Global Finance
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Course Introduction
Global Finance examines the international financial environment, focusing on the monetary systems, foreign exchange markets, and the flow of capital across borders. The course explores the impact of globalization on financial management, international investment, risk management, and the role of multinational corporations in world financial markets. Students will analyze topics such as currency exchange mechanisms, international financial institutions, balance of payments, and the challenges posed by political, economic, and regulatory differences among countries, equipping them with critical insights for making informed financial decisions in a global context.
Recommended Textbook
International Financial Management 8th Edition by Madura
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21 Chapters
1110 Verified Questions
1110 Flashcards
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Page 2
Chapter 1: Multinational Financial Management: An Overview
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42 Verified Questions
42 Flashcards
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Sample Questions
Q1) Which of the following industries would most likely take advantage of lower costs in some less developed foreign countries
A) assembly line production.
B) specialized professional services.
C) nuclear missile planning.
D) planning for more sophisticated computer technology.
Answer: A
Q2) 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 the franchise in exchange for periodic fees.
A)True
B)False
Answer: False
Q3) The Single European Act of 1987 made regulations more uniform among European countries.However,the cost of achieving this goal resulted in the imposition of additional taxes on goods traded between these countries.
A)True
B)False
Answer: False
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Chapter 2: International Flow of Funds
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Sample Questions
Q1) Portfolio investments represent 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) Which of the following is the biggest target of direct foreign investment by U.S.firms
A) Mexico.
B) Japan.
C) United Kingdom.
D) Germany.
Answer: C
Q3) As a result of the European Union,restrictions on exports between _______ were reduced or eliminated.
A) member countries and the U.S.
B) member countries
C) member countries and European non-members
D) none of the above
Answer: B
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Chapter 3: International Financial Markets
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52 Flashcards
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Sample Questions
Q1) The bid/ask spread for small retail transactions is commonly in the range of ______ percent;the bid/ask spread for wholesale transactions is commonly in the range of ______ percent.
A) 3 to 7;.01 to .03
B) 2 to 5;.05 to .10
C) 10 to 15;.01 to .03
D) 1 to 2;.05 to .07
Answer: A
Q2) Which currency is used the most to denominate Eurobonds
A) the British pound.
B) the Japanese yen.
C) the U.S. dollar.
D) the Swiss franc.
Answer: C
Q3) Futures contracts are typically _______;forward contracts are typically _______.
A) sold on an exchange;sold on an exchange
B) offered by commercial banks;sold on an exchange
C) sold on an exchange;offered by commercial banks
D) offered by commercial banks;offered by commercial banks
Answer: C
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Chapter 4: Exchange Rate Determination
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Sample Questions
Q1) The real interest rate adjusts the nominal interest rate for:
A) exchange rate movements.
B) income growth.
C) inflation.
D) government controls.
E) none of the above
Q2) Assume that the U.S.places a strict quota on goods imported from Chile and that Chile does not retaliate. Holding other factors constant,this event should immediately cause the U.S.demand for Chilean pesos to _______ and the value of the peso to
A) increase;increase
B) increase;decline
C) decline;decline
D) decline;increase
Q3) Increases in relative income in one country vs.another result in an increase in that country's currency value.
A)True
B)False
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6
Chapter 5: Currency Derivatives
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Sample Questions
Q1) A straddle is a speculative strategy that represents the purchase of both a call and a put.
A)True
B)False
Q2) A U.S.corporation has purchased currency call options to hedge a 70,000 pound payable.The premium is $.02 and the exercise price of the option is $.50.If the spot rate at the time of maturity is $.65,what is the total amount paid by the corporation if it acts rationally
A) $33,600.
B) $46,900.
C) $44,100.
D) $36,400.
Q3) A firm sells a currency futures contract,then decides before the settlement date that it no longer wants to maintain such a position. It can close out its position by:
A) buying an identical futures contract.
B) selling an identical futures contract.
C) buying a futures contract with a different settlement date.
D) selling a futures contract for a different amount of currency.
E) purchasing a put option contract in the same currency.
