Global Banking and Finance Exam Preparation Guide
Course Introduction
Global Banking and Finance explores the structure, functions, and operations of financial institutions and markets in an international context. The course examines how global banks facilitate international trade and investment, manage risks, and interact with regulatory frameworks across different countries. Key topics include international finance, foreign exchange markets, cross-border lending, financial regulation, risk management, emerging financial technologies, and the impact of economic globalization on financial systems. Students will develop a comprehensive understanding of how global banking institutions drive economic development and respond to challenges such as financial crises and regulatory changes.
Recommended Textbook
International Financial Management 11th Edition by Jeff Madura
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21 Chapters
1676 Verified Questions
1676 Flashcards
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Page 2
Chapter 1: Multinational Financial Management: An Overview
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79 Verified Questions
79 Flashcards
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Sample Questions
Q1) A product cycle is the process by which a firm provides a specialized sales or service strategy, support assistance, and possibly an initial investment in the franchise in exchange for periodic fees.
A)True
B)False
Answer: False
Q2) A decentralized management style of MNC results in relatively high agency costs.
A)True
B)False
Answer: True
Q3) A centralized management style for an MNC results in relatively high agency costs. A)True
B)False
Answer: False
Q4) A macroeconomic perspective focuses on the financial management decisions that affect the value of MNC.
A)True
B)False
Answer: False
Page 3
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Chapter 2: International Flow of Funds
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Sample Questions
Q1) Over the last several years, international trade has generally:
A) increased for most major countries.
B) decreased for most major countries.
C) stayed about constant for most major countries.
D) increased for about half the major countries and decreased for the others.
Answer: A
Q2) A U.S. purchase of patent rights from a firm in Mexico reflects a credit to the U.S. balance of payments account.
A)True
B)False
Answer: False
Q3) Intracompany trade makes up approximately ____ percent of all international trade.
A) 50
B) 70
C) 25
D) 13
E) 5
Answer: A
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Page 4
Chapter 3: International Financial Markets
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Sample Questions
Q1) Under the gold standard, each currency was convertible into gold at a specified rate, and the exchange rate between two currencies was determined by their relative convertibility rates per ounce of gold.
A)True
B)False
Answer: True
Q2) ____ is not a bank characteristic important to customers in need of foreign exchange.
A) Quote competitiveness
B) Speed of execution
C) Forecasting advice
D) Advice about current market conditions
E) All of the above are important bank characteristics to customers in need of foreign exchange.
Answer: E
Q3) The interest rate in developing countries is usually very low.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Exchange Rate Determination
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Sample Questions
Q1) The phrase "the dollar was mixed in trading" means that:
A) the dollar was strong in some periods and weak in other periods over the last month.
B) the volume of trading was very high in some periods and low in other periods.
C) the dollar was involved in some currency transactions, but not others.
D) the dollar strengthened against some currencies and weakened against others.
Q2) The exchange rates of smaller countries are very stable because the market for their currency is very liquid.
A)True
B)False
Q3) When the Japanese yen appreciates against the U.S. dollar, this means that the U.S. dollar is strengthening relative to the yen.
A)True
B)False
Q4) If one foreign currency will appreciate against the dollar, then all foreign currencies will appreciate against the dollar but by different degrees.
A)True
B)False
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6
Chapter 5: Currency Derivatives
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Sample Questions
Q1) American style options can be exercised any time up to maturity.
A)True
B)False
Q2) If you have bought a right to buy foreign currency, you are:
A) a call writer.
B) a call buyer.
C) a put writer.
D) a put buyer.
Q3) Currency options are only traded on exchanges. That is, there is no over-the-counter market for options.
A)True
B)False
Q4) The disadvantage of a long strangle relative to a long straddle is that the underlying currency has to fluctuate more prior to expiration.
A)True
B)False
Q5) Due to put-call parity, we can use the same formula to price calls and puts.
