Global Financial Management
Test Bank
Course Introduction
Global Financial Management explores the principles and practices of managing financial resources in an international context. The course covers topics such as foreign exchange risk, international capital markets, global financing and investment decisions, multinational capital budgeting, and strategies for managing political and economic risks. Students will examine the role of international financial institutions, analyze cross-border mergers and acquisitions, and evaluate the impact of global economic trends on corporate financial policies. Through case studies and real-world examples, the course prepares students to address complex financial challenges faced by multinational organizations in the dynamic global marketplace.
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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79 Verified Questions
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Sample Questions
Q1) When conducting international business, firms generally face the most risk when they:
A)engage in franchising.
B)make acquisitions of existing operations.
C)establish new subsidiaries.
D)engage of international trade.
E)B and C
Answer: A
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 for an MNC results in relatively high agency costs.
A)True
B)False
Answer: False
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Page 3
Chapter 2: International Flow of Funds
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Sample Questions
Q1) A country's net outflow of funds ____ its interest rates, and ____ its economic conditions.
A)affects; affects
B)affects; does not affect
C)does not affect; does not affect
D)does not affect; affects
Answer: A
Q2) An increase in the current account deficit will place ____ pressure on the home currency value, other things being equal.
A)upward
B)downward
C)no
D)upward or downward (depending on the size of the deficit)
Answer: B
Q3) Recently, the U.S. experienced an annual balance of trade representing a ____.
A)large surplus (exceeding $100 billion)
B)small surplus
C)level of zero
D)deficit
Answer: D
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Chapter 3: International Financial Markets
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101 Flashcards
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Sample Questions
Q1) Eurodollar deposits consisting of the oil revenues of oil-producing countries are known as:
A)euros.
B)petro-euros.
C)petrodollars.
D)petro deposits.
Answer: C
Q2) An MNC's short-term financing decisions are satisfied in the ____ market, while its medium-term debt financing decisions are satisfied in the ____ market.
A)international money; international credit
B)international money; international bond
C)international credit; international money
D)international bond; international credit
E)international money; international stock
Answer: A
Q3) The ask quote is the price at which a bank offers to sell a currency.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Exchange Rate Determination
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Sample Questions
Q1) Which of the following events would most likely result in an appreciation of the U.S. dollar?
A)U.S. inflation is very high.
B)The Fed indicates that it will raise U.S. interest rates.
C)Future U.S. interest rates are expected to decline.
D)Japan is expected to increase interest rates in the near future.
Q2) A large increase in the income level in Mexico along with no growth in the U.S. income level is normally expected to cause (assuming no change in interest rates or other factors) a(n) ____ in Mexican demand for U.S. goods, and the Mexican peso should ____.
A)increase; appreciate
B)increase; depreciate
C)decrease; depreciate
D)decrease; appreciate
Q3) A financial institution that expects a particular foreign currency to appreciate may try to benefit from its expectation by borrowing funds in that currency and repaying the loan aFter the exchange rate changes in the expected manner.
A)True
B)False
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Page 6
Chapter 5: Currency Derivatives
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Sample Questions
Q1) Assume that the British pound futures price for September is $1.60. Given that 62,500 units are in a British pound futures contract, the seller of British pound futures will receive $____ on the delivery date.
A)39,062.50
B)100,000
C)48,000
D)87,062.50
Q2) If the spot rate of the euro increased substantially over a one-month period, the futures price on euros would likely ____ over that same period.
A)increase slightly
B)decrease substantially
C)increase substantially
D)stay the same
Q3) The writer of an currency call option is obligated to buy the currency if the option is exercised.
A)True
B)False
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Chapter 6: Government Influence on Exchange Rates
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Sample Questions
Q1) Which of the following is not a reason for devaluation of a currency?
A)high inflation.
B)to reduce balance-of-trade deficit.
C)to decrease the amount of imports.
D)high unemployment.
Q2) To weaken the dollar using sterilized intervention, the Fed will ____ U.S. dollars and simultaneously ____ Treasury securities.
A)buy; sell
B)sell; sell,
C)sell; buy.
D)buy; sell..
Q3) The euro is pegged to other currencies of European countries that have not adopted the euro.
A)True
B)False
Q4) The Bank of England is responsible for setting the monetary policy for the European countries participating in the euro.
A)True
B)False
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Chapter 7: International Arbitrage and Interest Rate Parity
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Sample Questions
Q1) Assume the following information for a bank quoting on spot exchange rates: Based on the information given, as you and others perform triangular arbitrage, what should logically happen to the spot exchange rates?
Exchange rate of Singapore dollar in U.S $=$.32
Exchange rate of pound in U.S.$=$1.50
Exchange rate of pound in Singapore dollars=S$4.50
A)The Singapore dollar value in U.S. dollars should appreciate, the pound value in U.S. dollars should appreciate, and the pound value in Singapore dollars should depreciate.
B)The Singapore dollar value in U.S. dollars should depreciate, the pound value in U.S. dollars should appreciate, and the pound value in Singapore dollars should depreciate.
C)The Singapore dollar value in U.S. dollars should depreciate, the pound value in U.S. dollars should appreciate, and the pound value in Singapore dollars should appreciate.
