Global Financial Management
Pre-Test Questions
Course Introduction
Global Financial Management provides an in-depth examination of the financial practices, tools, and decision-making processes used by multinational corporations operating across diverse economic environments. The course explores key topics such as international financial markets, exchange rate mechanisms, currency risk management, cross-border investment strategies, global capital budgeting, and international funding sources. Emphasis is placed on understanding how economic, political, and cultural differences impact financial management in a global context, preparing students to analyze and implement effective strategies for managing financial operations in organizations with international reach.
Recommended Textbook
Multinational Business Finance 13th Edition by
David K. Eiteman
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20 Chapters
1145 Verified Questions
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Page 2
Chapter 1: Current Multinational Challenges and the Global Economy
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Sample Questions
Q1) A firm in the International Trade Phase of Globalization:
A)makes all foreign payments in foreign currency units and all foreign receipts in domestic currency units.
B)receives all foreign receipts in foreign currency units and makes all foreign payments in domestic currency units.
C)bears direct foreign exchange risk.
D)none of the above
Answer: C
Q2) Typically, a "greenfield" investment abroad is considered a greater foreign investment having a greater foreign presence than a joint venture with a foreign firm.
A)True
B)False
Answer: True
Q3) Domestic firms tend to make GREATER use of financial derivatives than MNEs because they can bear the greater risk presented by these financial instruments.
A)True
B)False
Answer: False
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Chapter 2: Corporate Ownership, Goals, and Governance
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Sample Questions
Q1) Systematic risk can be eliminated through portfolio diversification.
A)True
B)False
Answer: False
Q2) Regarding comparative corporate governance regimes: Bank-based regimes characterized by government influence in bank lending and a lack of transparency is often found in countries such as Korea and Germany.
A)True
B)False
Answer: True
Q3) Privatization is a term used to describe:
A)firms that are purchased by the government.
B)government operations that are purchased by corporations and other investors.
C)firms that do not use publicly available debt.
D)non-public meetings held by members of interlocking directorates.
Answer: B
Q4) Non-Anglo-American markets are dominated by the "one-vote-one-share" rule.
A)True
B)False
Answer: False
Page 4
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Chapter 3: The International Monetary System
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Sample Questions
Q1) Today, the United States has been ejected from the International Monetary Fund for refusal to pay annual dues.
A)True
B)False
Answer: False
Q2) The authors discuss the concept of the "Impossible Trinity" or the inability to achieve simultaneously the goals of exchange rate stability, full financial integration, and monetary independence. If a country chooses to have a pure float exchange rate regime, which two of the three goals is a country most able to achieve?
A)monetary independence and exchange rate stability
B)exchange rate stability and full financial integration
C)full financial integration and monetary independence
D)A country cannot attain any of the exchange rate goals with a pure float exchange rate regime.
Answer: C
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Chapter 4: The Balance of Payments
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Sample Questions
Q1) If China wished to reduce their accumulation of foreign exchange reserves they could:
A)allow their currency, the yuan, to float freely in the market place.
B)reduce their current account surplus by importing more goods than they export.
C)undertake both of the activities identified in choices A and B.
D)dig a big hole and bury the reserves.
Q2) Expenditures by U.S. tourists in foreign countries for foreign goods or services are factored into BOP calculations.
A)True
B)False
Q3) Which of the following is NOT part of the Financial Account of the BOP?
A)net foreign direct investment
B)net import/export of services
C)net portfolio investment
D)other Financial items
Q4) Significant amounts of United States Treasury issues are purchased by foreign investors, therefore the U.S. must earn foreign currency to repay this debt.
A)True
B)False
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Chapter 5: The Continuing Global Financial Crisis
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Sample Questions
Q1) Securitization is likely to be declared illegal in the U.S. though it may still exist elsewhere in the world.
A)True
B)False
Q2) LIBOR stand for the London Interbank Offered Rate.
A)True
B)False
Q3) A ________ is a financial intermediation device that allowed the participant to borrow short and lend long.
