Global Business
Textbook Exam Questions
Course Introduction
Global Business explores the complexities and opportunities of conducting business in an interconnected world. The course examines how cultural, economic, legal, and political environments shape global markets and influence strategic decisions in multinational enterprises. Students will analyze international trade theories, foreign direct investment, global supply chains, and the impact of technological advancements on global commerce. Emphasis is placed on understanding cross-cultural management, ethical challenges, and the adaptation of business strategies to diverse international contexts. Through case studies and real-world examples, students will develop the skills necessary to navigate the dynamic landscape of global business.
Recommended Textbook
International Financial Management 13th Edition by Jeff Madura
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21 Chapters
1584 Verified Questions
1584 Flashcards
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Page 2
Chapter 1: Multinational Financial Management: An Overview
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Sample Questions
Q1) A product cycle is the process by which a firm provides a specialized sales or service strategy, support assistance, and possibly an initial investment in a franchise in exchange for periodic fees.
A)True
B)False
Answer: False
Q2) When the parent's home currency is weak, remitted funds from foreign subsidiaries will convert to a smaller amount of the home currency.
A)True
B)False
Answer: False
Q3) A centralized management style, where major decisions about a foreign subsidiary are made by the parent company, results in an increase in agency costs.
A)True
B)False
Answer: False
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Chapter 2: International Flow of Funds
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Sample Questions
Q1) 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
Q2) A weakening of the U.S. dollar with respect to the British pound would likely reduce U.S. exports to Britain and increase U.S. imports from Britain over time.
A)True
B)False
Answer: False
Q3) A U.S. purchase of patent rights from a firm in Mexico reflects a credit to the U.S. balance of payments account.
A)True
B)False
Answer: False
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4
Chapter 3: International Financial Markets
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Sample Questions
Q1) An MNC with receivables in Japanese yen purchases yen forward to hedge its exposure to exchange rate fluctuations.
A)True
B)False
Answer: False
Q2) A forward contract can be used to lock in the ____ of a specified currency at a future point in time.
A)purchase price
B)sale price
C)A or B
D)none of the above
Answer: C
Q3) Institutional investors such as commercial banks, mutual funds, insurance companies, and pension funds from many countries are major participants in the international bond market.
A)True
B)False
Answer: True
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Chapter 4: Exchange Rate Determination
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Sample Questions
Q1) Which of the following is not mentioned in the text as a factor affecting exchange rates?
A)relative interest rates
B)relative inflation rates
C)government controls
D)expectations
E)all of the above are mentioned in the text as factors affecting exchange rates.
Q2) If one foreign currency appreciates against the dollar, then all foreign currencies will appreciate against the dollar but by different degrees.
A)True
B)False
Q3) Financial flow foreign exchange transactions are more responsive to news than trade-related transactions are.
A)True
B)False
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Chapter 5: Currency Derivatives
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Sample Questions
Q1) The lower bound of a put option premium is the greater of zero and the difference between the exercise price and the spot rate; the upper bound of a currency put option is the exercise price.
A)True
B)False
Q2) A straddle involves the purchase of either two call or two put options at the same exercise price.
A)True
B)False
Q3) If an investor who has previously purchased a futures contract wishes to liquidate her position, she would sell an identical futures contract with the same settlement date.
A)True
B)False
Q4) If you have bought the right to sell, you are a:
A)call writer.
B)put buyer.
C)futures buyer.
D)put writer.
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Chapter 6: Government Influence on Exchange Rates
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Sample Questions
Q1) If foreign investors fear that a peg may be broken because of fund outflows from that country, they may attempt to purchase more of that currency before the peg is broken.
A)True
B)False
Q2) A major advantage of the euro is the complete elimination of exchange rate risk on transactions between participating European countries, which encourages more trade and capital flows within Europe.
A)True
B)False
Q3) Assume that Japan and the United States frequently trade with each other. Under the freely floating exchange rate system, high inflation in the U.S. will place ____ pressure on Japanese yen, ____ the amount of Japanese yen available for sale, and result in ____ inflation in Japan.
A)upward; reduce; unchanged
B)upward; increase; higher
C)downward; reduce; unchanged
D)downward; increase; higher
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Chapter 7: International Arbitrage and Interest Rate Parity
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Sample Questions
Q1) Assume that the euro's interest rates are higher than U.S. interest rates, and that interest rate parity exists. Which of the following is true?
A)Americans using covered interest arbitrage earn the same rate of return as Germans who attempt covered interest arbitrage.
B)Americans who invest in the United States earn the same rate of return as Germans who attempt covered interest arbitrage.
C)Americans who invest in the United States earn the same rate of return as Germans who invest in Germany
D)A and B
E)None of the above
Q2) 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
Q3) The yield curve of every country has its own unique shape
A)True
B)False
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9
Chapter 8: Relationships among Inflation, Interest Rates, and Exchange Rates
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Sample Questions
Q1) Because there are a variety of factors in addition to inflation that affect exchange rates, this will:
A)reduce the probability that PPP will hold.
