Global Business Strategies
Chapter Exam Questions
Course Introduction
Global Business Strategies examines the frameworks, tools, and analytical approaches required to develop and implement effective strategies in the international business environment. The course explores the complexities of operating across borders, including cultural, political, economic, and legal factors that influence global market entry, competitive positioning, and organizational structure. Students will learn how multinational corporations formulate and execute strategies to achieve sustainable competitive advantage, manage global supply chains, adapt to diverse markets, assess cross-border risks, and leverage global trends and innovations. Real-world case studies equip students with practical skills for identifying opportunities and navigating challenges in the dynamic landscape of global business.
Recommended Textbook
International Financial Management 13th Edition by Jeff Madura
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Page 2
Chapter 1: Multinational Financial Management: An Overview
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Q1) Which of the following is not one of the more common methods used by MNCs to improve their internal control process?
A)establishing a centralized database of information
B)ensuring that all data are reported consistently among subsidiaries
C)speeding the process by which all departments and all subsidiaries have access to the data that they need
D)making executives more accountable for financial statements by personally verifying their accuracy
E)All of the above are common methods used by MNCs to improve their internal control process
Answer: A
Q2) If managers of foreign subsidiaries make decisions that maximize the values of their respective subsidiaries, they automatically maximize the value of the entire corporation.
A)True
B)False
Answer: False
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Chapter 2: International Flow of Funds
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Q1) Portfolio investment represents transactions involving long-term financial assets (such as stocks and bonds) between countries that do not affect the transfer of control.
A)True
B)False
Answer: True
Q2) Also known as the "central banks' central bank," the ____ attempts to facilitate cooperation among countries with regard to international transactions.
A)World Bank
B)International Finance Corporation (IFC)
C)World Trade Organization
D)International Development Association (IDA)
E)Bank for International Settlements (BIS)
Answer: E
Q3) A balance-of-trade surplus indicates an excess of merchandise imports over merchandise exports.
A)True
B)False
Answer: False
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4
Chapter 3: International Financial Markets
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Q1) At any given point in time, a bank's bid quote will be greater than its ask quote.
A)True
B)False Answer: False
Q2) Eurobonds are certificates representing bundles of stock.
A)True
B)False Answer: False
Q3) Which of the following is not true regarding electronic communications networks (ECNs)?
A)They have a visible trading floor.
B)Trades are executed by a computer network.
C)They have been created in many countries to match orders between buyers and sellers.
D)They allow investors to place orders on their computers.
E)All of the above are true.
Answer: A
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Page 5
Chapter 4: Exchange Rate Determination
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Q1) Investors from Germany, the United States, and the United Kingdom frequently invest in each other's currencies based on prevailing interest rates. If British interest rates increase, German investors are likely to buy ____ dollar-denominated securities, and the euro is likely to ____ relative to the dollar.
A)fewer; depreciate B)fewer; appreciate C)more; depreciate
D)more; appreciate
Q2) ____ are 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.
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6
Chapter 5: Currency Derivatives
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Q1) An advantage of a short straddle is that it provides the option writer with income from two separate sources.
A)True
B)False
Q2) A put option on British pounds has a strike (exercise) price of $1.48. The present exchange rate is $1.55. This put option can be referred to as:
A)in the money.
B)out of the money.
C)at the money.
D)at a discount.
Q3) The ____ the existing spot price relative to the strike price, the ____ valuable the put options will be.
A)higher; less
B)higher; more
C)lower; less
D)lower; more
Q4) There are no transactions costs associated with trading futures or options.
A)True
B)False
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Chapter 6: Government Influence on Exchange Rates
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Q1) 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
Q2) The Smithsonian Agreement called for a devaluation of the U.S. dollar by about ____ percent.
A)2.25
B)6
C)10
D)8
Q3) Countries that have adopted the euro must agree on a single ____ policy.
A)monetary
B)fiscal
C)worker compensation
D)foreign relations
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8
Chapter 7: International Arbitrage and Interest Rate Parity
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Q1) The yield curve for the United States normally has an upward slope, meaning that the annualized interest rate is higher for longer terms to maturity
A)True
B)False
Q2) In which case will locational arbitrage most likely be feasible?
A)One bank's ask price for a currency is greater than another bank's bid price for the currency.
B)One bank's bid price for a currency is greater than another bank's ask price for the currency.
C)One bank's ask price for a currency is less than another bank's ask price for the currency.
D)One bank's bid price for a currency is less than another bank's bid price for the currency.
Q3) If interest rate parity (IRP) exists, then triangular arbitrage will not be possible.
