Global Business Strategies
Exam Questions
Course Introduction
Global Business Strategies explores the frameworks, tools, and analytical approaches necessary for firms to compete and thrive in an interconnected world economy. The course examines how companies develop and implement strategies that account for differences in culture, market dynamics, regulatory environments, and competitive landscapes across multiple countries. Students will investigate topics such as international market entry, global value chain management, cross-border alliances and mergers, risk assessment, and adaptation to global trends and economic shifts. Emphasis is placed on strategic decision-making, ethical considerations, and the challenges and opportunities of operating in diverse global markets.
Recommended Textbook
Multinational Business Finance 15th Edition by
David K. Eiteman
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18 Chapters
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Chapter 1: Multinational Financial Management: Opportunities and Challenges
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Sample Questions
Q1) Typically, a firm in its domestic stage of globalization has all financial transactions in its domestic currency.
A)True
B)False
Answer: True
Q2) Several of the world's major currency exchange rates follow a specific quotation convention that is the result of tradition and history. The exchange rate between the U.S. dollar and the euro is always quoted as "dollars per euro."
A)True
B)False
Answer: True
Q3) The authors describe a process for development of a MNE that begins with a purely domestic phase, followed by the multinational phase, and topping out with the international trade phase.
A)True
B)False
Answer: False
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Page 3
Chapter 2: The International Monetary System
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Sample Questions
Q1) According to the terminology associated with changes in currency values, depreciation is a case when a currency's value relative to other currencies is changed by a government.
A)True
B)False
Answer: False
Q2) Since 2009 the IMF's exchange rate regime classification system uses a "de facto classification" methodology. Under this system, currencies that are predominantly market-driven are considered to be:
A) soft pegs.
B) hard pegs.
C) floating arrangements.
D) a residual agreement.
Answer: C
Q3) By and large, high capital mobility is forcing emerging market nations to choose between the two extremes of a free-floating exchange rate or a hard peg regime.
A)True
B)False
Answer: True
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Page 4
Chapter 3: The Balance of Payments
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Sample Questions
Q1) Capital controls may take a variety of forms EXCEPT:
A) currency boards.
B) taxes.
C) quotas.
D) prohibitions.
Answer: A
Q2) For at least the last decade, the United States has consistently run a surplus in services trade income.
A)True
B)False
Answer: True
Q3) The authors identify four distinct periods of capital mobility since 1860. Which do they term as a "period of global economic destruction"?
A) 1860 - 1914
B) 1914 - 1945
C) 1945 - 1971
D) 1971 - 2007
Answer: B
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Chapter 4: Financial Goals and Corporate Governance
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Sample Questions
Q1) The deliberation of the of the process demonstrated in the European-Japanese system of corporate governance has sometimes been termed:
A) socialism.
B) impatient capital.
C) patient capital.
D) communism.
Q2) Companies that are delisted cease to trade.
A)True
B)False
Q3) Which of the following is a reason why managers act to maximize shareholder wealth in Anglo-American markets?
A) the use of stock options to align the goals of shareholders and managers
B) the market for corporate control that allows for outside takeover of the firm
C) performance-based compensation for executive management
D) all of the above
Q4) Agency theory states that unsystematic risk can be eliminated through diversification.
A)True
B)False
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Chapter 5: The Foreign Exchange Market
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Sample Questions
Q1) ________ make money on currency exchanges by the difference between the ________ price, or the price they offer to pay, and the ________ price, or the price at which they offer to sell the currency.
A) Dealers; ask; bid
B) Dealers; bid; ask
C) Brokers; ask; bid
D) Brokers; bid; ask
Q2) Because the market for foreign exchange is worldwide, the volume of foreign exchange currency transactions is level throughout the 24-hour day.
A)True
B)False
Q3) ________ are agents who facilitate trading between dealers without themselves becoming principals in the transaction.
A) Central banks
B) Foreign exchange brokers
C) Arbitrageurs
D) Foreign exchange dealers
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Chapter 6: International Parity Conditions
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Sample Questions
Q1) A country's currency that strengthened relative to another country's currency by more than that justified by the differential in inflation is said to be ________ in terms of PPP.
A) overvalued
B) overcompensating
C) undervalued
D) undercompensating
Q2) The forward rate is calculated from all the following observable data items EXCEPT:
A) the forecast of the future spot exchange rate.
B) the home currency deposit rate.
C) the foreign currency deposit rate.
D) the spot exchange rate.
Q3) ________ states that the spot exchange rate should change in an equal amount but in the opposite direction to the difference in interest rates between two countries.