B)increase the probability that PPP will hold.
C)increase the probability the IFE will hold.
D)B and C
Q2) If interest rate parity holds, and the international Fisher effect (IFE) holds, foreign currencies with relatively high interest rates should have forward discounts, and those currencies would be expected to depreciate.
A)True
B)False
Q3) Given a home country and a foreign country, purchasing power parity suggests that:
A)the inflation rates of both countries will be the same.
B)the nominal interest rates of both countries will be the same.
C)A and B
D)none of the above
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10
Chapter 9: Forecasting Exchange Rates
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Sample Questions
Q1) If a foreign currency is expected to ____ substantially against the parent's currency, the parent may prefer to ____ the remittance of subsidiary earnings.
A)weaken; delay
B)weaken; expedite
C)appreciate; expedite
D)none of the above
Q2) Which of the following is not a forecasting technique mentioned in your text?
A)accounting-based forecasting
B)technical forecasting
C)fundamental forecasting
D)market-based forecasting
Q3) Which of the following forecasting techniques would be most likely to use today's forward exchange rate to forecast the future exchange rate?
A)fundamental forecasting
B)market-based forecasting
C)technical forecasting
D)interval forecasting
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11
Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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Sample Questions
Q1) If a U.S. firm's cost of goods sold in Switzerland is much greater than its sales in Switzerland, the appreciation of the Swiss franc has a ____ impact on the firm's ____.
A)positive; interest expenses
B)positive; gross profit
C)negative; gross profit
D)negative; interest expenses
Q2) Vermont Co. has one foreign subsidiary. Its translation exposure is directly affected by each of the following, except:
A)the interest rate in the country of the subsidiary.
B)the proportion of business conducted by the subsidiary.
C)its accounting method.
D)the exchange rate movements of the subsidiary's currency.
Q3) According to the text, currency volatility levels ____ perfectly stable over time, and currency correlations ____ perfectly stable over time.
A)are; are not
B)are; are
C)are not; are not
D)are not; are
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Chapter 11: Managing Transaction Exposure
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Sample Questions
Q1) FAB Corp. will need 200,000 Canadian dollars (C$) in 90 days to cover a payables position. Currently, a 90-day call option with an exercise price of $.75 and a premium of $.01 is available. Also, a 90-day put option with an exercise price of $.73 and a premium of $.01 is available. FAB plans to purchase options to hedge its payables position. Assuming that the spot rate in 90 days is $.71, what is the net amount paid, assuming FAB wishes to minimize its cost?
A)$144,000
B)$148,000
C)$152,000
D)$150,000
Q2) If an MNC is extremely risk-averse, it may decide to hedge even though its hedging analysis indicates that remaining unhedged will probably be less costly than hedging. A)True B)False
Q3) To hedge a receivables position with a currency option hedge, an MNC would buy a put option.
A)True B)False
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13
Chapter 12: Managing Economic Exposure and Translation Exposure
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Sample Questions
Q1) In general, it is more difficult to effectively hedge economic or translation exposure than to hedge transaction exposure.
A)True
B)False
Q2) Economic exposure represents any impact of exchange rate fluctuations on a firm's future cash flows and thus includes transaction exposure.
A)True
B)False
Q3) Transaction exposure results when an MNC translates each subsidiary's financial data to its home currency for consolidated financial statements.
A)True
B)False
Q4) ____ exposure occurs when an MNC translates each subsidiary's financial data to its home currency for consolidated financial statements.
A)Translation
B)Transaction
C)Economic
D)None of the above
Page 14
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Chapter 13: Direct Foreign Investment
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Sample Questions
Q1) Managers of MNCs may attempt to expand their divisions internationally if their compensation may be increased as a result of expansion. This goal is consistent with the goals of shareholders.
A)True
B)False
Q2) Assume a U.S. firm initiates direct foreign investment in Italy. If the euro is expected to depreciate against the dollar, the dollar value of earnings remitted to the parent should ____. The parent may request that the subsidiary ____.
A)increase; postpone remitting earnings until the euro weakens
B)decrease; postpone remitting earnings until the euro weakens
C)decrease; remit earnings immediately before the euro weakens
D)increase; remit earnings immediately before the euro weakens
Q3) MNCs commonly consider direct foreign investment because it can improve their profitability and enhance shareholder wealth.
A)True
B)False
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15
Chapter 14: Multinational Capital Budgeting
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Sample Questions
Q1) A foreign project in Hungary and another in Japan had the same perceived value from the U.S. parent's perspective. Then, the exchange rate expectations were revised, upward for the value of the Hungarian forint and downward for the Japanese yen. The break-even salvage value for the project in Japan would now be ____ from the parent's perspective.
A)negative
B)higher than that for the Hungarian project
C)lower than that for the Hungarian project
D)the same as that for the Hungarian project
E)A and C
Q2) 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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Chapter 15: International Corporate Governance and Control
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Sample Questions
Q1) International governance is achieved by all of the following except: A)poison pills.