A)True
B)False
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Chapter 8: Relationships among Inflation, Interest Rates, and Exchange Rates
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Q1) Assume that the U.S. inflation rate is higher than the New Zealand inflation rate. This will cause U.S. consumers to ____ their imports from New Zealand and New Zealand consumers to ____ their imports from the United States. According to purchasing power parity (PPP), this will result in a(n) ____ of the New Zealand dollar (NZ$).
A)reduce; increase; appreciation
B)increase; reduce; appreciation. C)reduce; increase; depreciation, D)reduce; increase; appreciation.,
Q2) Assume that the U.S. one-year interest rate is 5 percent and the one-year interest rate on euros is 8 percent. You have $100,000 to invest and you believe that the international Fisher effect (IFE) holds. The euro's spot exchange rate is $1.40. What will be the yield on your investment if you invest in euros?
A)8 percent
B)5 percent
C)3 percent
D)2.78 percent
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Page 10
Chapter 9: Forecasting Exchange Rates
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Q1) Fundamental models examine moving averages over time and thus allow the development of a forecasting rule.
A)True
B)False
Q2) 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.
Q3) In market-based forecasting, a forward rate quoted for a specific date in the future can be used as the forecasted spot rate on that future date.
A)True
B)False
Q4) If graphical points lie above the perfect forecast line, then the forecast overestimated the future value.
A)True
B)False
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11
Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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Q1) In general, a firm that concentrates on local sales, has very little foreign competition, and obtains foreign supplies (denominated in foreign currencies) will likely ____ a(n) ____ local currency.
A)be hurt by; appreciated B)benefit from; depreciated C)be hurt by; depreciated D)none of the above
Q2) Because creditors may prefer that firms maintain low exposure to exchange rate risk, and because investors may prefer corporations to perform hedging for them, exchange rate risk is probably relevant.
A)True
B)False
Q3) An MNC can avoid translation exposure if its foreign subsidiaries do not remit their earnings to the parent.
A)True
B)False
Q4) Purely domestic firms are never affected by economic exposure.
A)True
B)False
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Chapter 11: Managing Transaction Exposure
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Q1) Your company will receive C$600,000 in 90 days. The 90-day forward rate in the Canadian dollar is $.80. If you use a forward hedge, you will:
A)receive $750,000 today.
B)receive $750,000 in 90 days.
C)pay $750,000 in 90 days.
D)receive $480,000 today.
E)receive $480,000 in 90 days.
Q2) If interest rate parity exists, and transaction costs do not exist, the money market hedge will yield the same result as the ____ hedge.
A)put option
B)forward
C)call option
D)none of the above
Q3) 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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Q1) To reduce economic exposure when a foreign currency has a greater impact on cash inflows than on cash outflows, an MNC could reduce its level of foreign sales, increase its foreign supply orders, or restructure debt to increase debt payments in the foreign currency.
A)True
B)False
Q2) Assume that Atlanta Co. is producing motorcycles and selling them to U.S. customers. Atlanta Co. obtains all of its supplies from American firms and has no competition in the United States. It has one major competitor in Japan. Now assume that Phoenix Co. is producing office furniture and obtains its supplies from a Canadian firm. Based on this information, Atlanta Co. has ____ exposure and Phoenix Co. has ____ exposure.
A)transaction; translation
B)translation; transaction
C)economic; transaction
D)economic; translation
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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Q1) When a foreign currency is perceived by an MNC to be undervalued, the MNC may consider direct foreign investment in that country, as the initial outlay should be relatively low.
A)True
B)False
Q2) Direct foreign investment would typically be welcomed if:
A)the products to be produced are substitutes for other locally produced products.
B)people from the country of the company's headquarter are transferred to the foreign country to work at the subsidiary.
C)the products to be produced are going to be exported.
D)all of the above
Q3) If countries' economies are highly integrated, the correlations of their economic growth levels would likely be ____. A firm would benefit ____ by diversifying sales among these countries relative to another set of countries whose economies are less integrated.
A)high and positive; more
B)close to zero; more
C)high and positive; less
D)close to zero; less
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Page 15
Chapter 14: Multinational Capital Budgeting
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Q1) Refer to Exhibit 14-1. What is the net present value of the Norwegian project?
A)-$803,848
B)$5,803,848
C)$1,048,829
D)none of the above
Q2) ____ is not a method of incorporating an adjustment for risk into the capital budgeting analysis.
A)Discriminant analysis
B)Risk-adjusted discount rate
C)Sensitivity analysis
D)Simulation
Q3) Which of the following is not a characteristic of a tax system that an MNC that would consider when conducting a tax assessment of a country?
A)corporate income taxes
B)withholding taxes
C)provisions for carrybacks and carryforwards
D)tax treaties
E)all of the above are characteristics to be considered.
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16
Chapter 15: International Corporate Governance and Control
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Q1) Which of the following is not an external force that could reduce the present value of a foreign subsidiary's future cash flows?
