Global Business Strategy
Textbook Exam Questions
Course Introduction
Global Business Strategy explores the principles and practices companies employ to compete and succeed in international markets. The course examines the complexities of operating across borders, including differences in cultures, regulatory environments, and economic systems. Students will analyze how global businesses develop strategies to enter new markets, manage risks, adapt to local contexts, and leverage global value chains. Through case studies and real-world examples, the course highlights the impact of globalization, technology, and competitive dynamics on strategic decision-making, preparing students to think strategically in the global business environment.
Recommended Textbook
Multinational Business Finance 14th Edition by
David K. Eiteman
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18 Chapters
1239 Verified Questions
1239 Flashcards
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Page 2
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) The key factor attracting both depositors and borrowers to the Eurocurrency loan market is the narrow interest rate spread within that market.
A)True
B)False
Answer: True
Q3) Comparative advantage shifts over time as less developed countries become more developed and realize their latent opportunities.
A)True
B)False
Answer: True
Q4) Today it is widely assumed that there are NO LIMITS to financial globalization.
A)True
B)False
Answer: False
Page 3
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Chapter 2: The International Monetary System
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Q1) China today is a clear example of a nation that has chosen the following policies
EXCEPT:
A) control and manage the value of its currency
B) conduct an independent monetary policy
C) full financial integration in an attempt to stimulate its domestic economy
D) restrict the flow of capital into and out of the country
Answer: C
Q2) If exchange rates were fixed,investors and traders would be relatively certain about the current and near future exchange value of each currency.
A)True
B)False
Answer: True
Q3) A review of the evolution of the Global Monetary System shows that capital flows dominate trade in which of the following eras EXCEPT:
A) Classical Gold Standard
B) Fixed Exchange Rates, 1945-1973
C) The Floating Era, 1973-1997
D) The Emerging Era, 1997-Present
Answer: A
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Page 4
Chapter 3: The Balance of Payments
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Sample Questions
Q1) In 2010 the United States posted a current account deficit of -$471 billion.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
Q2) When categorizing investments for the financial account component of the balance of payments the ________ is an investment where the investor has no control whereas the ________ is an investment where the investor has control over the asset.
A) direct investment; portfolio investment
B) direct investment; indirect investment
C) portfolio investment; indirect investment
D) portfolio investment; direct investment
Answer: D
Q3) The BOP should always balance.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Financial Goals and Corporate Governance
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Q1) Patient Capitalism is characterized by short-term focus by both management and investors.
A)True
B)False
Q2) The Board of Directors:
A) consists exclusively of the officers of the corporation.
B) is the legal body which is accountable for the governance of the corporation.
C) are not subject to the external forces of the marketplace.
D) is appointed by the Securities and Exchange Commission (SEC).
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) In the stakeholder capitalism model (SCM)the assumption of market efficiency is absolutely critical.
A)True
B)False
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Chapter 5: The Foreign Exchange Market
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Q1) The U.S.dollar suddenly changes in value against the euro moving from an exchange rate of 0.8909/ to $0.8709/ .Thus,the dollar has ________ by ________.
A) appreciated; 2.30%
B) depreciated; 2.30%
C) appreciated; 2.24%
D) depreciated; 2.24%
Q2) Since in the U.S.the home currency is the dollar and the foreign currency is the euro,in New York USD 1.2174 = EUR 1.00 would be a direct quote on the euro and an indirect quote on the dollar.
A)True
B)False
Q3) In general,NDF markets normally develop for country currencies having large cross-border capital movements,but still subject to convertibility restrictions.
A)True
B)False
Q4) What are some of the reasons central banks and treasuries enter the foreign exchange markets,and in what important ways are they different from other foreign exchange participants?
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Page 7
Chapter 6: International Parity Conditions
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Q1) According to the Big Mac Index,the implied PPP exchange rate is Mexican peso 8.50/$1 but the actual exchange rate is peso 10.80/$1.Thus,at current exchange rates the peso appears to be ________ by ________.