B)board of directors.
C)institutional investors.
D)blockholders.
E)All of the above achieve governance.
Q2) An institutional investor such as a public pension fund or mutual fund that invests in the stock of a company and plans to hold the shares for a long time is likely to be a shareholder activist.
A)True
B)False
Q3) Economic conditions in the host country are probably more important for an MNC that intends to use the target to generate revenues in the host country than an MNC that intends to focus on exporting from the target's home country.
A)True
B)False
Q4) Downsizing reduces expenses but may also reduce productivity and revenue.
A)True
B)False
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Chapter 16: Country Risk Analysis
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Sample Questions
Q1) A macro-assessment of country risk:
A)is adjusted for the particular business of the firm involved.
B)excludes aspects relevant to a particular firm or project.
C)A and B
D)none of the above
Q2) An MNC considers direct foreign investment in Germany. It is mainly concerned with the subsidiary's ability to generate sufficient sales there. The country risk characteristic that would best address this concern is:
A)the host government's tax rates charged on remitted earnings.
B)the possibility of blocked funds.
C)the state of the economy in Germany.
D)the possibility of a withholding tax imposed by the German government.
Q3) A micro-assessment of country risk involves consideration of all variables that affect country risk except for those unique to a particular firm or industry.
A)True
B)False
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18
Chapter 17: Multinational Cost of Capital and Capital Structure
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Sample Questions
Q1) An MNC with stable cash flows can probably handle more debt than an MNC with erratic cash flows.
A)True
B)False
Q2) When MNCs pursue international projects that have a high potential for return, but also increase their risk, this increases the return to the bondholders that provided credit to the MNCs.
A)True
B)False
Q3) An argument for an MNC to have a debt-intensive capital structure is that:
A)it can reduce the MNC's exposure to exchange rate risk on earnings remitted by subsidiaries to the parent.
B)it can reduce the chance of bankruptcy.
C)it spreads the shareholder base.
D)it forces subsidiaries to pay dividends to shareholders.
Q4) It is probably easier to estimate the cost of equity than it is to estimate the cost of debt.
A)True
B)False
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Chapter 18: Long-Term Debt Financing
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Sample Questions
Q1) When an MNC finances with a floating-rate loan in a currency that matches its long-term cash inflows, the MNC is exposed to ____ risk.
A)interest rate
B)credit
C)exchange rate
D)none of the above
Q2) In a(n) ____ swap, the notional value is increased over time.
A)amortizing
B)Basis
C)zero-coupon
D)accreting
Q3) Some MNCs use a country's yield curve to compare annualized rates among debt maturities, so that they can choose a maturity that has a relatively low rate.
A)True
B)False
Q4) Foreign subsidiaries of U.S. MNCs can avoid exchange rate risk by financing projects with dollars.
A)True
B)False
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Chapter 19: Financing International Trade
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Sample Questions
Q1) The exchange of products between two parties without the use of any currency as a medium of exchange is called factoring.
A)True
B)False
Q2) In factoring, a bank provides an exporter with a loan that is secured by the exporter's accounts receivable.
A)True
B)False
Q3) Cross-border factoring involves a network of factors in various countries that assess importers' credit risk.
A)True
B)False
Q4) A ____ is a written order from the exporter instructing the importer to pay the face amount either upon presentation or at a specified future date.
A)draft
B)bill of lading
C)compensation guarantee
D)letter of credit
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Chapter 20: Short-Term Financing
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Q1) If interest rate parity exists, financing with a foreign currency may still be feasible, but it would have to be conducted on an uncovered basis (i.e., without use of a forward hedge).
A)True
B)False
Q2) The interest rate of Euronotes is based on the T-bill rate.
A)True
B)False
Q3) One reason an MNC may consider foreign financing is that the proceeds could be used to offset a foreign net payables position.
A)True
B)False
Q4) Refer to Exhibit 20-1 above. What is the effective financing rate for the MNC assuming that it borrows leu on a covered basis?
A)10 percent
B)-10 percent
C)-1 percent
D)1 percent
E)none of the above
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Chapter 21: International Cash Management
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Sample Questions
Q1) Centralized cash management is more complicated when the MNC uses multiple currencies.
A)True
B)False
Q2) Which of the following statements is false?
A)If interest rate parity exists, covered interest arbitrage is not worthwhile.
B)If interest rate parity holds and the forward rate is an accurate forecast of the future spot rate, an uncovered investment in a foreign security is not worthwhile.
C)If interest rate parity exists and the forward rate is an unbiased forecast of the future spot rate, an uncovered investment in a foreign security will on average earn an effective yield similar to an investment in a domestic security.
D)If interest rate parity exists and the forward rate is expected to underestimate the future spot rate, an uncovered investment in a foreign security is expected to earn a lower effective yield than an investment in a domestic security.
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