A)True
B)False
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Chapter 6: Government Influence on Exchange Rates
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Sample Questions
Q1) A strong dollar is normally expected to cause:
A) high unemployment and high inflation in the U.S.
B) high unemployment and low inflation in the U.S.
C) low unemployment and low inflation in the U.S.
D) low unemployment and high inflation in the U.S.
Q2) The currency of Country X is pegged to the currency of Country Y. Assume that Country Y's currency appreciates against the currency of Country Z. It is likely that Country X will export ____ to Country Z and import ____ from Country Z.
A) more; more
B) more; less
C) less; less
D) less; more
Q3) Under a managed float exchange rate system, the Fed may attempt to stimulate the U.S. economy by ____ the dollar. Such an adjustment in the dollar's value should ____ the U.S. demand for products produced by major foreign countries.
A) weakening; increase
B) weakening; decrease
C) strengthening; increase
D) strengthening; decrease
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Page 8
Chapter 7: International Arbitrage and Interest Rate Parity
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Sample Questions
Q1) Due to ____, market forces should realign the cross exchange rate between two foreign currencies based on the spot exchange rates of the two currencies against the U.S. dollar.
A) forward realignment arbitrage
B) triangular arbitrage
C) covered interest arbitrage
D) locational arbitrage
Q2) According to interest rate parity (IRP):
A) the forward rate differs from the spot rate by a sufficient amount to offset the inflation differential between two currencies.
B) the future spot rate differs from the current spot rate by a sufficient amount to offset the interest rate differential between two currencies.
C) the future spot rate differs from the current spot rate by a sufficient amount to offset the inflation differential between two currencies.
D) the forward rate differs from the spot rate by a sufficient amount to offset the interest rate differential between two currencies.
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Chapter 8: Relationships among Inflation, Interest Rates, and Exchange Rates
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Sample Questions
Q1) Given a home country and a foreign country, purchasing power parity (PPP) suggests that:
A) a home currency will depreciate if the current home inflation rate exceeds the current foreign interest rate.
B) a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate.
C) a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate.
D) a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.
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
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10
Chapter 9: Forecasting Exchange Rates
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Sample Questions
Q1) When a U.S.-based MNC wants to determine whether to establish a subsidiary in a foreign country, it will always accept that project if the foreign currency is expected to appreciate.
A)True
B)False
Q2) Two methods to assess exchange rate volatility are the volatility of historical exchange rate movements and the exchange rate's implied standard deviation from the currency option pricing model.
A)True
B)False
Q3) A forecasting technique based on fundamental relationships between economic variables and exchange rates, such as inflation, is referred to as technical forecasting.
A)True
B)False
Q4) Corporations tend to make only limited use of technical forecasting because it typically focuses on the near future, which is not very helpful for developing corporate policies.
A)True
B)False
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Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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Sample Questions
Q1) Magent Co. is a U.S. company that has exposure to the Swiss francs (SF) and Danish kroner (DK). It has net inflows of SF200 million and net outflows of DK500 million. The present exchange rate of the SF is about $.40 while the present exchange rate of the DK is $.10. Magent Co. has not hedged these positions. The SF and DK are highly correlated in their movements against the dollar. If the dollar weakens, then Magent Co. will:
A) benefit, because the dollar value of its SF position exceeds the dollar value of its DK position.
B) benefit, because the dollar value of its DK position exceeds the dollar value of its SF position.
C) be adversely affected, because the dollar value of its SF position exceeds the dollar value of its DK position.
D) be adversely affected, because the dollar value of its DK position exceeds the dollar value of its SF position.
Q2) The exposure of an MNC's consolidated financial statements to exchange rate fluctuations is known as transaction exposure.
A)True
B)False
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Page 12
Chapter 11: Managing Transaction Exposure
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Sample Questions
Q1) Since the results of both a money market hedge and a forward hedge are known beforehand, an MNC can implement the one that is more feasible.