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Page 7
Chapter 6: Government Influence on Exchange Rates
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Sample Questions
Q1) A weak dollar is normally expected to cause:
A) high unemployment and high inflation in the U.S.
B) high unemployment and low inflation in the U.S.
C) low unemployment and low inflation in the U.S.
D) low unemployment and high inflation in the U.S.
Q2) An example of indirect intervention by the Bank of Japan would be for the Bank of Japan to use interest rates to increase the value of the Yen vs.the dollar.
A)True
B)False
Q3) In a sterilized exchange rate arrangement,a country's home currency value is pegged to a foreign currency or to some unit of account.
A)True
B)False
Q4) A strong dollar places _______ pressure on inflation,which in turn places _______ pressure on the dollar.
A) upward;upward
B) downward;upward
C) upward;downward
D) downward;downward
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Chapter 7: International Arbitrage and Interest Rate Parity
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Sample Questions
Q1) Triangular arbitrage tends to force a relationship between the interest rates of two countries and their forward exchange rate premium or discount.
A)True
B)False
Q2) If the interest rate is lower in the U.S.than in the United Kingdom,and if the forward rate of the British pound is the same as its spot rate:
A) U.S. investors could possibly benefit from covered interest arbitrage.
B) British investors could possibly benefit from covered interest arbitrage.
C) neither U.S. nor British investors could benefit from covered interest arbitrage.
D) A and B
Q3) Assume that interest rate parity holds.The Mexican interest rate is 50%,and the U.S.interest rate is 8%.Subsequently,the U.S.interest rate decreases to 7%.According to interest rate parity,the peso's forward ___________ will __________.
A) premium;increase B) discount;decrease C) discount;increase D) premium;decrease
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Page 9
Chapter 8: Relationships among Inflation,Interest Rates,and Exchange Rates
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37 Verified Questions
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Sample Questions
Q1) Which of the following is not true regarding IRP,PPP,and the IFE
A) IRP suggests that a currency's spot rate will change according to interest rate differentials.
B) PPP suggests that a currency's spot rate will change according to inflation differentials.
C) The IFE suggests that a currency's spot rate will change according to interest rate differentials.
D) All of the above are true.
Q2) If interest rate parity holds,then the international Fisher effect must hold.
A)True
B)False
Q3) Assume U.S.and Swiss investors require a real rate of return of 3%. Assume the nominal U.S.interest rate is 6% and the nominal Swiss rate is 4%. According to the international Fisher effect,the franc will _______ by about _______.
A) appreciate;3%
B) appreciate;1%
C) depreciate;3%
D) depreciate;2%
E) appreciate;2%
Page 10
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Chapter 9: Forecasting Exchange Rates
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Sample Questions
Q1) Market-based forecasting involves the use of historical exchange rate data to predict future values.
A)True
B)False
Q2) Foreign exchange markets are generally found to be at least ___________ efficient.
A) weak-form
B) semistrong-form
C) strong form
D) none of the above
Q3) 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
Q4) Foreign exchange markets appear to be strong-form efficient.
A)True
B)False
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Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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59 Flashcards
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Sample Questions
Q1) According to the text,currency variability 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
Q2) Economic exposure refers to:
A) the exposure of a firm's ongoing international transac tions to exchange rate fluctuations.
B) the exposure of a firm's local currency value to transac tions between foreign exchange traders.
C) the exposure of a firm's financial statements to exchange rate fluctuations.
D) the exposure of a firm's cash flows to exchange rate fluctuations.
E) the exposure of a country's economy (specifically GNP) to exchange rate fluctuations.
Q3) U.S.exporters may not necessarily benefit from weak-dollar periods if foreign competitors are willing to reduce their profit margin.
A)True
B)False
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Chapter 11: Managing Transaction Exposure
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63 Verified Questions
63 Flashcards
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Sample Questions
Q1) To hedge a payable position with a currency option hedge,an MNC would write a call option.
A)True
B)False
Q2) Assume zero transaction costs. If the 180day forward rate is an accurate estimate of the spot rate 180 days from now,then the real cost of hedging receivables will be:
A) positive.