D)The Singapore dollar value in U.S. dollars should appreciate, the pound value in U.S. dollars should depreciate, and the pound value in Singapore dollars should appreciate
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9
Chapter 8: Relationships among Inflation, Interest Rates, and Exchange Rates
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Sample Questions
Q1) Interest rate parity can only hold if purchasing power parity holds.
A)True
B)False
Q2) If nominal British interest rates are 3 percent and nominal U.S. interest rates are 6 percent, then the British pound (£) is expected to ____ by about ____percent, according to the international Fisher effect (IFE).
A)depreciate; 2.9
B)appreciate; 2.9
C)depreciate; 1.0
D)appreciate; 1.0
E)none of the above
Q3) Among the reasons that purchasing power parity (PPP) does not consistently occur are:
A)exchange rates are affected by interest rate differentials.
B)exchange rates are affected by national income differentials and government controls.
C)supply and demand may not adjust if no substitutable goods are available.
D)all of the above are reasons that PPP does not consistently occur.
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Chapter 9: Forecasting Exchange Rates
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Sample Questions
Q1) Which of the following is not a method of forecasting exchange rate volatility?
A)using the absolute forecast error as a percentage of the realized value
B)using the volatility of historical exchange rate movements as a forecast for the future
C)using a time series of volatility patterns in previous periods
D)deriving the exchange rate's implied standard deviation from the currency option pricing model
Q2) MNCs can forecast exchange rate volatility to determine the potential range surrounding their exchange rate forecast.
A)True
B)False
Q3) In general, any key managerial decision that is based on forecasted exchange rates should rely completely on one forecast rather than alternative exchange rate scenarios.
A)True
B)False
Q4) The closer graphical points are to the perfect forecast line, the better the forecast. A)True
B)False
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11
Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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Sample Questions
Q1) If the net inflow of one currency is about the same amount as a net outflow in another currency, the firm will benefit if these two currencies are negatively correlated because the transaction exposure is offset.
A)True
B)False
Q2) The exposure of an MNC's consolidated financial statements to exchange rate fluctuations is known as transaction exposure.
A)True
B)False
Q3) Assume a regression model in which the dependent variable is the firm's stock price percentage change, and the independent variable is the percentage change in the foreign currency. The coefficient is negative. This implies that the company's stock price increases if the foreign currency appreciates.
A)True
B)False
Q4) The VaR method presumes that the distribution of exchange rate movements is normal.
A)True
B)False
Chapter 11: Managing Transaction Exposure
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Sample Questions
Q1) When the real cost of hedging payables is positive, this implies that hedging was more favorable than not hedging.
A)True
B)False
Q2) A cross-hedging strategy is most effective with currencies that are _____, whereas currency diversification is most effective with currencies that are ______.
A)highly positively correlated; not highly correlated B)highly negatively correlated; not highly correlated C)expected to appreciate; expected to depreciate D)expected to depreciate; expected to appreciate
Q3) MNCs should hedge receivables using bear spreads only for currencies that are expected to appreciate substantially prior to option expiration.
A)True
B)False
Q4) A money market hedge involves taking a money market position to cover a future payables or receivables position.
A)True
B)False
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Chapter 12: Managing Economic Exposure and Translation Exposure
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Sample Questions
Q1) Assume a U.S. firm uses a forward contract to hedge all of its translation exposure. Also assume that the firm underestimated what its foreign earnings would be. Assume that the foreign currency depreciated over the year. The firm would generate a translation ____, which would be ____ than the gain generated by the forward contract.
A)loss; smaller
B)loss; larger
C)gain; larger
D)gain; smaller
Q2) Assume that a Japanese car manufacturer exports cars that are priced in yen to U.S. dealerships. The demand for those cars declines when the yen is strong. The manufacturer also produces some cars in the United States with U.S. materials, and those cars are priced in dollars. The manufacturer could reduce its economic exposure by:
A)closing down most of its plants in the United States.
B)producing more automobiles in the United States.
C)relying completely on Japanese suppliers for its parts.
D)pricing its exports in dollars.
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Chapter 13: Direct Foreign Investment
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Sample Questions
Q1) Assume the British pound appreciates against the dollar while the Japanese yen depreciates against the dollar. Which of the following is true?
A)Japanese exporters can increase American sales by shifting operations from their British subsidiaries to Japan.
B)British exporters can increase American sales by shifting operations from their Japanese subsidiaries to Britain.
C)American exporters can increase sales to Japan by shifting operations from Japanese subsidiaries to American subsidiaries.
D)B and C
Q2) To exploit monopolistic advantages, an MNC should:
A)acquire a competitor that has controlled its local market.
B)establish a subsidiary or acquire a competitor in a new market.
C)establish a subsidiary in a market where tougher trade restrictions will adversely affect the firm's export volume.
D)establish subsidiaries in markets where competitors are unable to produce the identical product.
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15
Chapter 14: Multinational Capital Budgeting
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Sample Questions
Q1) Refer to Exhibit 14-1. Assume that NOK8,000,000 of the cash flow in Year 4 represents the salvage value. Baps is not completely certain that the salvage value will be this amount and wishes to determine the break-even salvage value, which is $____.