A)sub-prime loan
B)structured investment vehicle
C)non-conforming loan
D)all of the above
Q4) The international credit crisis began in full force in September 2008.
A)True
B)False
Q5) Mortgage loans in the U.S. are classified by risk into one of three types: prime, alt-A, and sub-prime.
A)True
B)False
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Chapter 6: The Foreign Exchange Theory and Markets
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Sample Questions
Q1) A contract to deliver dollars for euros in six months is both "buying euros forward for dollars" and "selling dollars forward for euros."
A)True
B)False
Q2) ________ are NOT one of the three categories reported for foreign exchange.
A)Spot transactions
B)Swap transactions
C)Strip transactions
D)Futures transactions
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
Q4) Swap and forward transactions account for an insignificant portion of the foreign exchange market.
A)True
B)False
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Chapter 7: International Parity Conditions
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Sample Questions
Q1) Empirical tests have yielded ________ evidence about market efficiency with a general consensus that developing foreign markets are ________.
A)conflicting; not efficient
B)conflicting; efficient
C)consistent; inefficient
D)none of the above
Q2) If the forward exchange rate is an unbiased predictor of future spot rates, then future spot rates will always be equal to current forward rates.
A)True
B)False
Q3) One year ago the spot rate of U.S. dollars for Canadian dollars was $1/C$1. Since that time the rate of inflation in the U.S. has been 4% greater than that in Canada. Based on the theory of Relative PPP, the current spot exchange rate of U.S. dollars for Canadian dollars should be approximately:
A)$0.96/C$
B)$1/C$
C)$1.04/C$
D)Relative PPP provides no guide for this type of question.
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Chapter 8: Foreign Currency Derivatives and Swaps
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Sample Questions
Q1) Your U.S firm has an accounts payable denominated in UK pounds due in 6 months. To protect yourself against unexpected changes in the dollar/pound exchange rate you should:
A)buy a pound put option.
B)sell a pound put option.
C)buy a pound call option.
D)sell a pound call option.
Q2) A firm with variable-rate debt that expects interest rates to rise may engage in a swap agreement to:
A)pay fixed-rate interest and receive floating rate interest.
B)pay floating rate and receive fixed rate.
C)pay fixed rate and receive fixed rate.
D)pay floating rate and receive floating rate.
Q3) The major difference between currency futures and forward contracts is that futures contracts are standardized for ease of trading on an exchange market whereas forward contracts are specialized and tailored to meet the needs of clients.
A)True
B)False
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Chapter 9: Foreign Exchange Rate Determination and Forecasting
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Sample Questions
Q1) The asset market approach to forecasting is not applicable to emerging markets. A)True
B)False
Q2) Foreign exchange forecasting can be either long-term, or short-term in duration. Compare and contrast the motivation for and the techniques a forecaster might use for each of the time periods.
Q3) Describe the asset market approach to exchange rate determination. How is this consistent with economic theory of (say, security)prices in general?
Q4) A currency board is:
A)a structure, rather than a mere commitment, to limiting the growth of the money supply in the economy.
B)a recipe for conservative and prudent financial management.
C)designed to eliminate the power of politicians to exercise judgment by relying on an automatic and unbendable rule.
D)all of the above
Q5) Most theories of technical analysis differentiate fair value from market value. A)True
B)False
11
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Chapter 10: Transaction Exposure
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Sample Questions
Q1) A U.S. firm sells merchandise today to a British company for £150,000. The current exchange rate is $1.55/£ , the account is payable in three months, and the firm chooses to avoid any hedging techniques designed to reduce or eliminate the risk of changes in the exchange rate. If the exchange rate changes to $1.52/£ the U.S. firm will realize a ________ of ________.
A)loss; $4,500
B)gain; $4,500
C)loss; £4,500
D)gain; £4,500
Q2) The stages in the life of a transaction exposure can be broken into three distinct time periods. The first time period is the time between quoting a price and reaching an actual sale agreement or contract. The next time period is the time lag between taking an order and actually filling or delivering it. Finally, the time it takes to get paid after delivering the product. In order, these stages of transaction exposure may be identified as:
A)backlog, quotation, and billing exposure.
