Global Financial Markets
Final Exam Questions
Course Introduction
This course provides an in-depth exploration of global financial markets, examining their structure, functions, and key participants. Students will gain a comprehensive understanding of how financial markets operate across borders, including the roles of equities, debt, foreign exchange, and derivatives markets. The course covers fundamental concepts such as market efficiency, risk management, and regulatory frameworks, as well as the impact of globalization, technological advances, and geopolitical events on market dynamics. Practical case studies and real-world examples are used to illustrate challenges and opportunities in the global financial environment, preparing students for careers in finance, investment, and international business.
Recommended Textbook
International Financial Management 2nd Edition by Geert J Bekaert
Available Study Resources on Quizplus
21 Chapters
665 Verified Questions
665 Flashcards
Source URL: https://quizplus.com/study-set/389 Page 2
Chapter 1: Globalization and the Multinational Corporation
Available Study Resources on Quizplus for this Chatper
33 Verified Questions
33 Flashcards
Source URL: https://quizplus.com/quiz/6776
Sample Questions
Q1) Between 2007 and 2010 the world witnessed a full-blown financial crisis that was attributed to
A) subprime mortgage repricing.
B) quantitative easing by the Fed.
C) foreign exchange imbalances.
D) banking failures.
Answer: A
Q2) Which of the following is NOT a protectionist tendency?
A) tariffs
B) comparative advantage
C) non-tariff barriers
D) quotas
Answer: B
Q3) What is the name for the shifting of non-strategic functions to specialist firms to reduce costs?
A) outsourcing
B) multinational company
C) globalization
D) transnational corporations
Answer: A
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: The Foreign Exchange Market
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6787
Sample Questions
Q1) What is the name of the computer network in which member banks globally send and receive messages pertaining to foreign exchange transactions?
A) Fed funds
B) SWIFT
C) CHIPS
D) The Automated Clearing House (ACH)
Answer: B
Q2) When an exchange rate is quoted by a dealer in country as the local currency price of one unit of foreign currency,he is quoting the ________.
A) indirect quote
B) direct quote
C) bid quote
D) ask quote
Answer: B
Q3) Describe how an exchange rate is like a market price?
Answer: The direct quote for a currency is the local currency price (numerator)of one unit of foreign currency (denominator).
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Forward Markets and Transaction Exchange Risk
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6790
Sample Questions
Q1) From the perspective of the MNC,the most important purpose of the forward markets is the process of ________.
A) hedging
B) arbitraging
C) speculating
D) preventing default
Answer: A
Q2) Suppose the quote on pounds was $1.624-31.If you converted $10,000 to pounds and then back to dollars,how many dollars would you end up with?
Answer: For $10,000,you would buy pounds at the asking price.Given this quote,the asking price would be $1.631/£.At the ask rate this would give you £6,131.21 ($10,000/1.631).You would then resell them at the bid price of $1.624.When you completed this transaction it would yield $9,957.08.The round-trip cost of the two transactions,buying and selling ,would be $42.92.
Q3) Why would an MNC use a spot-forward swap?
Answer: A spot-forward swap involves either the purchase of foreign currency spot against the sale of the same amount of foreign currency forward,or the sale of foreign currency spot against the purchase of the same amount of foreign currency forward.
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: The Balance of Payments
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6791
Sample Questions
Q1) The purchases of goods and assets by domestic residents from foreign residents are ________ because they cause an outflow of foreign exchange.________ increase the demand for the foreign money in the foreign exchange market.
A) credit transactions
B) current account transactions
C) debit transactions
D) capital account transactions
Q2) Persistent,large current account deficits are often associated with currency crises for floating rate currencies in which the currency with the crisis ________ substantially.
A) appreciates
B) devaluates
C) depreciates
D) revaluates
Q3) The Japanese current account surplus can best be attributed to A) the high rate of Japanese domestic investment.
B) Japanese protectionism.
C) the high rate of Japanese savings.
D) government budget deficits.
Q4) Explain the double-entry system of the balance of payments.
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Exchange Rate Systems
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6792
Sample Questions
Q1) In the ________ exchange rate system,the currency has limited flexibility and the rate is kept within a fixed band.
A) currency board
B) floating exchange rate
C) target zone
D) pegged exchange rate system
Q2) What is the name of the exchange rate system where the governments attempt to make sure the values of their currencies trade at particular values in the foreign exchange market,relative to another currency or a "basket" of currencies?
A) European currency unit
B) fixed currencies
C) floating currencies
D) dirty float currency
Q3) How would a target zone system or a pegged exchange rate system that has been in place mask the true currency risk?
Q4) Why are pegged exchange rates often overvalued and difficult to governments to maintain?
Q5) Why would a central bank buy or sell foreign currency?
Q6) Describe the Bretton Woods currency system?
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Interest Rate Parity
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/6793
Sample Questions
Q1) When it is said that there exists covered interest arbitrage opportunities,the term covered means the arbitrage is not exposed to
A) exchange rate risk.
B) manipulation by speculators.
C) central bank interventions.
D) government actions against the arbitrageurs.
Q2) Identify an external currency market and how it operates?
Q3) Which one of the following is NOT a reason for using hedges such as a synthetic forward?