A) overvalued; approximately 21%
B) overvalued; approximately 27%
C) undervalued; approximately 21%
D) undervalued; approximately 27%
Q2) The Economist publishes annually the "Big Mac Index" by which they compare the prices of the McDonald's Corporation's Big Mac hamburger around the world.The index estimates the exchange rates for currencies based on the assumption that the burgers in question are the same across the world and therefore,the price should be the same.If a Big Mac costs $2.54 in the United States and 294 yen in Japan,what is the estimated exchange rate of yen per dollar as hypothesized by the Hamburger index?
A) $0.0086/¥
B) ¥124/$
C) $0.0081/¥
D) ¥115.75/$
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Page 8
Chapter 7: Foreign Currency Derivatives: Futures and Options
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Q1) A foreign currency ________ option gives the holder the right to ________ a foreign currency,whereas a foreign currency ________ option gives the holder the right to ________ an option.
A) call, buy, put, sell
B) call, sell, put, buy
C) put, hold, call, release
D) none of the above
Q2) A foreign currency ________ gives the purchaser the right,not the obligation,to buy a given amount of foreign exchange at a fixed price per unit for a specified period.
A) future
B) forward
C) option
D) swap
Q3) About ________ of all futures contracts are settled by physical delivery of foreign exchange between buyer and seller.
A) 0%
B) 5%
C) 50%
D) 95%
Page 9
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Chapter 8: Interest Risk and Swaps
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Sample Questions
Q1) Sovereign credit risk is the global financial market's assessment of the ability of a sovereign borrower to repay USD denominated debt.
A)True
B)False
Q2) The financial manager of a firm has a variable rate loan outstanding.If she wishes to protect the firm against an unfavorable increase in interest rates she could:
A) sell an interest rate futures contract of a similar maturity to the loan.
B) buy an interest rate futures contract of a similar maturity to the loan.
C) swap the adjustable rate loan for another of a different maturity.
D) none of the above
Q3) An agreement to swap the currencies of a debt service obligation would be termed a/an:
A) currency swap.
B) forward swap.
C) interest rate swap.
D) none of the above
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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Page 10
Chapter 9: Foreign Exchange Rate Determination
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Q1) The principle focus of the IMF bailout efforts during the Asian financial crisis was:
A) banking liquidity.
B) shareholder's wealth.
C) reestablishing fixed currency exchange rates in Asia.
D) dollarization of Asian currencies.
Q2) ________,traditionally referred to as chartists,focus on price and volume data to determine past trends that are expected to continue into the future.
A) Mappists
B) Trappist monks
C) Filibusters
D) Technical analysts
Q3) ________ is defined as the spread of a crisis in one country to its neighboring countries and other countries with similar characteristics.
A) Speculation
B) Contagion
C) Capital market liquidity
D) Political science
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11
Chapter 10: Transaction Exposure
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Q1) Which of the following is cited as a good reason for NOT hedging currency exposures?
A) Shareholders are more capable of diversifying risk than management.
B) Currency risk management through hedging does not increase expected cash flows.
C) Hedging activities are often of greater benefit to management than to shareholders.
D) All of the above are cited as reasons NOT to hedge.
Q2) Hedging can be advantageous to shareholders because management is in a better position than shareholders to recognize disequilibrium conditions and to take advantage of single opportunities to enhance firm value through selective hedging.
A)True
B)False
Q3) Many MNE s manage foreign exchange exposure centrally,thus gains or losses are always matched with the country of origin.
A)True
B)False
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12
Chapter 11: Translation Exposure
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Q1) Translation exposure may also be called ________ exposure.
A) transaction
B) operating
C) accounting
D) currency
Q2) The current rate method is the most prevalent method today for the translation of financial statements.
A)True
B)False
Q3) The temporal rate method is the most prevalent method today for the translation of financial statements.
A)True
B)False
Q4) The main technique to minimize translation exposure is called a/an ________ hedge.
A) balance sheet
B) income statement
C) forward
D) translation
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Chapter 12: Operating Exposure
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Q1) An MNE has a contract for a relatively predictable long-term inflow of Japanese yen that the firm chooses to hedge by seeking out potential suppliers in Japan.This hedging strategy is referred to as:
A) a natural hedge.
