
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13
Chapter 12: Operating Exposure
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Sample Questions
Q1) Swap agreements are treated as line items on the balance sheet via U.S. accounting methods.
A)True
B)False
Q2) Diversifying the financing base means diversifying sales, location of production facilities, and raw material sources.
A)True
B)False
Q3) Which of the following is NOT an acceptable hedging technique to reduce risk caused by a relatively predictable long-term foreign currency inflow of Japanese yen?
A)Import raw materials from Japan denominated in yen to substitute for domestic suppliers.
B)Pay suppliers from other countries in yen.
C)Import raw materials from Japan denominated in dollars.
D)Acquire debt denominated in yen.
Q4) Unexpected changes in exchange rates is never good news for a firm's operating income.
A)True B)False
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Chapter 13: The Global Cost and Availability of Capital
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Sample Questions
Q1) The WACC is usually used as the risk-adjusted required rate of return for new projects that are of the same average risk as the firm's existing projects.
A)True
B)False
Q2) Empirical studies indicate that MNEs have higher costs of capital than purely domestic firms. This could be due to higher levels of:
A)political risk.
B)exchange rate risk.
C)agency costs.
D)all of the above
Q3) Which of the following statements is NOT true regarding MNEs when compared to purely domestic firms?
A)MNEs tend to rely more on short and intermediate term debt.
B)MNEs have greater foreign exchange risk.
C)MNEs have greater costs of asymmetric information.
D)MNEs have higher agency costs.
Q4) What are the components of the weighted average cost of capital (WACC)and how do they differ for an MNE compared to a purely domestic firm?
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Page 15
Chapter 14: Raising Equity and Debt Globally
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72 Verified Questions
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Sample Questions
Q1) Who pays the costs of creating a sponsored ADR?
A)the foreign firm whose stocks underlie the ADR
B)the U.S. bank creating the ADR
C)both the U.S. bank and the foreign firm
D)the SEC since they require the regulation
Q2) Strategic alliances are normally formed by firms that expect to gain synergies from which of the following?
A)economies of scale
B)economies of scope
C)complementary marketing
D)all of the above
Q3) Empirical evidence shows that new issues of equity by domestic firms in the U.S. market typically has a ________ stock price reaction and new equity issues in the U.S. markets by foreign firms with segmented domestic markets have a ________ stock price reaction.
A)negative; negative
B)positive; negative
C)negative; positive
D)positive; positive
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Page 16
Chapter 15: Multinational Tax Management
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Sample Questions
Q1) ________ is the pricing of goods, services, and technology between related companies.
A)Among pricing
B)Retail pricing
C)Transfer pricing
D)Wholesale pricing
Q2) The primary objective of multinational tax planning is to minimize the firm's worldwide tax burden.
A)True
B)False
Q3) Tax treaties typically result in ________ between the two countries in question.
A)lower property taxes for U.S. citizens overseas
B)elimination of differential tax rates
C)increased double taxation
D)reduced withholding tax rates
Q4) Tax credits are LESS valuable on a dollar-for-dollar basis than are deductible expenses.
A)True B)False
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Chapter 16: International Portfolio Theory and Diversification
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51 Verified Questions
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Sample Questions
Q1) In some respects, internationally diversified portfolios are different from a domestic portfolio because:
A)investors may also acquire foreign exchange risk.
B)international portfolio diversification increases expected return but does not decrease risk.
C)investors must leave the country to acquire foreign securities.
D)all of the above
Q2) The addition of foreign securities to the domestic portfolio opportunity set shifts the efficient frontier:
A)down and to the left.
B)up and to the right.
C)up and to the left.
D)down and to the right.
Q3) Unsystematic risk:
A)is the remaining risk in a well-diversified portfolio.
B)is measured with beta.
C)can be diversified away.
D)all of the above
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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 typical characteristic of a fronting loan made to an international subsidiary?
A)The parent makes a deposit equal to the size of the desired loan into a large commercial bank.
B)The bank lends to the subsidiary firm an amount equal to the parent deposit at a slightly higher interest rate.
C)The lending bank is located in the subsidiary's country.
D)All of the above are typical characteristics of a fronting loan.
Q2) A/An ________ would be an example of an owner-specific advantage for an MNE.
A)patent
B)economy of scale
C)economy of scope
D)all of the above
Q3) Greenfield investments are typically ________ and ________ than cross-border acquisition.
A)slower; more uncertain
B)faster; of greater certainty
C)slower; of greater certainty
D)faster; more uncertain
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Page 19
Chapter 18: Multinational Capital Budgeting and Cross-Border Acquisitions
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Sample Questions
Q1) 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.
Q2) Generally speaking, a firm wants to receive cash flows from a currency that is ________ relative to their own, and pay out in currencies that are ________ relative to their home currency.
A)appreciating; depreciating
B)depreciating; depreciating
C)appreciating; appreciating
D)depreciating; appreciating
Q3) As opposed to greenfield investment, a cross-border acquisition is typically quicker. A)True
B)False
Q4) The drivers of international merger and acquisitions are only MACRO in scope. A)True
B)False
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Chapter 19: Working Capital Management
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Sample Questions
Q1) A disadvantage of a centralized cash management system is that managers will not be able to get the lowest average rate available for the firm. Instead, it misses out on the really low borrowing rates.
A)True
B)False
Q2) An organizational structure employed by an MNE to reduce its use of bank lending for the support of operations is:
A)a centralized depository.
B)a reinvoicing center.
C)a cost center.
D)a syndicated bank.
Q3) Other things equal, a firm would rather have ________ in a depreciating currency, and ________ in an appreciating currency.
A)accounts receivable; accounts payable
B)accounts receivable; accounts receivable
C)accounts payable; accounts receivable
D)none of the above
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Chapter 20: International Trade Finance
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Sample Questions
Q1) A revocable L/C is intended to serve as a means of arranging payment but not as a guarantee of payment.
A)True
B)False
Q2) Which of the following is NOT true regarding a letter of credit?
A)The importer and exporter agree on a transaction.
B)The importer applies to its local bank for the issuance of a letter of credit.
C)The exporter applies to its local bank for the issuance of a letter of credit.
D)The importer's bank cuts a sales contract based on its assessment of the creditworthiness of the importer.
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) An advantage of trading with an affiliated party for an MNE, compared to an unaffiliated party, could be reduced contracting costs and less to even no need to protect against nonpayment.
A)True
B)False
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