Global Business Finance
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Course Introduction
Global Business Finance explores the financial principles and practices essential for operating in the international business environment. The course covers topics such as foreign exchange markets, international financial instruments, cross-border investment analysis, and risk management techniques relevant to multinational corporations. Emphasis is placed on understanding the impact of global economic trends, international regulatory frameworks, and political risks on financial decision-making. Students will analyze case studies to develop practical skills in financial planning, capital budgeting, and strategic management within a global context.
Recommended Textbook
Multinational Business Finance 15th Edition by David K. Eiteman
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18 Chapters
1227 Verified Questions
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Page 2
Chapter 1: Multinational Financial Management: Opportunities and Challenges
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Sample Questions
Q1) Today it is widely assumed that there are NO LIMITS to financial globalization.
A)True
B)False Answer: False
Q2) Comparative advantage is one of the underlying principles driving the growth of global business.
A)True
B)False Answer: True
Q3) Large international firms are better able to exploit product differentiation than are their local competitors.
A)True
B)False Answer: True
Q4) A eurodollar deposit is a demand deposit.
A)True
B)False Answer: False
Page 3
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Chapter 2: The International Monetary System
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Sample Questions
Q1) From the time of its creation through September 2017, the euro peaked versus the USD in April 2008 at around $1.60/ .
A)True
B)False
Answer: True
Q2) All exchange rate regimes must deal with the trade-off between rules and discretion as well as between cooperation and independence.
A)True
B)False
Answer: True
Q3) Since March 1973, when exchange rates become more volatile and less predictable than during the "fixed" exchange rate period, the nominal exchange rate index of the U.S. dollar peaked in 2011.
A)True
B)False
Answer: False
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Chapter 3: The Balance of Payments
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Sample Questions
Q1) Which of the following is NOT a part of the Current Account of BOP?
A) net export/import of goods
B) balance of trade
C) net portfolio investment
D) net export/import of services
Answer: C
Q2) In 2016 the United States posted a current account deficit. The bulk of the negative value came from:
A) a net transfer deficit.
B) an income balance deficit.
C) a goods trade deficit.
D) an income trade deficit.
Answer: C
Q3) Which of the following is NOT part of the Financial Account of the BOP?
A) net foreign direct investment
B) net import/export of services
C) net portfolio investment
D) other Financial items
Answer: B
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Page 5
Chapter 4: Financial Goals and Corporate Governance
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Sample Questions
Q1) One of the most challenging issues in the financial management of the enterprise is the possible separation of ownership from management resulting in the so-called principal agent problem. Define the agency problem, explain possible ways to alleviate the agency problem and discuss differences in across global markets.
Q2) Which of the following is generally NOT considered to be a viable operational goal for a firm?
A) maintaining a strong local currency
B) maximization of after-tax income
C) minimization of the firm's effective global tax burden
D) correct positioning of the firm's income, cash flows and available funds as to country and currency
Q3) Generally speaking, which of the following is NOT considered an important factor in the composition and control of corporate boards of directors?
A) the number of insider vs. outside directors
B) the total number of directors on the board
C) the composition of the compensation committee
D) All of the above are important factors of board composition.
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Chapter 5: The Foreign Exchange Market
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Sample Questions
Q1) Dealers in foreign exchange departments at large international banks act as market makers and maintain inventories of the securities in which they specialize.
A)True
B)False
Q2) Which of the following may be participants in the foreign exchange markets?
A) bank and nonbank foreign exchange dealers
B) central banks and treasuries
C) speculators and arbitrageurs
D) all of the above
Q3) When the cross rate for currencies offered by two banks differs from the exchange rate offered by a third bank, a triangular arbitrage opportunity exists.
A)True
B)False
Q4) The foreign exchange market provides the physical and institutional structure through which three typical functions are accomplish. List and explain three functions of the foreign exchange market.
Q5) 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 6: International Parity Conditions
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Sample Questions
Q1) The premium or discount on forward currency exchange rates between any two countries is visually obvious when you plot the interest rates of each country on the same yield curve. The currency of the country with the higher yield curve should be selling at a forward discount.
A)True
B)False
Q2) Two general conclusions can be made from the empirical tests of purchasing power parity (PPP):
A) PPP holds up well over the short run but poorly for the long run, and the theory holds better for countries with relatively low rates of inflation.
