Financial Markets and Institutions
Exam Questions
Course Introduction
This course provides a comprehensive overview of financial markets and institutions, examining their roles in the global economic system. Students will explore the structure and functions of various financial markets, including money, capital, and derivatives markets, and study the characteristics and operations of different financial institutions such as banks, insurance companies, and investment firms. The course covers topics such as interest rate determination, risk management, regulatory environments, and the impact of monetary policy on financial systems. Practical case studies and current events are integrated to enhance understanding of how financial markets and institutions contribute to economic stability and growth.
Recommended Textbook
International Financial Management 11th Edition by Jeff Madura
Available Study Resources on Quizplus
21 Chapters
1676 Verified Questions
1676 Flashcards
Source URL: https://quizplus.com/study-set/460
Page 2
Chapter 1: Multinational Financial Management: An Overview
Available Study Resources on Quizplus for this Chatper
79 Verified Questions
79 Flashcards
Source URL: https://quizplus.com/quiz/8247
Sample Questions
Q1) Although MNCs may need to convert currencies occasionally, they do not face any exchange rate risk, as exchange rates are stable over time.
A)True
B)False
Answer: False
Q2) The Sarbanes-Oxley Act (SOX) was enacted in 2002 required MNCs and other firms to implement an internal reporting process that could be easily monitored by executives and the board of directors.
A)True
B)False
Answer: True
Q3) Which of the following is not mentioned in the text as an additional risk resulting from international business?
A) exchange rate fluctuations.
B) political risk.
C) interest rate risk.
D) exposure to foreign economies.
Answer: C
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: International Flow of Funds
Available Study Resources on Quizplus for this Chatper
75 Verified Questions
75 Flashcards
Source URL: https://quizplus.com/quiz/8248
Sample Questions
Q1) A General Agreement on Tariffs and Trade (GATT) accord in 1993 called for:
A) increased trade restrictions outside of North America.
B) lower trade restrictions around the world.
C) uniform environmental standards around the world.
D) uniform worker health laws.
Answer: B
Q2) ____ is (are) income received by investors on foreign investments in financial assets (securities).
A) Portfolio income
B) Direct foreign income
C) Unilateral transfers
D) Factor income
Answer: D
Q3) The current account represents the investment in fixed assets in foreign countries that can be used to conduct business operations.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: International Financial Markets
Available Study Resources on Quizplus for this Chatper
102 Verified Questions
102 Flashcards
Source URL: https://quizplus.com/quiz/8249
Sample Questions
Q1) The more intense the competition for the traded currency, the larger the bid/ask spread.
A)True
B)False
Answer: False
Q2) The ask quote is the price for which a bank offers to sell a currency.
A)True
B)False
Answer: True
Q3) In general, common law countries such as the U.S., Canada, and the United Kingdom allow for more legal protection than French civil law countries such as France or Italy.
A)True
B)False
Answer: True
Q4) The interest rate in developing countries is usually very low.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Exchange Rate Determination
Available Study Resources on Quizplus for this Chatper
74 Verified Questions
74 Flashcards
Source URL: https://quizplus.com/quiz/8250
Sample Questions
Q1) If a currency's spot market is ____, its exchange rate is likely to be ____ to a single large purchase or sale transaction.
A) liquid; highly sensitive
B) illiquid; insensitive
C) liquid; insensitive
D) none of the above
Q2) If inflation in New Zealand suddenly increased while U.S. inflation stayed the same, there would be:
A) an inward shift in the demand schedule for NZ$ and an outward shift in the supply schedule for NZ$.
B) an outward shift in the demand schedule for NZ$ and an inward shift in the supply schedule for NZ$.
C) an outward shift in the demand schedule for NZ$ and an outward shift in the supply schedule for NZ$.
D) an inward shift in the demand schedule for NZ$ and an inward shift in the supply schedule for NZ$.
To view all questions and flashcards with answers, click on the resource link above.
6
Chapter 5: Currency Derivatives
Available Study Resources on Quizplus for this Chatper
163 Verified Questions
163 Flashcards
Source URL: https://quizplus.com/quiz/8251
Sample Questions
Q1) When currency options are not standardized and traded over-the-counter, there is ____ liquidity and a ____ bid/ask spread.
A) less; narrower
B) more; narrower
C) more; wider
D) less; wider
Q2) Both call and put option premiums are affected by the level of the existing spot rate relative to the strike price, the length of time before the expiration date, and the potential variability of the currency.