A)higher taxes imposed by the host government
B)depreciation of the local currency
C)an increase in the parent's cost of capital
D)weakening of the economy of the host country
E)All of the above could reduce the present value of the subsidiary's future cash flows.
Q2) When an MNC assesses targets among countries, it would prefer a country in which the growth potential for its respective industry is high and the competition within the industry is not excessive.
A)True
B)False
Q3) Regarding the valuation of privatized businesses in less developed countries, ____ can normally be estimated with a high degree of accuracy.
A)future cash flows
B)future exchange rate movements
C)the proper discount rate
D)none of the above
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Chapter 16: Country Risk Analysis
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Q1) If a foreign country's consumers tend to only purchase products that are produced locally, the least effective strategy for a U.S. firm is to:
A)use a licensing arrangement with a local firm in that country.
B)enter into a joint venture in that country.
C)develop a subsidiary (under the U.S. name) that manufactures and sells products in that country.
D)develop a subsidiary (under the U.S. name) that manufactures products in that country and exports them to border countries.
Q2) The primary purpose of country risk analysis when applied to capital budgeting is usually to:
A)measure the effect of country risk on sales.
B)measure the effect of country risk on cash flows.
C)measure the effect of country risk on the consolidated balance sheet.
D)measure the effect of country risk on the consolidated income statement.
Q3) 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
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Page 18
Chapter 17: Multinational Cost of Capital and Capital Structure
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Q1) According to the text, the cost of capital for an international project will:
A)always be greater than the firm's cost of capital.
B)always be less than the firm's cost of capital.
C)always be the same as the firm's cost of capital.
D)none of the above
Q2) Other things being equal, the financial leverage of MNCs will be higher if the governments of their home countries are ____ likely to rescue them (in the event of failure), and if their home countries are ____ likely to experience a recession.
A)more; more
B)less; more
C)less; less
D)more; less
Q3) Capital asset pricing theory would most likely suggest that the MNC's cost of capital is lower than that of domestic firms.
A)True
B)False
Q4) An MNC's cost of equity is unrelated to the local risk-free rate.
A)True
B)False
Page 19
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Chapter 18: Long-Term Debt Financing
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Q1) In a(n) ____ swap, the notional value is increased over time.
A)amortizing
B)Basis
C)zero-coupon
D)accreting
Q2) A U.S.-based MNC 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
Q3) 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.
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Chapter 19: Financing International Trade
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Q1) The Working Capital Guarantee Program of the Private Export Funding Corporation (PEFCO) encourages commercial banks to extend short-term export financing to eligible exporters by providing a comprehensive guarantee that covers 100 percent of the loan's principal and interest.
A)True
B)False
Q2) The Working Capital Guarantee Program is administered by the:
A)Private Export Funding Corporation (PEFCO).
B)Overseas Private Investment Corporation (OPIC).
C)Ex-Im Bank.
D)Foreign Credit Insurance Association (FCIA).
Q3) The time period of most time drafts ranges from
A)30 days to 180 days.
B)2 weeks to 52 weeks.
C)1 year to 5 years.
D)10 days to 60 days.
Q4) In factoring, a bank provides an exporter with a loan that is secured by the exporter's accounts receivable.
A)True
B)False
21
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Chapter 20: Short-Term Financing
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Q1) If interest rate parity exists, the attempt to finance with a foreign currency while covering the position to avoid exchange rate risk will result in an effective financing rate that is ____ the domestic interest rate. A)lower than B)greater than C)similar to D)none of the above
Q2) A negative effective financing rate indicates that an MNC: A)paid only a small amount in interestover 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 United States.
Q3) To avoid exchange rate risk when borrowing a foreign currency, an MNC could hedge its position by using interest rate swaps. A)True
B)False
Q4) The interest rate of Euronotes is based on the T-bill rate.
A)True
B)False
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Chapter 21: International Cash Management
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Q1) Assume that a U.S. firm considers investing in British one-year Treasury securities. The interest rate on these securities is 12 percent, while the U.S. interest rate on the same securities is 10 percent. The firm believes that today's spot rate is an appropriate forecast for the spot rate of the pound in one year. Based on this information, the effective yield on British securities from the U.S. firm's perspective is:
A)equal to the U.S. interest rate.
B)equal to the British interest rate.
C)lower than the U.S. interest rate.
D)higher than the British interest rate.
E)lower than the British interest rate, but higher than the U.S. interest rate.
Q2) According to the international Fisher effect:
A)exchange rates adjust to compensate for income differentials between countries.
B)interest rates adjust to compensate for income differentials between countries.
C)exchange rates adjust to compensate for interest rate differentials between countries.
D)exchange rates adjust to compensate for risk differentials between countries.
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