Global Banking and Finance Review
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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 and financial companies facilitate international trade, manage risk, and provide investment and funding solutions across borders. Students will analyze topics such as monetary systems, foreign exchange, international regulatory frameworks, global financial crises, and the evolving roles of central banks and multinational financial institutions. By integrating theoretical concepts with real-world case studies, the course prepares students to understand and navigate the complexities of global financial environments.
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
Source URL: https://quizplus.com/quiz/8247
Sample Questions
Q1) Institutional investors such as mutual funds or pension funds which have large holdings of an MNC's stock do not normally want to take control of it and therefore have no influence over management of the MNC.
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) One of the most prevalent factors conflicting with the realization of the goal of an MNC is the existence of agency problems.
A)True
B)False
Answer: True
Q4) International trade is the most common form of direct foreign investment (DFI).
A)True
B)False
Answer: False
Page 3
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Chapter 2: International Flow of Funds
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75 Verified Questions
75 Flashcards
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Sample Questions
Q1) Recently, the U.S. experienced an annual balance of trade representing a ____.
A) large surplus (exceeding $100 billion)
B) small surplus
C) level of zero
D) deficit
Answer: D
Q2) A tariff is a maximum limit on imports.
A)True
B)False
Answer: False
Q3) An increase in the use of quotas is expected to:
A) reduce the country's current account balance, if other governments do not retaliate.
B) increase the country's current account balance, if other governments do not retaliate.
C) have no impact on the country's current account balance unless other governments retaliate.
D) increase the volume of a country's trade with other countries.
Answer: B
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4
Chapter 3: International Financial Markets
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) The strike price is also known as the premium price.
A)True
B)False
Answer: False
Q2) International money market transactions normally represent:
A) the equivalent of $1 million or more.
B) the equivalent of $1,000 to $10,000.
C) the equivalent of between $10,000 and $100,000.
D) the equivalent of between $100,000 and $200,000.
Answer: A
Q3) In response to the Sarbanes-Oxley Act, the reporting costs were reduced, and many non-U.S. firms that issued new shares of stock decided to place their stock in the United States.
A)True
B)False
Answer: False
Q4) The strike price on a currency option is also known as an exercise price.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Exchange Rate Determination
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74 Flashcards
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Sample Questions
Q1) ____ is not a factor that causes currency supply and demand schedules to change.
A) Relative inflation rates
B) Relative interest rates
C) Relative income levels
D) Expectations
E) All of the above are factors that cause currency supply and demand schedules to change.
Q2) If inflation in New Zealand suddenly increased while U.S. inflation stayed the same, there would be:
A) an inward shift in the demand schedule for NZ$ 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$.
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6
Chapter 5: Currency Derivatives
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Sample Questions
Q1) If the forward rate for a currency is less than the spot rate for that currency, the forward rate is said to exhibit a premium.
A)True
B)False
Q2) 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
Q3) It is possible to have an opportunity loss when using futures to hedge.
A)True
B)False
Q4) The one-year forward rate of the British pound is quoted at $1.60, and the spot rate of the British pound is quoted at $1.63. The forward ____ is ____ percent.
A) discount; 1.9
B) discount; 1.8
C) premium; 1.9
D) premium; 1.8
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Chapter 6: Government Influence on Exchange Rates
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117 Verified Questions
117 Flashcards
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Sample Questions
Q1) It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S. government would like to reduce inflation. Which of the following is an appropriate action given this scenario?
A) Sell dollars for foreign currency
B) Buy dollars with foreign currency
C) Lower interest rates
D) None of the above
Q2) An advantage of a fixed exchange rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries.
A)True
B)False
Q3) Direct intervention is usually more effective than indirect intervention.
A)True
B)False
Q4) China is commonly criticized for keeping the yuan's value at superficially high levels. A)True
B)False
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Chapter 7: International Arbitrage and Interest Rate Parity
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97 Verified Questions
97 Flashcards
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Sample Questions
Q1) Which of the following might discourage covered interest arbitrage even if interest rate parity does not exist?
A) transaction costs.
B) political risk.
C) differential tax laws.
D) all of the above.
Q2) 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
Q3) If interest rate parity exists, then ____ is not feasible.
A) forward realignment arbitrage
B) triangular arbitrage
C) covered interest arbitrage
D) locational arbitrage
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9
Chapter 8: Relationships among Inflation, Interest Rates, and Exchange Rates
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62 Flashcards
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Sample Questions
Q1) Assume that inflation in the U.S. is expected to be 9%, while inflation in Australia is expected to be 5% over the next year. Today you receive an offer to purchase a one-year put option for $.03 per unit on Australian dollars at a strike price of $0.72. Today the Australian dollar is quoted at $0.70. You believe that purchasing power parity holds. You should accept the offer.
A)True
B)False
Q2) Which of the following theories suggests that the percentage change in spot exchange rate of a currency should be equal to the inflation differential between two countries?
A) purchasing power parity (PPP).
B) triangular arbitrage.
C) international Fisher effect (IFE).
D) interest rate parity (IRP).