A)True
B)False
Q2) To hedge a payable position with a currency option hedge, an MNC would write a call option.
A)True
B)False
Q3) Foghat Co. has 1,000,000 euros as receivables due in 30 days, and is certain that the euro will depreciate substantially over time. Assuming that the firm is correct, the ideal strategy is to:
A) sell euros forward.
B) purchase euro currency put options.
C) purchase euro currency call options.
D) purchase euros forward.
E) remain unhedged.
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) Sycamore (a U.S. firm) has no subsidiaries and presently has sales to Mexican customers amounting to MXP98 million, while its peso-denominated expenses amount to MXP41 million. If it shifts its material orders from its Mexican suppliers to U.S. suppliers, it could reduce peso-denominated expenses by MXP12 million and increase dollar-denominated expenses by $800,000. This strategy would ____ the Sycamore's exposure to changes in the peso's movements against the U.S. dollar. Regardless of whether the firm shifts expenses, it is likely to perform better when the peso is valued ____ relative to the dollar.
A) reduce; high
B) reduce; low
C) increase; low
D) increase; high
Q2) In general, it is more difficult to effectively hedge economic or translation exposure than to hedge transaction exposure.
A)True
B)False
Q3) All MNCs are subject to translation exposure.
A)True
B)False
Page 14
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Chapter 13: Direct Foreign Investment
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Sample Questions
Q1) Assume the British pound appreciates against the dollar while the Japanese yen depreciates against the dollar. Which of the following is true?
A) Japanese exporters can increase American sales by shifting operations from their British subsidiaries to Japan.
B) British exporters can increase American sales by shifting operations from their Japanese subsidiaries to Britain.
C) American exporters can increase sales to Japan by shifting operations from Japanese subsidiaries to American subsidiaries.
D) B and C
Q2) When a firm analyzes the feasibility of a project, it should consider the:
A) variability of the project's cash flow.
B) correlation of the project's cash flow relative to the prevailing cash flows of the MNC.
C) A and B
D) none of the above
Q3) Developing countries are mostly targeted because they have advanced technology.
A)True
B)False
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Chapter 14: Multinational Capital Budgeting
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Sample Questions
Q1) In capital budgeting analysis, the use of a cumulative NPV is useful for:
A) determining a probability distribution of NPVs.
B) determining the time required to achieve a positive NPV.
C) determining how the required rate of return changes over time.
D) determining how the cost of capital changes over time.
E) A and B
Q2) Blocked funds may penalize a project if the return on the forced reinvestment in the foreign country is less than the required rate of return on the project.
A)True
B)False
Q3) An international project's NPV is ____ related to the size of the initial investment and ____ related to the project's required rate of return.
A) positively; positively
B) positively; negatively
C) negatively; positively
D) negatively; negatively
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) An international acquisition may be preferable to the establishment of a new subsidiary because the firm can immediately expand its international business and benefit from existing customer relationships.
A)True
B)False
Q2) A simple method of valuing a private company is to apply the price-earnings ratios of publicly traded firms in the same industry to the private company's earnings.
A)True
B)False
Q3) The sale of a subsidiary by an MNC is referred to as a divestiture.
A)True
B)False
Q4) When an MNC assesses targets among countries, it would prefer a country where the growth potential for its industry is ____ and the competition within the industry is
A) low; not excessive
B) high; excessive
C) high; not excessive
D) low; excessive
Chapter 16: Country Risk Analysis
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Sample Questions
Q1) A macro-assessment of country risk:
A) is adjusted for the particular business of the firm involved.
B) excludes all aspects relevant to a particular firm or project.
C) A and B
D) none of the above
Q2) The Multilateral Investment Guarantee Agency can provide MNCs implementing direct foreign investment in less developed countries with:
A) insurance that covers losses on multilateral netting procedures.
B) exchange rate risk insurance.
C) political risk insurance.
D) guarantees that MNCs will receive the same taxation treatment by the host government as local firms.