B)billing, backlog, and quotation exposure.
C)quotation, backlog, and billing exposure.
D)quotation, billing, and backlog exposure.
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Chapter 11: Translation Exposure
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Sample Questions
Q1) If the British subsidiary of a European firm has net exposed assets of £125,000, and the pound increases in value from 1.40/£ to 1.44/£, the European firm has a translation:
A)gain of 5,000.
B)loss of 5,000.
C)gain of £5,000.
D)loss of £5,000.
Q2) The two methods for the translation of foreign subsidiary financial statements are the current rate and temporal methods. Briefly, describe how each of these methods translates the foreign subsidiary financial statements into the parent company's consolidated statements. Identify when each technique should be used and the major advantage(s)of each.
Q3) If the British subsidiary of a European firm has net exposed assets of £250,000, and the pound drops in value from 1.35/£ to 1.30/£, the European firm has a translation:
A)gain of 12,500.
B)loss of 12,500.
C)loss of £12,500.
D)gain of £12,500.
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Chapter 12: Operating Exposure
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Sample Questions
Q1) Which of the following is NOT an acceptable hedging technique to reduce risk caused by a relatively predictable long-term foreign currency inflow of Japanese yen?
A)Import raw materials from Japan denominated in yen to substitute for domestic suppliers.
B)Pay suppliers from other countries in yen.
C)Import raw materials from Japan denominated in dollars.
D)Acquire debt denominated in yen.
Q2) A Canadian firm with a U.S. subsidiary and a U.S. firm with a Canadian subsidiary agree to a parallel loan agreement. In such an agreement, the Canadian firm is making a/an ________ loan to the ________ subsidiary while effectively financing the ________ subsidiary.
A)indirect; U.S.; Canadian
B)indirect; Canadian; U.S.
C)direct; U.S.; Canadian
D)direct; Canadian; U.S.
Q3) Swap agreements are treated as off-balance sheet transactions via U.S. accounting methods.
A)True
B)False
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Page 14
Chapter 13: The Global Cost and Availability of Capital
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Sample Questions
Q1) Capital market segmentation is a financial market imperfection caused mainly by government constraints, institutional practices, and investor perceptions.
A)True
B)False
Q2) Since the 1980s and 1990s, segmentation in global financial markets has been reduced. As a result of this, the correlation among securities markets has increased, thereby reducing, but not eliminating, the benefits of international portfolio diversification.
A)True
B)False
Q3) Which of the following will NOT affect a firm's beta?
A)the choice of the market portfolio against which to compare the variability of a firm's returns
B)the choice of the risk-free security
C)the choice of the time period used to calculate the firm's beta
D)None of the above, because each of them affects the calculation of a firm's beta.
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Chapter 14: Raising Equity and Debt Globally
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Sample Questions
Q1) ADRs are considered an effective way for firms to improve the liquidity of their stock, especially if the home market is small and illiquid.
A)True
B)False
Q2) Which of the following is the typical order of sourcing capital abroad?
A)an international bond issue, then cross listing the outstanding issues on other exchanges, then an international bond issue in the target market
B)an international bond issue in the target market, then cross listing the outstanding issues on other exchanges, then an international bond issue
C)an international bond issue in less prestigious markets, then an international bond issue in the target market, and ultimately a eurobond issue
D)cross listing the outstanding issues on other exchanges, then an international bond issue, then an international bond issue in the target market
Q3) What are the two schools of thought regarding the worldwide trend toward increased financial disclosure by publicly traded firms. Explain which school of thought you hold to and why.
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Chapter 15: Multinational Tax Management
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Sample Questions
Q1) Refer to Instruction 15.1. If the U.S. has no bilateral trade agreement with the host country, what is the total amount of income taxes Green Valley Exporters will pay?
A)$25,000
B)$35,000
C)$51,250
D)$60,000
Q2) A country CANNOT have both a territorial and a worldwide approach as a national tax policy.
