Global Financial Management
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Course Introduction
Global Financial Management explores the principles and practices of managing financial operations in an international context. The course covers topics such as foreign exchange markets, international monetary systems, risk management techniques, global investment and financing strategies, and the impact of economic and political environments on multinational corporations. Students will develop skills in analyzing financial statements across borders, evaluating international projects, and understanding the financial challenges and opportunities that arise from operating in multiple countries. The course prepares students to make informed financial decisions in a globalized business environment.
Recommended Textbook
Multinational Business Finance 14th Edition by
David K. Eiteman
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18 Chapters
1239 Verified Questions
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Page 2
Chapter 1: Multinational Financial Management: Opportunities and Challenges
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Sample Questions
Q1) The growth in the influence and self-enrichment of organizational insiders is seen as an impediment to the growth of financial globalization in general.
A)True
B)False
Answer: True
Q2) Typically,a firm in its domestic stage of globalization has all financial transactions in its domestic currency.
A)True
B)False
Answer: True
Q3) Which of the following domestic financial instruments have NOT been modified for use in international financial management?
A) currency options and futures
B) interest rate and currency swaps
C) letters of credit
D) All of the above are domestic financial instruments that have also been modified for use in international financial markets.
Answer: D
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Chapter 2: The International Monetary System
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Sample Questions
Q1) Which of the following statements is NOT true?
A) The Gold Standard Era was characterized by growing openness in trade, but limited capital mobility.
B) The time period between world wars 1 and 2 (the inter war years) witnessed significant reductions in trade barriers and a rapid acceleration in international trade.
C) The Bretton Woods Era (post WWII) realized the increasing benefits of open economies. Furthermore, trade was increasingly dominated by capital.
D) Since March 1973, exchange rates have become much more volatile and less predictable than previous periods.
Answer: B
Q2) A currency board exists when a country's central bank commits to back its money supply entirely with foreign reserves at all times.
A)True
B)False
Answer: True
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Chapter 3: The Balance of Payments
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Sample Questions
Q1) In general,as a country's income increases,so does the demand for imports.
A)True
B)False
Answer: False
Q2) An American tourist purchases a leather jacket while in Italy.Which of the following statements is true?
A) The leather purchase would be considered an import for the U.S. BOP.
B) This transaction would be properly accounted for in the Current Account of the U.S. BOP.
C) The leather purchase is considered an import of a good, and thus, considered part of the balance of trade as well.
D) All of these statements are true.
Answer: D
Q3) The transition to floating exchange rate regimes in the 1970s (described in Chapter 3)changed the focus from the total BOP to its various subaccount like the current and financial account balances.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Financial Goals and Corporate Governance
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Sample Questions
Q1) The stakeholder capitalism model assumes that only systematic risk "counts" or is a prime concern for management.
A)True
B)False
Q2) The stakeholder capitalism model does not assume that equity markets are either efficient or inefficient.
A)True
B)False
Q3) Which of the following is NOT true regarding the stakeholder capitalism model?
A) Banks and other financial institutions are less important creditors than securities markets.
B) Labor unions are more powerful than in the Anglo-American markets.
C) Governments interfere more in the marketplace to protect important stakeholder groups.
D) All of the above are TRUE.
Q4) A recent study shows that privately held firms use less financial leverage and enjoy lower costs of debt than publicly traded firms.
A)True
B)False
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Chapter 5: The Foreign Exchange Market
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Sample Questions
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) ________ seek to profit from trading in the market itself rather than having the foreign exchange transaction being incidental to the execution of a commercial or investment transaction.
A) Speculators and arbitrageurs
B) Foreign exchange brokers
C) Central banks
D) Treasuries
Q3) While trading in foreign exchange takes place worldwide,the major currency trading centers are located in:
A) London, New York, and Tokyo.
B) New York, Zurich, and Bahrain.
C) Paris, Frankfurt, and London.
D) Los Angeles, New York, and London.
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Page 7
Chapter 6: International Parity Conditions
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Sample Questions
Q1) ________ states that differential rates of inflation between two countries tend to be offset over time by an equal but opposite change in the spot exchange rate.
A) The Fisher Effect
B) The International Fisher Effect
C) Absolute Purchasing Power Parity
D) Relative Purchasing Power Parity
Q2) Assume a nominal interest rate on one-year U.S.Treasury Bills of 3.80% and a real rate of interest of 2.00%.Using the Fisher Effect Equation,what is the exact expected rate of inflation in the U.S.over the next year?
A) 1.84%
B) 1.80%
C) 1.76%
D) 1.72%
Q3) Empirical studies show that the Fisher Effect works best for short-term securities.