A)True
B)False
Q3) The writer of a put option has a right, but not obligation, to buy the underlying currency from the option buyer.
A)True
B)False
Q4) The writer of an uncovered call can experience a loss limited to the option premium. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Government Influence on Exchange Rates
Available Study Resources on Quizplus for this Chatper
117 Verified Questions
117 Flashcards
Source URL: https://quizplus.com/quiz/8252
Sample Questions
Q1) The monetary policy implemented by the European Central Bank always results in favorable effects on all countries in the eurozone.
A)True
B)False
Q2) While a weak currency can reduce unemployment at home, it can also lead to higher inflation, as local companies are better able to raise prices.
A)True
B)False
Q3) Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an ____ U.S. dollars and an ____ euros.
A) inward shift in demand for; outward shift in supply of
B) inward shift in demand for; inward shift in supply of
C) outward shift in supply of; outward shift in demand for D) outward shift in supply of; inward shift in demand for
Q4) The euro is pegged to other currencies of European countries that have not adopted the euro.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
8
Chapter 7: International Arbitrage and Interest Rate Parity
Available Study Resources on Quizplus for this Chatper
97 Verified Questions
97 Flashcards
Source URL: https://quizplus.com/quiz/8253
Sample Questions
Q1) The interest rate in South Africa is 8%. The interest rate in the U.S. is 5%. The South African forward rate should exhibit a premium of about 3%.
A)True
B)False
Q2) The interest rate on yen is 7%. The interest rate in the U.S. is 9%. The yen's forward rate should exhibit a premium of about 2%.
A)True
B)False
Q3) Which of the following is an example of triangular arbitrage initiation?
A) Buying a currency at one bank's ask and selling at another bank's bid, which is higher than the former bank's ask.
B) Buying Singapore dollars from a bank (quoted at $0.55) that has quoted the South African rand (ZAR)/Singapore dollar (S$) exchange rate at ZAR2.50 when the spot rate for the South African rand is $0.20.
C) Buying Singapore dollars from a bank (quoted at $0.55) that has quoted the South African rand/Singapore dollar exchange rate at ZAR3.00 when the spot rate for the South African rand is $0.20.
D) Converting funds to a foreign currency and investing the funds overseas.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Relationships among Inflation, Interest Rates, and Exchange Rates
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/8254
Sample Questions
Q1) If the IFE theory holds, that means that covered interest arbitrage is not feasible.
A)True
B)False
Q2) According to purchasing power parity (PPP), if a foreign country's inflation rate is below the inflation rate at home, home country consumers will increase their imports from the foreign country and foreign consumers will lower their demand for home country products. These market forces cause the foreign currency to appreciate.
A)True
B)False
Q3) Assume U.S. and Swiss investors require a real rate of return of 3%. Assume the nominal U.S. interest rate is 6% and the nominal Swiss rate is 4%. According to the international Fisher effect, the franc will ____ by about ____.
A) appreciate; 3%
B) appreciate; 1%
C) depreciate; 3%
D) depreciate; 2%
E) appreciate; 2%
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Forecasting Exchange Rates
Available Study Resources on Quizplus for this Chatper
96 Verified Questions
96 Flashcards
Source URL: https://quizplus.com/quiz/8255
Sample Questions
Q1) MNCs can forecast exchange rate volatility to determine the potential range surrounding their exchange rate forecast.
A)True
B)False
Q2) Which of the following forecasting techniques would best represent the sole use of the pattern of historical currency values of the euro to predict the euro's future currency value?
A) fundamental forecasting.
B) market-based forecasting.
C) technical forecasting.
D) mixed forecasting.
Q3) If an MNC invests excess cash in a foreign county, it would like the foreign currency to ____; if an MNC issues bonds denominated in a foreign currency, it would like the foreign currency to ____.
A) appreciate; depreciate
B) appreciate; appreciate
C) depreciate; depreciate
D) depreciate; appreciate
To view all questions and flashcards with answers, click on the resource link above.
Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
Available Study Resources on Quizplus for this Chatper
94 Verified Questions
94 Flashcards
Source URL: https://quizplus.com/quiz/8256
Sample Questions
Q1) Economic exposure can affect:
A) MNCs only.
B) purely domestic firms only.
C) A and B
D) none of the above
Q2) A reduction in hedging will probably reduce transaction exposure.