Q3) The international Fisher effect (IFE) suggests that the currencies with relatively high interest rates will appreciate because those high rates will attract investment and increase the demand for that currency.
A)True
B)False
Page 10
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Chapter 9: Forecasting Exchange Rates
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Sample Questions
Q1) If a foreign country's interest rate is similar to the U.S. rate, the forward rate premium or discount will be ____, meaning that the forward rate and spot rate will provide ____ forecasts.
A) substantial; similar
B) substantial; very different
C) close to zero; similar
D) close to zero; very different
Q2) Research indicates that currency forecasting services almost always outperform forecasts based on the forward rate.
A)True
B)False
Q3) Which of the following is true?
A) Forecast errors cannot be negative.
B) Forecast errors are negative when the forecasted rate exceeds the realized rate.
C) Absolute forecast errors are negative when the forecasted rate exceeds the realized rate.
D) None of the above.
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Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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Sample Questions
Q1) Firms with more foreign costs than foreign revenues will generally be favorably affected by a stronger foreign currency.
A)True
B)False
Q2) The exposure of an MNC's consolidated financial statements to exchange rate fluctuations is known as transaction exposure.
A)True
B)False
Q3) The VAR method assumes that the volatility (standard deviation) of exchange rate movements changes over time.
A)True
B)False
Q4) Which of the following is not a form of exposure to exchange rate fluctuations?
A) transaction exposure.
B) credit exposure.
C) economic exposure.
D) translation exposure.
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Chapter 11: Managing Transaction Exposure
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Sample Questions
Q1) Hanson Corp. frequently uses a forward hedge to hedge its British pound (£) payables. For the next quarter, Hanson has identified its net exposure to the pound as being £1,000,000. The 90-day forward rate is $1.50. Furthermore, Hanson's financial center has indicated that the possible values of the British pound at the end of next quarter are $1.57 and $1.59, with probabilities of .50 and .50, respectively. Based on this information, what is the expected real cost of hedging payables?
A) $80,000.
B) -$80,000.
C) $1,570,000.
D) $1,580,000.
Q2) An example of cross-hedging is:
A) find two currencies that are highly positively correlated; match the payables of the one currency to the receivables of the other currency.
B) use the forward market to sell forward whatever currencies you will receive. C) use the forward market to buy forward whatever currencies you will receive.
D) B and C
Q3) Most MNCs can completely hedge all of their transactions.
A)True
B)False
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Page 13
Chapter 12: Managing Economic Exposure and Translation Exposure
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64 Flashcards
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Sample Questions
Q1) An MNC is attempting to reduce its economic exposure by financing a portion of its business with loans in the foreign currency. If the foreign currency weakens, the MNC will need ____ of the foreign currency to cover the loan payment, while the MNC's foreign currency revenues will convert to ____ dollars.
A) more; fewer
B) more; more C) less; fewer D) less; more
Q2) An MNC expects to sell fixed assets it utilizes in Europe in the distant future. In order to hedge the sale of these assets in the distant future, the MNC could create a(n) ____ that ____ the expected value of the assets in the future.
A) asset; matches
B) asset; exceeds C) liability; matches
D) liability; is less than
Q3) All MNCs are subject to transaction exposure.
A)True
B)False
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Chapter 13: Direct Foreign Investment
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62 Verified Questions
62 Flashcards
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Sample Questions
Q1) Based on the text, it should be obvious that markets are ____ in reality, and consequently, monopolistic advantages ____ be exploited.
A) perfect; may possibly B) perfect; cannot
C) imperfect; may possibly D) imperfect; cannot
Q2) They key to international diversification is selecting foreign projects whose performance levels are highly correlated over time.
A)True
B)False
Q3) Some governments restrict foreign ownership of local firms. Such restrictions may limit or prevent international acquisitions.
A)True
B)False
Q4) Along the frontier of efficient project portfolios, exactly one portfolio can be singled out as "optimal" for all MNCs.
A)True
B)False
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Page 15
Chapter 14: Multinational Capital Budgeting
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64 Flashcards
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Sample Questions
Q1) A U.S.-based MNC has just established a subsidiary in Algeria. Shortly after the plant was built, the MNC determines that its exchange rate forecasts, which had previously indicated a slight appreciation in the Algerian dinar, were probably false. Instead of a slight appreciation, the MNC now expects that the dinar will depreciate substantially due to political turmoil in Algeria. This new development would likely cause the MNC to ____ its estimate of the previously computed net present value.
A) lower
B) increase
C) lower, but not necessarily if the MNC invests enough in Algeria to offset the decrease in NPV
D) increase, but not necessarily if the MNC reduces its investment in Algeria by an offsetting amount
E) none of the above
Q2) The greater the uncertainty about a project's forecasted cash flows, the larger should be the discount rate applied to cash flows, other things being equal.
A)True
B)False
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Chapter 15: International Corporate Governance and Control
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74 Verified Questions
74 Flashcards
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Sample Questions
Q1) Because of errors in cash flow or exchange rate estimates, the estimated net present value of acquiring a foreign target could be underestimated.