B) negative.
C) positive if the forward rate exhibits a premium, and negative if the forward rate exhibits a discount.
D) zero.
Q3) Which of the following reflects a hedge of net receivables in British pounds by a U.S.firm
A) purchase a currency put option in British pounds.
B) sell pounds forward.
C) borrow U.S. dollars, convert them to pounds, and invest them in a British pound deposit.
D) A and B
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13
Chapter 12: Managing Economic Exposure and Translation Exposure
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Sample Questions
Q1) U.S.-based MNCs invoicing in Asian currencies and incurring expenses in Asian currencies were probably less affected by weakness of Asian currencies than U.S.-based MNCs that invoice in Asian currencies but do not incur expenses in those currencies.
A)True
B)False
Q2) Sycamore (a U.S.firm)has no subsidiaries and presently has sales to Mexican customers amounting to MXP98 million,while its pesodenominated expenses amount to MXP41 million. If it shifts its material orders from its Mexican suppliers to U.S.suppliers,it could reduce pesodenominated expenses by MXP12 million and increase dollardenominated expenses by $800,000. This strategy would _______ the Sycamore's exposure to changes in the peso's movements against the U.S.dollar. Regardless of whether the firm shifts expenses,it is likely to perform better when the peso is valued _______ relative to the dollar.
A) reduce;high
B) reduce;low C) increase;low D) increase;high
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Page 14
Chapter 13: Direct Foreign Investment
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Sample Questions
Q1) Countries that became part of the European Union in 2004 had high labor and production costs and therefore were not targeted for new DFI by MNCs that wanted to reduce manufacturing costs.
A)True
B)False
Q2) Consider a country that presently has a high level of unemployment because of weak economic conditions.Its income levels are very low.This country may be an attractive target as a result of ______ motives by U.S.firms that engage in direct foreign investment.
A) revenue-related
B) cost-related
C) A and B
D) none of the above
Q3) In assessing the risk of an individual project,the expected correlation of the new project's returns with those of the prevailing business should be considered.
A)True
B)False
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Page 15
Chapter 14: Multinational Capital Budgeting
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49 Flashcards
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Sample Questions
Q1) When conducting a capital budgeting analysis and attempting to account for effects of exchange rate movements for a foreign project,inflation __________ included explicitly in the cash flow analysis,and debt payments by the subsidiary _________ included explicitly in the cash flow analysis.
A) should be;should be B) should definitely not be;should definitely not be C) should definitely not be;should be D) should be;should definitely not be
Q2) Like income tax treaties,____________ help to avoid double taxation and stimulate direct foreign investment.
A) withholding taxes
B) excise taxes
C) tax credits
D) carryforwards
Q3) If a foreign project is financed with a subsidiary's retained earnings,the subsidiary's investment could be viewed as an opportunity cost,since the funds could be remitted to the parent rather than invested in the foreign project.
A)True
B)False
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Page 16
Chapter 15: Multinational Restructuring
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Sample Questions
Q1) The value of an MNC (from the parent's perspective)is independent of the MNC's desired scheduling of remitted funds from the target.
A)True
B)False
Q2) Firms based in __________ tend to acquire more U.S.target firms than the other countries listed here.
A) Canada
B) Japan
C) Germany
D) Mexico
Q3) Acquirers may have different required rates of return because of differences in the ability to use financial leverage.
A)True
B)False
Q4) The U.S.is one of the few countries with agencies that monitor mergers and acquisitions.
A)True
B)False
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Chapter 16: Country Risk Analysis
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Sample Questions
Q1) A micro assessment of country risk:
A) is adjusted for the particular business of the firm involved.
B) excludes all aspects relevant to a particular firm or project.
C) A and B
D) none of the above
Q2) The Delphi technique:
A) is a method of purchasing information about inspections of the country being evalu ated.
B) requires the use of discriminant analysis to assess country risk.
C) involves the collection of independent opinions on country risk.
D) none of the above
Q3) Higher interest rates tend to increase the growth of an economy and increase the demand for an MNC's products.