B) PPP holds up well over the short run but poorly for the long run, and the theory holds better for countries with relatively high rates of inflation.
C) PPP holds up well over the long run but poorly for the short run, and the theory holds better for countries with relatively low rates of inflation.
D) PPP holds up well over the long run but poorly for the short run, and the theory holds better for countries with relatively high rates of inflation.
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Chapter 7: Foreign Currency Derivatives: Futures and Options
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Sample Questions
Q1) Jasper Pernik is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Jasper thinks the yen will move to ¥128.00/$ in the next six months. If Jasper buys $100,000 worth of yen at today's spot price her potential gain is ________ and her potential loss is ________.
A) $100,000; unlimited
B) unlimited; unlimited
C) $100,000; $100,000
D) unlimited; $100,000
Q2) As an option moves further out-of-the-money, delta moves toward ________.
A) 1
B) 0
C) -1
D) large negative numbers
Q3) Standard foreign currency options are priced around the forward rate.
A)True
B)False
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) Refer to Instruction 8.1. Choosing strategy #1 will:
A) guarantee the lowest average annual rate over the next three years.
B) eliminate credit risk but retain repricing risk.
C) maintain the possibility of lower interest costs, but maximizes the combined credit and repricing risks.
D) preclude the possibility of sharing in lower interest rates over the three-year period.
Q2) If a financial manager earning interest on a future date were to buy Futures and interest rates end up going up, the position outcome would be:
A) Futures price falls; short earns a profit.
B) Futures price rises; short earns a loss.
C) Future price falls; long earns a loss.
D) Futures price rises; long earns a profit.
Q3) The interest rate swap strategy of a firm with fixed rate debt and that expects rates to go up is to:
A) do nothing.
B) pay floating and receive fixed.
C) receive floating and pay fixed.
D) none of the above
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Chapter 9: Foreign Exchange Rate Determination and Intervention
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Sample Questions
Q1) By 2001, crisis conditions had revealed three very important underlying problems Argentina's economy EXCEPT:
A) The Argentine peso was overvalued.
B) The currency board regime had eliminated monetary policy alternatives for macroeconomic policy.
C) The printing of paper money without restrictions, resulting in hyperinflation.
D) The Argentina government budget deficit was out of control - government spending continued to increased but tax receipts did not.
Q2) Leading up to the Russian currency collapse of 1998, Russia followed a currency policy of managed float that allowed their currency to slide daily at a 1.5% per month rate.
A)True B)False
Q3) The asset market approach to forecasting is not applicable to emerging markets. A)True B)False
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11
Chapter 10: Transaction Exposure
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Sample Questions
Q1) A hedge constructed using a put foreign currency option would protect you against value losses, but allow, at the same time, the possibly reap value increases in the event the exchange rate moved in your favor.
A)True
B)False
Q2) Refer to Instruction 10.1. If CVT chooses NOT to hedge their euro payable, the amount they pay in six months will be:
A) $3,500,000.
B) $3,900,000.
C) 3,000,000.
D) unknown today
Q3) Management often conducts hedging activities that benefit management at the expense of the shareholders. The field of finance called agency theory frequently argues that management is generally LESS risk averse than are shareholders.
A)True
B)False
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Chapter 11: Translation Exposure
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Sample Questions
Q1) It is highly unusual for a multinational firm to have both integrated foreign entities AND self-sustaining foreign entities.
A)True
B)False
Q2) Translation gains or losses can be quite different from operating gains or losses not only in magnitude but also in sign.
A)True
B)False
Q3) Translation exposure measures:
A) changes in the value of outstanding financial obligations incurred prior to a change in exchange rates.
B) the potential for an increase or decrease in the parent company's net worth and reported net income caused by a change in exchange rates since the last consolidation of international operations.
C) an unexpected change in exchange rates impact on short run expected cash flows. D) none of the above
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Chapter 12: Operating Exposure
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Sample Questions
Q1) The variability of a firm's operating cash flows is probably reduced by international diversification of its production, sourcing, and sales because exchange rate changes under disequilibrium conditions are likely to increase the firm's competitiveness in some markets while reducing it in others.
A)True
B)False
Q2) After being introduced in the 1980s, currency swaps have remained a relatively insignificant financial derivative instrument.