A)True
B)False
Q2) Which of the following is not directly considered in the decision by a U.S.-based MNC to divest a subsidiary?
A) the required rate of return on the subsidiary.
B) forecasted exchange rates of the subsidiary's currency relative to the dollar.
C) the initial outlay on the project.
D) the possible selling price of the project.
Q3) Potential targets in countries where economic conditions are ____ are more likely to experience strong demand for their products in the future and may generate ____ cash flows.
A) strong; lower
B) weak; higher
C) weak; lower
D) strong; higher
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Page 17
Chapter 16: Country Risk Analysis
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57 Verified Questions
57 Flashcards
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Sample Questions
Q1) Which of the following is not a strategy that could be used by an MNC to reduce its exposure to a host government takeover?
A) Attempt to recover cash flows from a foreign investment as quickly as possible
B) Rely on unique supplies and/or technology
C) Hire local labor
D) Borrow local funds
E) All of the above are strategies to reduce an MNC's exposure to a host government takeover.
Q2) Eurenasia is a country that has frequently been assigned low macro-assessment ratings of country risk in the recent past due to its tendency to war with neighboring nations. MNC A is considering the establishment of a subsidiary to manufacture personal computers, while MNC B is considering the establishment of a subsidiary to manufacture tanks. Which of the two MNCs is likely to be less affected by the low macro-assessment?
A) MNC A.
B) MNC B.
C) both will be equally affected, since the macro-assessment does not vary.
D) none of the above
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Page 18
Chapter 17: Multinational Cost of Capital and Capital Structure
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Sample Questions
Q1) In general, MNCs probably prefer to use ____ foreign debt when their foreign subsidiaries are subject to potentially ____ local currencies.
A) more; strong
B) more; weak
C) less; strong
D) less; weak
E) B and D
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) ____ are beneficial because they may reduce transaction costs. However, MNCs may not be able to obtain all the funds that they need.
A) Private placements
B) Domestic equity offerings
C) Global equity offerings
D) Global debt offerings
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Chapter 18: Long-Term Debt Financing
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Sample Questions
Q1) A U.S. firm has a Canadian subsidiary that remits a large amount of its earnings to the parent on an annual basis. It also imports supplies from China, invoiced in Chinese yuan. The firm has no other foreign business, and needs a small loan. The firm could best reduce its exposure to exchange rate risk by borrowing:
A) U.S. dollars.
B) Canadian dollars.
C) Chinese yuan.
D) a combination of Canadian dollars and Chinese yuan.
Q2) In a(n) ____ swap, the notional value is reduced over time.
A) accretion
B) amortizing
C) forward
D) zero-coupon
E) putable
Q3) A limitation of interest rate swaps is that there is a risk to each swap participant that the counterparticipant could default on his payments.
A)True
B)False
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20
Chapter 19: Financing International Trade
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Sample Questions
Q1) When using factoring to finance international trade, a bank will provide a loan to the exporter secured by an assignment of the account receivable.
A)True
B)False
Q2) Which of the following is not true regarding letters of credit?
A) They are issued by banks on behalf of the importer promising to pay the exporter.
B) A revocable letter of credit can be cancelled or revoked at any time without prior notification to the beneficiary.
C) They guarantee that the goods shipped are the goods purchased.
D) All of the above are true.
Q3) Which of the following payment terms provides the supplier with the greatest degree of protection?
A) letters of credit.
B) consignment.
C) prepayment.
D) drafts (sight/time).
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21
Chapter 20: Short-Term Financing
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Sample Questions
Q1) A negative effective financing rate indicates that an MNC:
A) paid only a small amount in interested over and above the amount borrowed.
B) has been negatively affected by a large appreciation of the foreign currency.
C) actually paid fewer dollars to repay the loan than it borrowed.
D) would have been better off borrowing in the U.S.
Q2) If interest rate parity exists and transactions costs are zero, foreign financing with a simultaneous forward purchase of the currency borrowed will result in an effective financing rate that is:
A) less than the domestic interest rate.
B) greater than the domestic interest rate.
C) equal to the domestic interest rate.
D) greater than the domestic interest rate if the forward rate exhibits a premium and less than the domestic interest rate if the forward rate exhibits a discount.
Q3) Firms that believe the forward rate is an unbiased predictor of the future spot rate will prefer borrowing the foreign currency.
A)True
B)False
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Chapter 21: International Cash Management
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Sample Questions
Q1) Lockboxes are post office box numbers assigned to employees for picking up their paychecks.
A)True
B)False
Q2) Assume that you forecast the value of the euro as follows for the next year: \(\begin{array}{cccc}
\underline {\text { Percentage Change} }&\underline{ \text { Probability of Occurrence }} \\
\text {-2\% } &30\%\\
\text { 3\% } &40\%\\
\text { 5\% } &30\%\\ \end{array}\)
If the interest rate on the euro is 12%, the expected effective yield from a euro-denominated deposit is:
A) 15.36%.
B) 15.70%.
C) 12.00%.
D) 14.35%.
E) none of the above
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Page 23