A)True
B)False
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8
Chapter 7: Foreign Currency Derivatives: Futures and Options
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Sample Questions
Q1) The expected change in the option premium from a small change in the domestic interest rate (home currency)is term rho.
A)True
B)False
Q2) Which of the following is NOT a difference between a currency futures contract and a forward contract?
A) The futures contract is marked to market daily, whereas the forward contract is only due to be settled at maturity.
B) The counterparty to the futures participant is unknown with the clearinghouse stepping into each transaction, whereas the forward contract participants are in direct contact setting the forward specifications.
C) A single sales commission covers both the purchase and sale of a futures contract, whereas there is no specific sales commission with a forward contract because banks earn a profit through the bid-ask spread.
D) All of the above are true.
Q3) Compare and contrast foreign currency options and futures.Identify situations when you may prefer one vs.the other when speculating on foreign exchange.
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Page 9
Chapter 8: Interest Risk and Swaps
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Sample Questions
Q1) Refer to Instruction 8.1.After the fact,under which set of circumstances would you prefer strategy #2? (Assume your firm is borrowing money.)
A) Your credit rating stayed the same and interest rates went up.
B) Your credit rating stayed the same and interest rates went down.
C) Your credit rating improved and interest rates went down.
D) Not enough information to make a judgment.
Q2) If a financial manager earning interest on a future date were to buy Futures and interest rates end up going down,the position outcome would be:
A) Futures price falls; short earns a profit.
B) Futures price rises; short earns a loss.
C) Future price falls; long earns a loss.
D) Futures price rises; long earns a profit.
Q3) Refer to Instruction 8.1.Which strategy (strategies)will eliminate credit risk?
A) Strategy #1
B) Strategy #2
C) Strategy #3
D) Strategies #1 and #2
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10
Chapter 9: Foreign Exchange Rate Determination
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Sample Questions
Q1) Argentina's economic performance in the 1990s while their peso was pegged to the U.S.dollar can be characterized as ________ rates of inflation and ________ rates of unemployment.
A) high; high
B) low; low
C) low; high
D) high; low
Q2) It is safe to say that most determinants of the spot exchange rate are also affected by changes in the spot rate.i.e.,they are linked AND mutually determined.
A)True
B)False
Q3) Which of the following versions of PPP is thought to be the most relevant to possibly explaining what drives exchange rate values?
A) The Law of One Price
B) Absolute Purchasing Power Parity
C) Relative Purchasing Power Parity
D) The International Fisher Effect
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Chapter 10: Transaction Exposure
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Sample Questions
Q1) Currency risk management techniques include forward hedges,money market hedges,and option hedges.Draw a diagram showing the possible outcomes of these hedging alternatives for a foreign currency receivable contract.In your diagram,be sure to label the X and Y-axis,the put option strike price,and show the possible results for a money market hedge,a forward hedge,a put option hedge,and an uncovered position.(Note: Assume the forward currency receivable is British pounds and the put option strike price is $1.50/£,the price of the option is $0.04 the forward rate is $1.52/£ and the current spot rate is $1.48/£.)
Q2) The key arguments in opposition to currency hedging such as market efficiency,agency theory,and diversification do not have financial theory at their core. A)True B)False
Q3) A hedge constructed using puts foreign currency options would be symmetric. A)True B)False
Q4) With a perfect hedge,there is no uncovered exposure remaining. A)True B)False
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Page 12
Chapter 11: Translation Exposure
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Sample Questions
Q1) The temporal rate method is the most prevalent method today for the translation of financial statements.
A)True
B)False
Q2) A Canadian subsidiary of a U.S.parent firm is instructed to bill an export to the parent in U.S.dollars.The Canadian subsidiary records the accounts receivable in Canadian dollars and notes a profit on the sale of goods.Later,when the U.S.parent pays the subsidiary the contracted U.S.dollar amount,the Canadian dollar has appreciated 10% against the U.S.dollar.In this example,the Canadian subsidiary will record a:
A) 10% foreign exchange loss on the U.S. dollar accounts receivable.
B) 10% foreign exchange gain on the U.S. dollar accounts receivable.
C) Since the Canadian firm is a U.S. subsidiary, neither a gain nor loss will be recorded.
D) Any gain or loss will be recorded only by the parent firm.
Q3) It is possible to use different exchange rates for different line items on a financial statement.
A)True
B)False
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Page 13
Chapter 12: Operating Exposure
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Sample Questions
Q1) An MNE has a contract for a relatively predictable long-term inflow of Japanese yen that the firm chooses to hedge by paying for imports from Canada in Japanese yen.This hedging strategy is known as:
A) a natural hedge.
B) currency-switching.
C) matching.
D) diversification.
Q2) A ________ is the term used to describe a foreign currency agreement between two parties to exchange a given amount of one currency for another,and after a period of time,to give back the original amounts.