A)True
B)False
Q4) The degree to which foreign MNCs were affected by the Asian crisis suggests that country risk analysts did not detect some of the potential problems in these countries.
A)True
B)False
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Chapter 17: Multinational Cost of Capital and Capital Structure
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Sample Questions
Q1) In the United States,government rescues are not as common as in other countries,such as the United Kingdom.Therefore,the risk premium on a given level of debt would be higher for U.S.firms than for firms of the United Kingdom,everything else being equal.
A)True
B)False
Q2) According to your text,which of the following is not a factor that affects an MNC's cost of capital unfavorably
A) exchange rate risk.
B) country risk.
C) political risk.
D) size.
Q3) The ____________ the cost of capital,the ___________ will be a project's net present value for a project with a given set of expected cash flows.
A) lower;higher
B) higher;higher
C) lower;lower
D) none of the above
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Chapter 18: Long-Term Financing
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Sample Questions
Q1) When an MNC financesin a currency that matches its cash inflows using a relatively _______ maturity,the MNC is exposed to __________ risk.
A) short;interest rate
B) long;interest rate
C) short;exchange rate
D) none of the above
Q2) Assume a U.S.-based subsidiary wants to raise $1,000,000 by issuing a bond denominated in Pakistani rupees (PKR).The current exchange rate of the rupee is $.02.Thus,the MNC needs ___________ rupees to obtain the $1,000,000 needed.
A) 50,000,000
B) 20,000
C) 1,000,000
D) none of the above
Q3) If the currency denominating a foreign bond depreciates against the firm's home currency,the funds needed to make coupon payments will increase.
A)True
B)False
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Page 20
Chapter 19: Financing International Trade
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60 Flashcards
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Sample Questions
Q1) With _______,a bank purchases a receivable without recourse to the exporter.
A) accounts receivable financing
B) factoring
C) a banker's acceptance
D) a letter of credit
Q2) In a countertrade transaction,banks on both ends act as intermediaries in the processing of shipping documents and the collection of payment.
A)True
B)False
Q3) Which of the following is not true regarding letters of credit
A) They are issued by banks on behalf of the importer promising to pay the exporter.
B) A revocable letter of credit can be cancelled or revoked at any time without prior notification to the beneficiary.
C) They guarantee that the goods shipped are the goods purchased.
D) All of the above are true.
Q4) A draft drawn on and accepted by a bank is called a banker's acceptance.
A)True
B)False
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21
Chapter 20: Short-Term Financing
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Sample Questions
Q1) Assume a U.S.-based MNC is borrowing Romanian leu (ROL)at an interest rate of 8% for one year.Also assume that the spot rate of the leu is $.00012 and the one-year forward rate of the leu is $.00010.The expected spot rate of the leu one-year from now is $.00011.What is the effective financing rate for the MNC assuming it borrows leu on an uncovered basis
A) about 10%.
B) about -10%.
C) about -1%.
D) about -2%.
E) none of the above
Q2) Foreign financing costs in a single foreign currency ____________ financing costs in dollars,and the variance of foreign financing costs over time is ___________ than the variance of financing in dollars.
A) are higher than;higher than B) can be lower or higher than;higher than C) can be lower or higher than;lower than D) are lower than;higher than
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Chapter 21: International Cash Management
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Sample Questions
Q1) The international Fisher effect suggests that:
A) the effective yield on short term foreign securities should, on average, equal the yield on short term domestic securities.
B) the effective yield on short term securities of high inflation countries is greater than the yield on short term domestic securities.
C) if domestic income grows faster than foreign income, the effective yield on short term foreign securities is higher than short term domestic securities.
D) if foreign tax rates equal domestic tax rates, the exchange rates of different currencies will change by the same degree.
Q2) Lockboxes are post office box numbers assigned to employees for picking up their paychecks.
A)True
B)False
Q3) Which of the following is true
A) Some countries may prohibit netting.
B) Some countries may prohibit forms of leading and lagging.
C) A and B
D) None of the above
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23