A) Fisher-open
B) Fisher-closed
C) The Fisher Effect
D) none of the above
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Chapter 7: Foreign Currency Derivatives: Futures and Options
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Sample Questions
Q1) As long as the option has time remaining before expiration, the option will possess time the time value element.
A)True
B)False
Q2) The buyer (long) of a put option:
A) has a maximum loss equal to the premium paid.
B) has a gain equal to but opposite in sign to the writer of the option.
C) has maximum gain potential limited to the difference between the strike price and the premium paid.
D) all of the above
Q3) A call option whose exercise price exceeds the spot price is said to be:
A) in-the-money.
B) at-the-money
C) out-of-the-money.
D) over-the-spot.
Q4) If the exchange rate's volatility is rising, and therefore the risk of the option not being exercised is decreasing, the option premium would be increasing.
A)True
B)False
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Chapter 8: Interest Risk and Swaps
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Sample Questions
Q1) Individual borrowers - whether they be governments or companies - possess their own individual credit rating, the market's assessment of their ability to repay debt in a timely manner. These credit assessments influence all the following EXCEPT:
A) cost of capital.
B) access to capital.
C) credit risk premium.
D) risk-free rate.
Q2) Some of the world's largest and most financially sound firms may borrow at variable rates less than LIBOR.
A)True
B)False
Q3) Historically, interest rate movements have shown less variability and greater stability than exchange rate movements.
A)True
B)False
Q4) How does counterparty risk influence a firm's decision to trade exchange-traded derivatives rather than over-the-counter derivatives?
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Chapter 9: Foreign Exchange Rate Determination and Intervention
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Sample Questions
Q1) The "tequila effect" is a slang term used to describe a form of financial panic called: A) run on the market.
B) speculation.
C) contrary investing.
D) contagion.
Q2) The balance of payments approach of exchange rate theory is largely dismissed by the academic community today, while the practitioner public still rely on different variations of the theory for their decision making.
A)True
B)False
Q3) Which of the following is NOT a motivation for a government or central bank to manipulate domestic currency valuation?
A) fight inflation
B) slow too rapid economic growth
C) spur too slow economic growth
D) All of the above are motivations for the government or central bank to manipulate currency values.
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Page 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) ________ exposure measures the change in the present value of the firm resulting from unexpected changes in exchange rates.
A) Operating
B) Transaction
C) Translation
D) Accounting
Q3) The effectiveness of a hedge is determined to what degree the change in spot asset's value is correlated with the equal change in the hedge asset's value to a change in the underlying spot exchange rate.
A)True
B)False
Q4) Does foreign currency exchange hedging both reduce risk and increase expected value? Explain, and list several arguments in favor of currency risk management and several against.
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Chapter 11: Translation Exposure
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Sample Questions
Q1) It is possible that efforts to decrease translation exposure may result in an increase in transaction exposure.
A)True
B)False
Q2) A Canadian subsidiary of a U.S. parent firm is instructed to bill an export to the parent in U.S. dollars. The Canadian subsidiary records the accounts receivable in Canadian dollars and notes a profit on the sale of goods. Later, when the U.S. parent pays the subsidiary the contracted U.S. dollar amount, the Canadian dollar has appreciated 10% against the U.S. dollar. In this example, the Canadian subsidiary will record a:
A) 10% foreign exchange loss on the U.S. dollar accounts receivable.
B) 10% foreign exchange gain on the U.S. dollar accounts receivable.
C) Since the Canadian firm is a U.S. subsidiary, neither a gain nor loss will be recorded.
D) Any gain or loss will be recorded only by the parent firm.
Q3) Exchange rate imbalances that are passed through the balance sheet affect a firm's reported income, but imbalances transferred to the income statement do not.
A)True
B)False
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Chapter 12: Operating Exposure
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Sample Questions
Q1) After being introduced in the 1980s, currency swaps have gained increasing importance as financial derivative instruments.
A)True
B)False
Q2) The goal of operating exposure analysis is to identify strategic operating techniques the firm might adopt to enhance value in the face of unanticipated exchange rate changes.
A)True
B)False
Q3) Which of the following is NOT an example of diversification in financing?
A) raising funds in more than one market
B) raising funds in more than one country
C) diversifying sales
D) All of the above qualify.
Q4) Purely domestic firms will be at a disadvantage to MNEs in the event of market disequilibria because:
A) domestic firms lack comparative data from its own sources.
B) international firms are already so large.
C) all of the domestic firm's raw materials are imported.
D) None of the above; domestic firms are not at a disadvantage.