A) matched flow
B) currency swap
C) back-to-back loan
D) none of the above
Q3) Management must be able to predict disequilibria in international markets to take advantage of diversification strategies.
A)True
B)False
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Chapter 13: The Global Cost and Availability of Capital
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Sample Questions
Q1) Relatively high costs of capital are more likely to occur in:
A) highly illiquid domestic securities markets.
B) highly liquid domestic securities markets.
C) unsegmented domestic securities markets.
D) none of the above
Q2) A fully diversified domestic portfolio has a beta of:
A) 0.0.
B) 1.0.
C) -1.0.
D) There is not enough information to answer this question.
Q3) Portfolio theory assumes that investors are risk-averse.This means that investors:
A) cannot be induced to make risky investments.
B) prefer more risk to less for a given return.
C) will accept some risk, but not unnecessary risk.
D) All of the above are true.
Q4) Capital market segmentation is a financial market imperfection caused mainly by government constraints,institutional practices,and investor perceptions.
A)True
B)False
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Chapter 14: Raising Equity and Debt Globally
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Sample Questions
Q1) TropiKana Inc.,a U.S firm,has just borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant.If the interest rate is 5.50% per year and the Euro appreciates against the dollar from $1.40/ at the time the loan was made to $1.45/ at the end of the first year,how much interest will TropiKana pay at the end of the first year (rounded)?
A) $55,000
B) $79,750
C) $77,000
D) $37,931
Q2) Your authors note several empirical studies that have found:
A) no share price effect for foreign firms that cross-list on major U.S. exchanges.
B) a positive share price effect for foreign firms that cross-list on major U.S. exchanges.
C) a negative share price effect for foreign firms that cross-list on major U.S. exchanges.
D) none of the above
Q3) Eurobonds offer tax anonymity.
A)True
B)False
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Page 16
Chapter 15: Multinational Tax Management
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Sample Questions
Q1) Tax haven subsidiaries of MNEs are categorically referred to as international offshore financial centers.
A)True
B)False
Q2) Refer to Table 15.1.The additional U.S.taxes due on the repatriation of income from the Ukraine to the United States,alone,assuming a 50% payout rate,is:
A) excess foreign tax credits of $110,000.
B) additional U.S. taxes due of $97,000.
C) additional U.S. taxes due of $36,500.
D) excess foreign tax credits of $18,500.
Q3) The territorial approach to taxation policy is also termed the ________ approach.
A) source
B) ethical
C) greedy
D) location
Q4) Explain the worldwide and territorial approaches of national taxation.The authors state that the United States uses both approaches.How can this be? Give an example of each taxation approach.
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Page 17
Chapter 16: International Trade Finance
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Sample Questions
Q1) A letter of credit is an agreement by the bank to pay against documents rather than the actual merchandise.
A)True
B)False
Q2) A draft is sometimes called a revocable letter of credit.
A)True
B)False
Q3) The Eximbank does all of the following EXCEPT:
A) guarantees lease transactions
B) supplies counseling for exporters in finding financing for US goods
C) finances the cost involved in the preparation of feasibility studies for non-US clients
D) provides letters of credit for U.S. exporters.
Q4) Export credit insurance provides assurance to the exporter or the exporter's bank that,should the foreign customer default on payment,the insurance company will pay for a major portion of the loss.
A)True
B)False
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Chapter 17: Foreign Direct Investment and Political Risk
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Sample Questions
Q1) ________ risks are those that affect the MNE at the local or project level,but originate at the country level.
A) Country-specific
B) Firm-specific
C) Global-specific
D) none of the above
Q2) Which of the following is NOT one of classic trade-off confronting gloabl challengers according to the Boston Consulting Group?
A) Growth versus market share
B) Volume versus margin
C) Rapid expansion versus low leverage
D) Growth versus dividends
Q3) An alternative strategy to engaging in bribery in international investments include:
A) refuse bribery outright.
B) retain local advisors to diffuse requests for bribes.
C) educate management and local employees about the firm's bribery policy.
D) all of the above
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19
Chapter 18: Multinational Capital Budgeting and Cross-Border Acquisitions
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Sample Questions
Q1) Debt is usually a large component of project financing.
A)True
B)False
Q2) In international capital budgeting,the appropriate discount rate for determining the present value of the expected cash flows is always the firm's domestic WACC.
A)True
B)False
Q3) The predictability of the project's revenue stream is essential in securing project financing.Which of the following is NOT a typical contract provisions that are intended to assure adequate cash flow?
A) quantity and quality of the project's output
B) a pricing formula
C) circumstances that permit changes in the contract
D) fronting loan
Q4) There are no important differences between domestic and international capital budgeting methods.
A)True
B)False
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