A)True
B)False
Q3) All indications are that the value-added tax will soon be the dominant form of taxation in the U.S.
A)True
B)False
Q4) Tax haven subsidiaries of MNEs are categorically referred to as international offshore financial centers.
A)True
B)False
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Chapter 16: International Portfolio Theory and Diversification
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Sample Questions
Q1) If an investor is able to determine a global beta for his portfolio and holds a portfolio that is well-diversified with international investments, which performance measure is more appropriate, the Sharpe Measure or the Treynor Measure? Why? Explain each performance measure.
Q2) Beta may be defined as:
A)the measure of systematic risk.
B)a risk measure of a portfolio.
C)the ratio of the variance of the portfolio to the variance of the market.
D)all of the above
Q3) Capital markets around the world are on average less integrated today than they were 20 years ago.
A)True
B)False
Q4) The ________ connects the risk-free security with the optimal domestic portfolio.
A)security market line
B)capital asset pricing model
C)capital market line
D)none of the above
18
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Chapter 17: Foreign Direct Investment and Political Risk
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Sample Questions
Q1) ________ is a type of political risk that OPIC does NOT cover.
A)Inconvertibility
B)Expropriation
C)War
D)OPIC covers all of the above.
Q2) A ________ loan, also known as ________ is a parent-to-affiliate loan channeled through a financial intermediary such as a large commercial bank.
A)fronting; link financing
B)parallel; a back-to-back loan
C)fronting; a back-to-back loan
D)link financing; parallel loan
Q3) A/An ________ would be an example of an internalization advantage for an MNE. A)patent
B)economy of scale
C)unique source of raw materials
D)possession of proprietary information
Q4) List and explain three strategic motives why firms become multinationals and give an example of each.
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19
Chapter 18: Multinational Capital Budgeting and Cross-Border Acquisitions
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Q1) Refer to Instruction 18.1. What are the annual after-tax cash flows for the Velo Rapid Revolutions project?
A) 400,000
B) 240,000
C) 120,000
D) 360,000
Q2) Project evaluation from the ________ viewpoint serves some useful purposes and/but should ________ the ________ viewpoint.
A)local; be subordinated to; parent's B)local; not be subordinated to; parent's C)parent's; be subordinated to; local D)none of the above
Q3) If a firm undertakes a project with ordinary cash flows and estimates that the firm has a positive NPV, then the IRR will be:
A)less than the cost of capital.
B)greater than the cost of capital.
C)greater than the cost of the project.
D)cannot be determined from this information
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Chapter 19: Working Capital Management
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Sample Questions
Q1) The period in the cash cycle where the customer places the order, and the firm determines what materials for manufacture are NOT in inventory is called the ________ period.
A)quotation
B)input sourcing
C)accounts payable
D)accounts receivable
Q2) An Edge Act corporation is a subsidiary of a U.S. bank located outside of the U.S. and incorporated to engage in international banking and financing operations.
A)True
B)False
Q3) Which of the following is NOT a precautionary motive for holding cash?
A)Anticipated funds to be remitted from several Middle East countries are in question due to unrest in the region.
B)The firm has several short-term obligations in unhedged foreign currency-denominated contracts.
C)The firm must pay ordinary wages in two days.
D)All are precautionary motives.
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Chapter 20: International Trade Finance
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Q1) The exporter-importer relationship to a corporation of a foreign importer that has not previously conducted business with the firm would be an:
A)unaffiliated known.
B)affiliated party.
C)unaffiliated unknown.
D)any of the above
Q2) The Export-Import Bank is an independent agency of the U.S. government established in 1934 to:
A)ship money abroad.
B)import agricultural products during the recession.
C)facilitate and stimulate foreign trade of the United States.
D)none of the above
Q3) Which of the following purposes is NOT served by the bill of lading?
A)It acts as a receipt.
B)It acts as a contract.
C)It acts as a document of title.
D)It acts as all of the above.
Q4) What is a banker's acceptance? How are they initiated? Why are they desirable for the exporter?
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