B) currency-switching.
C) matching.
D) diversification.
Q2) Recently the British Pound suffered an unexpected depreciation in value.Which of the following actions being considered by Coventry Furniture of London,a purely domestic furniture manufacturer and retailer,would be considered a highly unlikely response to the depreciation of the pound?
A) Coventry might choose to maintain its domestic sales prices constant in pound terms.
B) Coventry might try to raise domestic prices because competing imports are now priced higher in England.
C) Coventry might try to lower domestic prices because competing imports are now priced higher in England.
D) none of the above
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Chapter 13: The Global Cost and Availability of Capital
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Q1) Most observers believe that for better or for worse,we have achieved a global market for securities.Discuss the major changes in the international markets of securities: during the 1980s,during the 1990s and the current conditions.
Q2) Empirical studies indicate that MNEs have a lower debt/capital ratio than domestic counterparts,indicating that MNEs have a lower cost of capital.
A)True
B)False
Q3) Capital market segmentation is a financial market imperfection caused mainly by: A) government constraints.
B) institutional practices.
C) investor perceptions.
D) all of the above
Q4) A U.S.investor makes an investment in Britain and earns 14% on the investment while the British pound appreciates against the U.S.dollar by 8%.What is the investor's total return?
A) 22.00%
B) 23.12%
C) 6.00%
D) 4.88%
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Chapter 14: Raising Equity and Debt Globally
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Q1) Portfolio diversification of domestic firms reduces risk because cash flows are not perfectly correlated.The same reasoning is often argued for MNEs diversifying into international markets.
A)True
B)False
Q2) Financial practice suggests that there is a range for an optimal capital structure for a firm within an industry rather than a specific optimal ratio of debt to equity.
A)True
B)False
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) In theory multinational firms are in a better position than domestic firms to support higher debt ratios.
A)True
B)False
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Chapter 15: Multinational Tax Management
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Q1) Tax treaties typically result in reduced withholding tax rates between the two signatory countries.
A)True
B)False
Q2) Which of the following is an unlikely objective of U.S.government policy for the taxation of foreign MNEs?
A) to raise revenues
B) to provide an incentive for U.S. private investment in developing countries
C) to improve the U.S. balance of payments
D) All of the above are objectives.
Q3) In a typical naked corporate inversion transaction the corporation's effective global tax liability is reduced but the effective control does not change.
A)True
B)False
Q4) Maximizing local profits in joint ventures overseas could be suboptimal from the overall view of the MNE.
A)True
B)False
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Chapter 16: International Trade Finance
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Q1) What is a banker's acceptance? How are they initiated? Why are they desirable for the exporter?
Q2) From a financial management perspective,all of the following are primary risks associated with an international trade transaction EXCEPT:
A) currency risk
B) default risk
C) noncompletion risk
D) interest rate risk
Q3) A draft is sometimes called a revocable letter of credit.
A)True
B)False
Q4) The person or company initiating the draft or bill of exchange is known as the: A) maker.
B) drawer.
C) originator.
D) any of the above
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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Q1) What are blocked funds? List and explain two of the three methods the authors list in this chapter for dealing with blocked funds.
Q2) 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.
Q3) A ________ is a shared ownership in a foreign business.
A) licensing agreement
B) greenfield investment
C) joint venture
D) wholly-owned affiliate
Q4) Blocked funds are cash flows that:
A) come in regular intervals in standardized amounts or blocks.
B) have been restricted in transfer out of a local country.
C) come from a certain sector or region of the world.
D) none of the above
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19
Chapter 18: Multinational Capital Budgeting and Cross-Border Acquisitions
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Q1) Given a current spot rate of 8.10 Norwegian krone per U.S.dollar,expected inflation rates of 3% in Norway and 6% 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.
Q2) When dealing with international capital budgeting projects,the value of the project is NOT sensitive to the firm's cost of capital.
A)True
B)False
Q3) When engaged in international capital budgeting,the analyst must identify the initial amount of capital invested or put at risk.
A)True
B)False
Q4) Debt is usually a large component of project financing.
A)True
B)False
Page 20
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