Global Financial Management
Question Bank
Course Introduction
Global Financial Management explores the principles, strategies, and challenges involved in managing financial resources in an international context. The course examines key topics such as foreign exchange markets, international financial institutions, global investment strategies, risk management, and cross-border financing. Through case studies and real-world applications, students learn how multinational corporations make capital budgeting decisions, assess political and currency risks, and develop effective financial policies for operations across different countries. The course equips students with the analytical tools and knowledge needed to navigate the complexities of global financial markets and to make informed decisions in a dynamic, interconnected world.
Recommended Textbook
Fundamentals of Multinational Finance 5th Edition by Michael H. Moffett
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Page 2
Chapter 1: Multinational Financial Management: Opportunities and Challenges
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Q1) The phase of the globalization process characterized by imports from foreign suppliers and exports to foreign buyers is called the
A) domestic phase.
B) multinational phase.
C) international trade phase.
D) import-export banking phase.
Answer: C
Q2) Large international firms may be better able to exploit such competitive factors as ________ than are their domestic competitors.
A) economies of scale
B) technological expertise
C) product differentiation
D) all of the above
Answer: D
Q3) Typically, a firm in its domestic stage of globalization has all financial transactions in its domestic currency.
A)True
B)False
Answer: True
Page 3
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Chapter 2: The International Monetary System
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Q1) Which of the following is NOT a required convergence criteria to become a full member of the European Economic and Monetary Union (EMU)?
A) National birthrates must be at 2.0 or lower per person.
B) The fiscal deficit should be no more than 3% of GDP.
C) Nominal inflation should be no more than 1.5% above the average inflation rate for the three members with the lowest inflation rates in the previous year.
D) Government debt should be no more than 60% of GDP.
Answer: A
Q2) The global recession of 2009/2010 saw the major global economic players (USA, China, and Europe) each choose the same international currency goals from the "impossible trinity". Meaning each felt an independent monetary policy was the most important goal followed by free movement of capital, and third, a policy of free floating currencies.
A)True
B)False
Answer: False
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Chapter 3: The Balance of Payments
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Q1) Construct, in a static (accounting) form the equation for a nations GDP as presented by the authors. Identify each term (e.g., r = interest rate). How does a positive BOP account balance affect a country's GDP?
Answer: GDP = C + I + G + X - M, where: GDP = gross domestic product, C = consumption spending, I = investment spending, G = government spending, X = exports of goods and services, and M = imports of goods and services. An increase (surplus) in the account balance will increase GDP.
Q2) Balance of payment (BOP) data may be important for any of the following reasons
A) BOP data helps to forecast a country's market potential, especially in the short run.
B) The BOP is an important indicator of a country's foreign exchange rate.
C) Changes in a country's BOP may signal a change in controls over payment of dividends and interest.
D) All of the above.
Answer: D
Q3) In general, a country's exports decrease as foreign income decreases.
A)True
B)False
Answer: True
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Chapter 4: Financial Goals and Corporate Governance
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Q1) Which of the following is a common operational financial objective for MNEs?
A) maximization of consolidated after-tax income
B) maximization of interest expense
C) minimization of revenues from other countries
D) minimization of total assets held in foreign locations
Q2) Fissler AG, headquartered in Germany, records all of it sales worldwide in euros. Its USA division realized sales of 2,675,000 last year when the exchange rate was $1.33/ and sales of 2,355,000 this year when the exchange rate was $1.48/ . What was the percent change in euro revenues for Fissler for the USA division over the last year?
A) -13.99%
B) -11.96%
C) -2.03%
D) -20.89%
Q3) Anglo-American is defined to mean
A) North, Central, and South America.
B) the United States, Canada, and Western Europe.
C) the United States, United Kingdom, Canada, Australia and New Zealand.
D) the United States, France, Britain, and Germany.
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Chapter 5: The Foreign Exchange Market
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Q1) The primary motive of foreign exchange activities by most central banks is profit.
A)True
B)False
Q2) Although the "big three" (dollar, euro, and yen) continue to dominate global trades, it will probably not be long before a fourth, not yet on the map-the Chinese renminbi-will move into greater prominence.
A)True
B)False
Q3) Identify and explain the three functions of the foreign exchange market.