14
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Chapter 13: Global Cost and Availability of Capital
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Sample Questions
Q1) Capital market imperfections leading to financial market segmentation include:
A) political risks.
B) corporate governance differences.
C) regulatory barriers.
D) all of the above
Q2) Which of the following is NOT a key variable in the equation for the capital asset pricing model?
A) the risk-free rate of interest
B) the expected rate of return on the market portfolio
C) the marginal tax rate
D) All are important components of the CAPM.
Q3) Portfolio theory assumes that investors are risk-averse. This means that investors:
A) cannot be induced to make risky investments.
B) prefer more risk to less for a given return.
C) will accept some risk, but not unnecessary risk.
D) All of the above are true.
Q4) Market imperfections do not necessarily imply that national securities markets are inefficient. Develop an argument as to why this is possible.
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Chapter 14: Funding the Multinational Firm
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Q1) The worldwide trend toward fuller and more standardized disclosure rules should ________ the cost of equity capital.
A) increase
B) decrease
C) have no impact on
D) none of the above
Q2) Level ________ is the easiest standard to satisfy for issuing ADRs.
A) 144a
B) III
C) II
D) I
Q3) ADRs cannot be exchanged for the underlying shares of the foreign stock, therefore, arbitrage cannot keep the prices in line with the foreign price of the stock.
A)True
B)False
Q4) The Euro-medium-term-note (EMTN) has filled a substantial niche market in global financing. What are the distinguishing characteristics of the EMTN and why is it such a popular form of financing for MNEs?
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Page 16
Chapter 15: Multinational Tax Management
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Sample Questions
Q1) Transfer pricing is a strategy that may be used by MNEs to:
A) reduce consolidated corporate income taxes.
B) partially finance a subsidiary in another country.
C) transfer funds from a subsidiary to the parent corporation.
D) all of the above
Q2) What are the desired characteristics for a country if it expects to be used as a tax haven?
Q3) The rapid evolution of corporate inversions for U.S.-based multinationals over the past 20 years has been attributed to all of the following EXCEPT:
A) lack of foreign tax credits.
B) relatively high U.S. corporate tax rate.
C) U.S. lack of global competitiveness.
D) the worldwide tax principles.
Q4) A ________ is a direct reduction of taxes whereas a ________ reduces the taxable income before taxes.
A) foreign tax credit; domestic tax credit
B) tax deduction; tax credit
C) tax credit; tax deduction
D) none of the above
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Chapter 16: International Trade Finance
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Sample Questions
Q1) The Eximbank does all of the following EXCEPT:
A) guarantees lease transactions.
B) supplies counseling for exporters in finding financing for U.S. goods.
C) finances the cost involved in the preparation of feasibility studies for non-U.S. clients
D) provides letters of credit for U.S. exporters.
Q2) For what reason might an exporter use standard international trade documentation (letter of credit, draft, order bill of lading) on an intrafirm export to its parent or sister subsidiary?
Q3) A draft is sometimes called a revocable letter of credit.
A)True
B)False
Q4) A letter of credit is an agreement by the bank to pay against documents rather than the actual merchandise.
A)True
B)False
Q5) Why might different documentation be used for an export to a nonaffiliated foreign buyer who is a new customer, as compared with an export to a nonaffiliated foreign buyer to whom the exporter has been selling for many years?
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Chapter 17: Foreign Direct Investment and Political Risk
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Sample Questions
Q1) Banks are very hesitant to engage in fronting loans because of the low probability of repayment and thus their risk exposure up to a 100% loss.
A)True
B)False
Q2) What are blocked funds? List and explain two of the three methods the authors list in this chapter for dealing with blocked funds.
Q3) What are the advantages and disadvantages of serving a foreign market through a greenfield foreign direct investment compared to an acquisition of a local firm in the target market?
Q4) Which of the following is NOT an advantage to exporting goods to reach international markets rather than entering into some form of FDI?
A) fewer political risks
B) greater agency costs
C) lower front-end investment
D) All of the above are advantages.
Q5) 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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Sample Questions
Q1) Currency risk is a concern for any international merger and acquisition activity. For instance, once the bidder has successfully won the acquisition, the exposure evolves from a transaction exposure to a contingent exposure.
A)True
B)False
Q2) 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
Q3) Given a current spot rate of 8.10 Norwegian krone per U.S. dollar, expected inflation rates of 6% in Norway and 3% per annum in the U.S., use the formula for relative purchasing power parity to estimate the one-year spot rate of krone per dollar.
A) 7.87 krone per dollar
B) 8.10 krone per dollar
C) 8.34 krone per dollar
D) There is not enough information to answer this question.
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