A)True
B)False
Q3) If the net inflow of one currency is about the same amount as a net outflow in another currency, the firm will benefit if these two currencies are negatively correlated because the transaction exposure is offset.
A)True
B)False
Q4) One argument why exchange rate risk is irrelevant to corporations is that shareholders can deal with this risk individually.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Managing Transaction Exposure
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/8257
Sample Questions
Q1) Assume that Smith Corporation will need to purchase 200,000 British pounds in 90 days. A call option exists on British pounds with an exercise price of $1.68, a 90-day expiration date, and a premium of $.04. A put option exists on British pounds, with an exercise price of $1.69, a 90-day expiration date, and a premium of $.03. Smith Corporation plans to purchase options to cover its future payables. It will exercise the option in 90 days (if at all). It expects the spot rate of the pound to be $1.76 in 90 days. Determine the amount of dollars it will pay for the payables, including the amount paid for the option premium.
A) $360,000.
B) $338,000.
C) $332,000.
D) $336,000.
E) $344,000.
Q2) The tradeoff when considering alternative call options to hedge a currency position is that an MNC can obtain a call option with a higher exercise price, but would have to pay a higher premium.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Managing Economic Exposure and Translation Exposure
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/8258
Sample Questions
Q1) Depreciation of the euro relative to the U.S. dollar will cause a U.S.-based multinational firm's reported earnings (from the consolidated income statement) to ____. If a firm desired to protect against this possibility, it could stabilize its reported earnings by ____ euros forward in the foreign exchange market. A) be reduced; purchasing B) be reduced; selling C) increase; selling D) increase; purchasing
Q2) Long-term forward contracts are a possible way to hedge the distant sale of fixed assets in foreign countries, but they may not be available for many emerging market currencies.
A)True B)False
Q3) All MNCs are subject to translation exposure. A)True B)False
Q4) All MNCs are subject to transaction exposure. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Direct Foreign Investment
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/8259
Sample Questions
Q1) MNCs can probably achieve more desirable risk-return characteristics from their project portfolios if they sufficiently diversify among products and geographical markets.
A)True
B)False
Q2) When a foreign currency is perceived by a firm to be ____, the firm will probably ____ direct foreign investment in that country.
A) undervalued; consider B) undervalued; not consider C) overvalued; not consider
D) A and C
E) B and C
Q3) Along the frontier of efficient project portfolios, exactly one portfolio can be singled out as "optimal" for all MNCs.
A)True
B)False
Q4) Developing countries are mostly targeted because they have advanced technology. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Multinational Capital Budgeting
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/8260
Sample Questions
Q1) When managers use NPV analysis, agency costs are eliminated, and governance is not needed to monitor MNC decisions regarding projects.
A)True
B)False
Q2) The objective of sensitivity analysis in capital budgeting is to determine how sensitive the NPV is to alternative values of the input variables.
A)True
B)False
Q3) Other things being equal, firms from a particular home country will engage in more international acquisitions if they expect foreign currencies to ____ against their home currency, and if their cost of capital is relatively ____.
A) appreciate; low
B) appreciate; high
C) depreciate; high
D) depreciate; low
Q4) In multinational capital budgeting, depreciation is treated as a cash outflow. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 16
Chapter 15: International Corporate Governance and Control
Available Study Resources on Quizplus for this Chatper
74 Verified Questions
74 Flashcards
Source URL: https://quizplus.com/quiz/8261
Sample Questions
Q1) An acquirer based in a low-tax country may be able to generate higher cash flows from acquiring a foreign target than an acquirer based in a high-tax country.
A)True
B)False
Q2) 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
Q3) The valuation of a target (from the parent's perspective) should increase when the potential acquirer's cost of capital increases.
A)True
B)False
Q4) The stock price of a target may decrease if investors anticipate that the target will be acquired, since they are aware that stock prices of targets fall abruptly after a bid by the acquiring firm.
A)True
B)False
Page 17
To view all questions and flashcards with answers, click on the resource link above.
Chapter 16: Country Risk Analysis
Available Study Resources on Quizplus for this Chatper
57 Verified Questions
57 Flashcards
Source URL: https://quizplus.com/quiz/8262
Sample Questions
Q1) A mild form of political risk is a tendency of residents to purchase only:
A) imported products.
B) locally produced products.
C) products produced by MNCs.