Q4) Given the following exchange rates, which of the following choices represents a potentially profitable intermarket arbitrage opportunity? ¥129.87/$
Euro 1.1226/$
Euro 0.00864/¥
A) ¥115.69/euro
B) ¥114.96/euro
C) $0.8908/euro
D) $0.0077/¥
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Chapter 6: International Parity Conditions
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Q1) The price of a Big Mac in the U.S. is $3.73 and the price in Mexico is Peso 32.0. What is the implied PPP of the peso per dollar?
A) Peso 8.58/$1
B) Peso 10.8/$1
C) Peso 11.76/$1
D) None of the above
Q2) The premium or discount on forward currency exchange rates between any two countries is visually obvious when you plot the interest rates of each country on the same yield curve. The currency of the country with the higher yield curve should be selling at a forward discount.
A)True
B)False
Q3) 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
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Chapter 7: Foreign Currency Derivatives and Swaps
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Q1) A speculator that has ________ a futures contract has taken a ________ position.
A) sold; long
B) purchased; short
C) sold; short
D) purchased; sold
Q2) An agreement to swap a fixed interest payment for a floating interest payment would be considered a/an
A) currency swap.
B) forward swap.
C) interest rate swap.
D) none of the above
Q3) 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
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Page 9
Chapter 8: Foreign Exchange Rate Determination
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Q1) Describe the Russian ruble collapse through August of 1998.
Q2) The longer the time horizon of the technical analyst the more accurate the prediction of foreign exchange rates is likely to be.
A)True
B)False
Q3) Prior to July 2, 1997, the Thai government
A) allowed the Thai Bhat to float against major currencies.
B) fixed the Bhat's value against the Korean won only.
C) fixed the Bhat's value against major currencies especially the U.S. dollar.
D) None of the above.
Q4) The ________ approach argues that exchange rates are determined by the supply and demand for a wide variety of financial assets
A) balance of payments
B) monetary
C) asset market
D) law of one price
Q5) Describe the asset market approach to exchange rate determination. How is this consistent with economic theory of (say, security) prices in general?
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Chapter 9: Transaction Exposure
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Q1) A U.S. firm sells merchandise today to a British company for £100,000. The current exchange rate is $2.03/£, 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 $2.01/£ the U.S. firm will realize a ________ of ________.
A) loss; $2,000
B) gain; $2,000
C) loss; £2000
D) gain; £2000
Q2) Which of the following is NOT cited as a good reason for hedging currency exposures?
A) Reduced risk of future cash flows is a good planning tool.
B) Reduced risk of future cash flows reduces the probability that the firm may not meet required cash flows.
C) Currency risk management increases the expected cash flows to the firm.
D) Management is in a better position to assess firm currency risk than individual investors.
Q3) List and define the three types of foreign exchange exposure presented by your authors.
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Page 11
Chapter 10: Translation Exposure
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Q1) Balance sheet hedge requires an equal amount of exposed foreign currency assets and liabilities. A German company's subsidiary in Poland has Zloty as its functional currency. To hedge its translational exposure the company should
A) issue 10 year Eurobond guaranteed by the parent matching the amount of subsidiary's assets.
B) obtain 5 year zloty loan in Poland.
C) start rolling over 1 year forward contracts.
D) start rolling over 3 month zloty loans, repatriate and convert the proceeds in euro.
Q2) If a firm's balance sheet has an equal amount of exposed foreign currency assets and liabilities and the firm translates by the temporal method, then A) the net exposed position is called monetary balance.
B) the change of value of liabilities and assets due to a change in exchange rates will be of equal but opposite direction.
C) both A and B are true.
D) none of the above.
Q3) Describe a balance sheet hedge and give at least two examples of when such a hedge could be justified.
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Chapter 11: Operating Exposure
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Q1) Risk sharing agreements were especially popular during the Bratton Woods Agreement, but lately have lost its significance in the long-term customer-supplier relationship.
A)True
B)False
Q2) The particular strategy of trying to offset inflows of cash from one country with outflows of cash in the same currency is known as
A) hedging.
B) diversification.
C) matching.
D) balancing.
Q3) After being introduced in the 1980s, currency swaps have gained increasing importance as financial derivative instruments.
A)True
B)False
Q4) Swap agreements are treated as line items on the balance sheet via U.S. accounting methods.
A)True
B)False
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Chapter 12: The Global Cost and Availability of Capital
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Q1) LipTea Incorporated purchases raw materials and has processing plants around the world. The firm has an average pre-tax cost of debt of 8%, an average tax rate of 40%, and an international equity beta of 1.2. The risk-free rate of return is anticipated to be 4% and the return to the international market portfolio to be 12%. If the firm finances 40% with debt and 60% with equity, what is the after-tax WACC?