E) guarantees of lines of credit provided by the World Bank if the MNC experiences liquidity problems.
Q3) Risk assessors almost always arrive at the same opinion after completing a macro-assessment of country risk.
A)True
B)False
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18
Chapter 17: Multinational Cost of Capital and Capital Structure
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Sample Questions
Q1) It is always advantageous to use foreign debt to finance a foreign project, particularly in developing countries.
A)True
B)False
Q2) The capital asset pricing model suggests that the required return on a firm's stock is a positive function of:
A) the risk-free rate of interest.
B) the market rate of return.
C) the stock's beta.
D) all of the above
Q3) In general, an MNC's size, its access to international capital markets, and international diversification are unfavorable to an MNC's cost of capital.
A)True
B)False
Q4) The term "global capital structure" is used in the text to represent the:
A) average capital structure of all MNCs across countries.
B) average capital structure of all domestic firms across countries.
C) capital structure of a subsidiary of a particular MNC.
D) capital structure of a particular MNC overall (including all subsidiaries).
Page 19
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Chapter 18: Long-Term Debt Financing
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Q1) U.S.-based MNCs whose foreign subsidiary generates large earnings may be able to offset exposure to exchange rate risk by issuing bonds denominated in the subsidiary's local currency.
A)True
B)False
Q2) Fixed-rate loans have interest rates that are fixed for each year but adjust at the end of each year in response to prevailing interest rates.
A)True
B)False
Q3) Lantana Co. conducts pays for many imports denominated in Canadian dollars. It is a major exporter to France, and invoices the exports in euros. It also has much business in U.S. dollars. It has no other international business and does not hedge its transactions. It is about to obtain a small loan. It could reduce its exchange rate risk if its loan is denominated in:
A) U.S. dollars.
B) euros.
C) Canadian dollars
D) none of the above
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Chapter 19: Financing International Trade
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Sample Questions
Q1) The ____ was established in 1934 with the intention to facilitate Soviet-American trade.
A) Domestic International Sales Corporation (DISC)
B) Private Export Funding Corporation (PEFCO)
C) Export-Import Bank
D) Foreign Credit Insurance Association (FCIA)
Q2) Under a letter of credit, the exporter will not ship the goods until the buyer has remitted payment to the exporter.
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) The Overseas Private Investment Corporation (OPIC) is owned by a consortium of commercial banks and industrial companies; it cooperates closely with the Export-Import Bank.
A)True B)False
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Chapter 20: Short-Term Financing
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Sample Questions
Q1) The interest rate of euronotes is based on the T-bill rate.
A)True
B)False
Q2) If interest rate parity exists, financing with a foreign currency may still be feasible, but it would have to be conducted on an uncovered basis (i.e., without use of a forward hedge).
A)True
B)False
Q3) Assume Jelly Corporation, a U.S.-based MNC, obtains a one-year loan of 1,500,000 Malaysian ringgit (MYR) at a nominal interest rate of 7%. At the time the loan is extended, the spot rate of the ringgit is $.25. If the spot rate of the ringgit in one year is $.28, the dollar amount initially obtained from the loan is $____, and $____ are needed to repay the loan.
A)375,000; 449,400
B)449,400; 375,000
C)6,000,000; 5,357,143
D)5,357,143; 6,000,000
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Page 22
Chapter 21: International Cash Management
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Sample Questions
Q1) If interest rate parity does not hold, and the forward ____ is greater than the interest rate differential, then covered interest arbitrage is feasible for investors residing in the ____ country.
A) premium; home
B) discount; home
C) premium; foreign
D) B and C
Q2) Refer to Exhibit 21-2. What is the expected effective yield of the portfolio contemplated by Moore Corporation?
A) 2.50%.
B) 2.60%.
C) 2.40%.
D) none of the above
Q3) In general, exchange rate fluctuations cause cash flows to be more volatile and uncertain.
A)True
B)False
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Page 23