D) none of the above
Q2) Macro-assessment of country risk refers to an overall risk assessment of a country without consideration of the MNC's business.
A)True
B)False
Q3) Country risk analysis is important because it:
A) focuses on whether to hedge contractual transactions.
B) focuses on the competitor firms in its industry.
C) can be used to improve the analysis used to make long-term investing decisions.
D) all of the above
Q4) When using a checklist approach to assess country risk, factors should be converted to some numerical forms and assigned equal weights.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Multinational Cost of Capital and Capital Structure
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/8263
Sample Questions
Q1) To the extent that individual economies are ____ each other, net cash flows from a portfolio of subsidiaries should exhibit ____ variability, which may reduce the probability of bankruptcy.
A) dependent on; less
B) dependent on; more
C) independent of; less
D) independent of; more
Q2) Capital asset pricing theory would most likely suggest that the cost of capital is generally ____ for ____.
A) higher; MNCs
B) lower; domestic firms
C) lower; MNCs
D) none of the above
Q3) In the United States, government rescues are not as common as in other countries. Assuming that this is expected to continue in the future, the risk premium on a given level of debt would be higher for U.S. firms than for firms of other countries, everything else being equal.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Long-Term Debt Financing
Available Study Resources on Quizplus for this Chatper
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/8264
Sample Questions
Q1) A ____ gives its owner the right to enter into a swap.
A) basis swap
B) swaption
C) callable swap
D) putable swap
Q2) Some MNCs use a country's yield curve to compare annualized rates among debt maturities, so that they can choose a maturity that has a relatively low rate.
A)True
B)False
Q3) An upward-sloping yield curve for a foreign country means that annualized yields there are ____ for short-term debt than for long-term debt. The yield curve in this country reflects ____.
A) higher; several periods
B) lower; several periods
C) higher; a specific point in time
D) lower; a specific point in time
Q4) Many MNCs simultaneously swap interest payments and currencies.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Financing International Trade
Available Study Resources on Quizplus for this Chatper
73 Verified Questions
73 Flashcards
Source URL: https://quizplus.com/quiz/8265
Sample Questions
Q1) Under a(n) ____ arrangement, the exporter ships the goods to the importer while still retaining actual title to the merchandise.
A) draft
B) consignment
C) prepayment
D) open account
Q2) All types of foreign trade transactions in which the sale of goods to one country is linked to the purchase or exchange of goods from that same country are called countertrade.
A)True
B)False
Q3) From a bank's viewpoint, issuing a letter of credit is analogous to making a loan as far as risk is concerned.
A)True
B)False
Q4) A letter of credit does not guarantee that the goods purchased will be those invoiced and shipped.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter 20: Short-Term Financing
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/8266
Sample Questions
Q1) Countries with a ____ rate of inflation tend to have a ____ interest rate.
A) high; low
B) low; high
C) high; high
D) A and B are correct
Q2) Refer to Exhibit 20-2. What is the probability that the financing rate of the two-currency portfolio is less than the domestic financing rate?
A)12%.
B)30%.
C)100%.
D)0%.
E)none of the above
Q3) Refer to Exhibit 20-2. What is the expected effective financing rate of the portfolio Luzar is contemplating (assume the two currencies move independently from one another)?
A)9.03%.
B)7.00%.
C)10.00%.
D)7.59%.
E)none of the above
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: International Cash Management
Available Study Resources on Quizplus for this Chatper
51 Verified Questions
51 Flashcards
Source URL: https://quizplus.com/quiz/8267
Sample Questions
Q1) A common purpose of inter-subsidiary leading or lagging strategies is to:
A) allow subsidiaries with excess funds to provide financing to subsidiaries with deficient funds.
B) assure that the inventory levels at subsidiaries are maintained within tolerable ranges.
C) change the prices a high-tax rate subsidiary charges a low-tax rate subsidiary.
D) measure the performance of subsidiaries according to how quickly subsidiaries remit dividend payments to the parent.
Q2) Preauthorized payment is an arrangement that allows a corporation to charge a customer's bank account up to some limit.
A)True
B)False
Q3) Netting can achieve all but one of the following:
A) Cross border transactions between subsidiaries are reduced.
B) Transactions costs are reduced.
C) Currency conversion costs are reduced.
D) Transaction exposure is eliminated.
To view all questions and flashcards with answers, click on the resource link above.