A) 10.08%
B) 12.96%
C) 11.36%
D) 10.50%
Q2) A firm whose equity has a beta of 1.0
A) has greater systematic risk than the market portfolio.
B) stands little chance of surviving in the international financial market place.
C) has less systematic risk than the market portfolio.
D) None of the above is true.
Q3) Other things equal, an increase in the firm's tax rate will increase the WACC for a firm that has both debt and equity financing.
A)True
B)False
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Chapter 13: Raising Equity and Debt Globally
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Q1) Of the following, which is NOT an internal source of financing for the foreign subsidiary?
A) equity in the form of cash from the parent firm
B) equity in the form of real goods from the parent
C) debt in the form of loans from the same commercial bank used by the parent
D) All of the above are internal sources of financing for the foreign subsidiary.
Q2) Level I ADRs trade primarily
A) on the New York Stock Exchange.
B) on the American Stock Exchange.
C) over the counter or pink sheets.
D) Level I ADRs typically do not trade at all, but instead are privately issued and held until maturity.
Q3) Level I ADRs trade primarily
A) on the New York Stock Exchange.
B) on the American Stock Exchange.
C) over the counter or pink sheets.
D) Level I ADRs typically do not trade at all, but instead are privately issued and held until maturity.
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Chapter 14: Multinational Tax Management
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Q1) Refer to Table 14.1. If MetroCity pays out 50% of its earnings from each subsidiary, what are the additional U.S. taxes due on the foreign sourced income from the Ukraine and Korea respectively.
A) Ukraine = $0; Korea = ($30,000)
B) Ukraine = $100,000; Korea = $0
C) Ukraine = $0; Korea = $66,250
D) None of the above
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) ________ taxes are applied to income and ________ taxes are applied to some other measurable performance characteristic of the firm.
A) Income; direct
B) Indirect; income
C) Indirect; direct
D) Direct; indirect
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Page 16
Chapter 15: International Trade Finance
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Q1) An exporter has just received a banker's acceptance created by an international transaction. If the banker's acceptance has a face value of $250,000, current rates on banker's acceptances are 6%, and the bank charges a commission of 1% per annum, how much will the exporter receive if he sells the acceptance in the secondary market six months prior to maturity?
A) $250,000
B) $244,000
C) $242,500
D) $241,250
Q2) Refer to Instruction 15.1. What is the size of the discount (not including the commission fee) Jackson must take for receiving the proceeds of the sale today rather than waiting for six months?
A) $7,000
B) $5,000
C) $12,000
D) $14.000
Q3) The Foreign Credit Insurance Association is a branch of the U.S. federal government.
A)True
B)False
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Chapter 16: Foreign Direct Investment and Political Risk
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Q1) The O in OLI refers to an advantage in a firm's home market that is
A) operator independent.
B) owner-specific.
C) open-market.
D) official designation.
Q2) Which of the following is NOT an example of a country-specific risk?
A) transfer risk
B) war and ethnic strife
C) cultural and religious heritage
D) All of the above are examples of country-specific risk.
Q3) Which of the following is/are NOT a/an advantage to a joint venture?
A) The local partner's reputation enhances access to local financial markets.
B) The local partner might take advantage of proprietary information.
C) There are higher agency costs than with a purely domestic firm.
D) The local partner's public image may enhance local sales.
Q4) Local partners in a foreign country and in a joint venture with an MNE are likely to make decisions that maximize the value of the subsidiary. Such actions probably will not maximize the value of the entire firm.
A)True
B)False
Page 18
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Chapter 17: Multinational Capital Budgeting and Cross-Border Acquisitions
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Q1) 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
Q2) The process of acquiring an enterprise anywhere in the world has the following common elements EXCEPT
A) identification and valuation of the target.
B) the tender offer.
C) management of the post-acquisition transition.
D) All of the above are common elements in the process.
Q3) Which is NOT considered a shortcoming of the parent simply adjusting discount rates to account for the additional risk that stems from a project's foreign location?
A) Cash flows are already highly subjective.
B) Two-sided risk in that foreign currency may appreciate or depreciate.
C) Increased sales volume might offset the lower value of a local currency.
D) These are all shortcomings associated with discount rate adjustment.
Q4) What is project financing and what are the factors critical to its success?
Page 19
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