A)510,088.04
B)1,710,088
C)1,040,000
D)none of the above
Q2) Refer to Exhibit 14-1. What is the net present value of the Norwegian project?
A)-$803,848
B)$5,803,848
C)$1,048,829
D)none of the above
Q3) 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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Page 16
Chapter 15: International Corporate Governance and Control
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Sample Questions
Q1) The sale of a subsidiary by an MNC is referred to as a divestiture.
A)True
B)False
Q2) Which of the following might cause the board of directors of an MNC to not be effective at governance?
A)The firm's CEO serves as chair of the board.
B)The board consists mainly of outside members who are not managers of the firm.
C)The board consists mainly of inside members who are managers of the firm.
D)A and C
Q3) The valuation of a proposed international divestiture can be determined by comparing the present value of the cash flows if the project is continued to the proceeds that would be received (aFter taxes) if the project is divested.
A)True
B)False
Q4) An international acquisition may be preferable to the establishment of a new subsidiary because the firm can immediately expand its international business and benefit from existing customer relationships.
A)True
B)False
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Chapter 16: Country Risk Analysis
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Sample Questions
Q1) The primary purpose of country risk analysis when applied to capital budgeting is usually to:
A)measure the effect of country risk on sales.
B)measure the effect of country risk on cash flows.
C)measure the effect of country risk on the consolidated balance sheet.
D)measure the effect of country risk on the consolidated income statement.
Q2) Which of the following is probably the best method of incorporating country risk into a capital budgeting analysis?
A)Adjusting the discount rate upward
B)Adjusting the input variables to estimate the sensitivity of the project's NPV
C)Adjusting the political risk rating to obtain a more favorable NPV
D)Country risk should be ignored in capital budgeting, since it is a subjective analysis.
Q3) Which of the following is not a way in which country risk analysis can be used?
A)to monitor countries where an MNC is currently doing business
B)as a screening device to avoid conducting business in countries with excessive risk.
C)to revise an MNC's financing decisions
D)to determine the degree to which the MNC is exposed to exchange rate movements
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Page 18
Chapter 17: Multinational Cost of Capital and Capital Structure
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Sample Questions
Q1) Which of the following factors is generally not expected to have a favorable impact on an MNC's cost of capital according to the text?
A)easy access to international capital markets
B)high degree of international diversification
C)high exposure to exchange rate fluctuations
D)all of the above
Q2) Which of the following is a corporate characteristic that may affect an MNC's capital structure decision?
A)the MNC's cash flow stability
B)its access to retained earnings
C)its credit risk
D)All of the above may affect an MNC's capital structure decision.
Q3) An MNC's "global" capital structure is:
A)the MNC's capital structure in the United States.
B)the MNC's capital structure relative to the structures of competitors across all countries.
C)the MNC's capital structure where it has its largest subsidiary.
D)the combination of the capital structures of the parent and all of its subsidiaries.
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Chapter 18: Long-Term Debt Financing
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Sample Questions
Q1) Currency swaps, whereby two parties exchange currencies at a specified point in time for a specified price, are oFten used by MNCs to hedge against interest rate risk.
A)True
B)False
Q2) New Hampshire Corp. has decided to issue three-year bonds denominated in 5 million Russian rubles at par. The bonds have a coupon rate of 17 percent. If the ruble is expected to appreciate from its current level of $.03 to $.032, $.034, and $.035 in years 1, 2, and 3, respectively, what is the financing cost of these bonds?
A)17 percent.
B)23.18 percent.
C)22.36 percent.
D)23.39 percent.
Q3) 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) Consider an exporter that sells its accounts receivables to another firm that becomes responsible for obtaining payment from the various importers. This reflects:
A)accounts receivable financing.
B)consignment.
C)factoring.
D)a letter of credit.
Q2) According to the text, international trade activity has generally ____ over time. This should cause the popularity of trade finance techniques to ____ over time.
A)increased; increase
B)increased; decrease
C)decreased; increase
D)decreased; decrease
Q3) Under prepayment, the exporter will not ship the products until the exporter has received payment from the importer.
A)True
B)False
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Chapter 20: Short-Term Financing
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Sample Questions
Q1) If interest rate parity exists, and the forward rate is an accurate estimator of the future spot rate, the foreign financing rate will be ____ the home financing rate.
A)lower than B)greater than C)similar to D)none of the above
Q2) Assume the U.S. financing rate is 10 percent and that the financing rate in Germany is 9 percent. The expected cost of financing in dollars and financing in euros next year would be the same if the euro is expected to ____.
A)appreciate by 0.92 percent
B)depreciate by 0.92 percent
C)appreciate by 1.00 percent
D)depreciate by 1.00 percent
Q3) To avoid exchange rate risk when borrowing a foreign currency, an MNC could hedge its position by using interest rate swaps.
A)True
B)False
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Chapter 21: International Cash Management
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Sample Questions
Q1) 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.
Q2) To ____, MNCs can use preauthorized payments.
A)accelerate cash inflows
B)minimize currency conversion costs
C)manage blocked funds
D)manage intersubsidiary cash transfers
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