A)True
B)False
Q3) Which of the following is probably NOT an advantage of foreign exchange risk management?
A) the reduction of the variability of cash flows due to domestic business cycles
B) increased availability of capital
C) reduced cost of capital
D) All of the above are potential advantages of foreign exchange risk management.
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Chapter 13: Global Cost and Availability of Capital
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Sample Questions
Q1) Systematic risk:
A) is the standard deviation of a security's return.
B) is measured with beta.
C) is measured with standard deviation.
D) none of the above
Q2) Empirical studies indicate that WACC for an MNE is higher than for their domestic competitors. Reasons cited for this increased cost include all of the following EXCEPT:
A) agency costs.
B) foreign exchange risk.
C) political risk.
D) All of the above are cited as reasons for an MNE's increased WACC.
Q3) ________ risk is a function of the variability of expected returns of the firm's stock relative to the market index and the measure of correlation between the expected returns of the firm and the market.
A) Systematic
B) Unsystematic
C) Total
D) Diversifiable
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15
Chapter 14: Funding the Multinational Firm
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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) SEC rule 144A permits institutional buyers to trade privately placed securities without the previous holding periods restrictions and without requiring SEC registration.
A)True
B)False
Q3) MNEs situated in countries with small illiquid and segmented markets are most like:
A) small domestic U.S. firms in that they must rely on internally generated funds and bank borrowing.
B) large U.S. MNEs in that they are all MNEs and have worldwide markets and sources of financing.
C) small domestic U.S. firms in that they have a strong niche market in the U.S.
D) None of the above is true.
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Chapter 15: Multinational Tax Management
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Sample Questions
Q1) Refer to Instruction 15.2. If the U.S. treated the taxes paid on income earned in the host country as a tax-credit, then Green Valley's total U.S. corporate tax on the foreign earnings would be:
A) $51,250.
B) $35,000.
C) $26,250.
D) $10,000.
Q2) A tax that is a form of social redistribution of income is defined as a/an ________ tax.
A) un-American
B) transfer
C) flat
D) none of the above
Q3) The 80% rule added in the American Jobs Creation Act (AJCA) of 2004 makes less likely that the former parent company would continue to be treated as domestic.
A)True
B)False
Q4) Why is it core to Google's tax planning to fix a tax base (also known as permanent establishment) in Ireland?
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Chapter 16: International Trade Finance
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Sample Questions
Q1) Which of the following is NOT true about forfaiting?
A) The exporter is responsible for the quality of delivered goods.
B) Exporter receives an unconditional cash payment at the time of the transaction.
C) The exporter sells bank-guaranteed promissory notes at its face value.
D) The political and commercial risk is carried by the guaranteeing bank.
Q2) What is a banker's acceptance? How are they initiated? Why are they desirable for the exporter?
Q3) The risk of default on the part of the importer-risk of noncompletion-is present as soon as:
A) a price quote is given.
B) goods are received.
C) the export contract is signed.
D) the financing period begins.
Q4) One way a nation can improve its exports is by shortening the period for which credit transactions can be insured.
A)True
B)False
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Chapter 17: Foreign Direct Investment and Political Risk
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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) Which of the following is NOT an example of a country-specific risk?
A) transfer risk
B) war and ethnic strife
C) cultural and religious heritage
D) All of the above are examples of country-specific risk.
Q3) The O in OLI refers to an advantage in a firm's home market that is:
A) operator independent.
B) owner-specific.
C) open-market.
D) official designation.
Q4) Proactive financial strategies depend on discovering market imperfections.
A)True
B)False
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Chapter 18: Multinational Capital Budgeting and Cross-Border Acquisitions
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Q1) For purposes of international capital budgeting, parent cash flows often depend on the form of financing. Thus, we cannot clearly separate cash flows from financing decisions, as we can in domestic capital budgeting.
A)True
B)False
Q2) The predictability of the project's revenue stream is essential in securing project financing. Which of the following is NOT a typical contract provisions that are intended to assure adequate cash flow?
A) quantity and quality of the project's output
B) a pricing formula
C) circumstances that permit changes in the contract
D) fronting loan
Q3) It is important that firms adopt a common standard for the capital budgeting process for choosing among foreign and domestic projects.
A)True B)False
Q4) Debt is usually a large component of project financing.
A)True
B)False
20
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