A) In some currency markets, forward contracts may not be available, but they can be manufactured using a money market hedge.
B) Individual companies are not able to borrow and lend at the interest rates available in the interbank market.
C) When time horizons are long, forward contracts can be expensive as the bid-ask spread widens substantially.
D) It may be unfavorable to consider borrowing and lending to hedge one's currency risk.
Q4) Explain the bid-ask spread in the external currency market?
To view all questions and flashcards with answers, click on the resource link above.
8
Chapter 7: Speculation and Risk in the Foreign Exchange Market
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6794
Sample Questions
Q1) Because systematic risk measures how much an asset's return co-moves with the market,it ________.
A) can be diversified away with the appropriate hedging
B) cannot be diversified away
C) is partially driven by idiosyncratic risk
D) can be completely eliminated using international securities
Q2) The ________ on an asset is the expected return on the asset in excess of the return on a risk-free asset.
A) risk premium
B) covariance
C) systematic risk
D) beta
Q3) Regression tests of the unbiasedness hypothesis indicate that it is ________ with real life events.
A) an unbiased indicator of expected future exchange rates
B) very consistent
C) not consistent
D) has a strong correlation to the current account
Q4) What is the main determinant of the volatility of forward market returns?
Page 9
To view all questions and flashcards with answers, click on the resource link above.
Chapter 8: Purchasing Power Parity and Real Exchange
Rates
Available Study Resources on Quizplus for this Chatper
33 Verified Questions
33 Flashcards
Source URL: https://quizplus.com/quiz/6795
Sample Questions
Q1) Explain what is meant by the real exchange rate?
Q2) When the external purchasing power or a currency is greater than the internal purchasing power,the currency is said to be ________.
A) overvalued
B) undervalued
C) at parity
D) in arbitrage
Q3) All of the following options are some of the factors that cause deviations from absolute PPP EXCEPT:
A) transaction costs.
B) non-traded goods.
C) balance of payments.
D) changes in relative prices.
Q4) Within Germany,what is the name for the power of a U.S.dollar when it is used to purchase an amount of goods and services?
A) internal purchasing power
B) external purchasing power
C) absolute purchasing power parity
D) relative purchasing power parity
questions and
Chapter 9: Measuring and Managing Real Exchange Risk
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6796
Sample Questions
Q1) ________ profitability refers to the purchasing power of a firm's nominal profits.
A) Real
B) Relative
C) Global
D) Inflation-adjusted
Q2) When managers respond to changes in the real exchange rate with their relative price,it is known as ________.
A) real exchange risk
B) economic exposure
C) exchange rate pass-through
D) a real depreciation
Q3) The development of what marketing strategy helps in situations of real exchange risk because consumers will not switch to competitors' products that enjoy a temporary pricing benefit from a favorable fluctuation in the exchange rate?
A) market entry decisions
B) the frequency of price adjustments
C) brand loyalty
D) pricing policy
To view all questions and flashcards with answers, click on the resource link above.
11
Chapter 10: Exchange Rate Determination and Forecasting
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6777
Sample Questions
Q1) ________ techniques are typically based on formal economic models of exchange rate determination.
A) Technical analysis
B) Fundamental analysis
C) Exchange rate forecasting
D) Mean absolute error
Q2) Why would technical analysis not be useful if the international parity conditions held?
Q3) Which of the following options is NOT a correct reason to why discuss technical analysis?
A) Forex dealers make extensive use of technical analysis.
B) The forward rate may not be an unbiased predictor of the future spot rate, even in an efficient market.
C) If a sufficiently large segment of the trading world is using technical analysis, demands and supplies to trade currencies will be buffeted by these traders even if they are irrational.
D) The variables on the fundamental analysis as well as the macroeconomic inputs are all available at frequent intervals.
Q4) Describe how the macroeconomic fundamental,money supply,affects exchange rates.
12
To view all questions and flashcards with answers, click on the resource link above.
Chapter 11: International Debt Financing
Available Study Resources on Quizplus for this Chatper
33 Verified Questions
33 Flashcards
Source URL: https://quizplus.com/quiz/6778
Sample Questions
Q1) Which type of bond is denominated in one or more currencies but is traded in external markets outside the borders of the countries issuing the currencies?
A) international bond
B) domestic bond
C) Eurobond
D) foreign bond
Q2) Which type of bond is issued and traded within the internal market of a single country and denominated in the currency of that country?
A) dragon bond
B) domestic bond
C) Eurobond
D) foreign bond
Q3) Which one of the following would NOT contribute to the positive creditworthiness of the firm?
A) the firm's financial structure
B) its profitability
C) the number of bank accounts it holds
D) the stability of its cash flows
Q4) What are the three main sources of financing for any firm?
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: International Equity Financing
Available Study Resources on Quizplus for this Chatper
31 Verified Questions
31 Flashcards
Source URL: https://quizplus.com/quiz/6779
Sample Questions
Q1) ________,unlike ADRs,can trade across many markets and settle in the currency of each market.
A) Global registered shares
B) Global depository receipts
C) Euro equities
D) Cross-listed stock
Q2) The ________ that attempted to separate commercial from investment banking practices by banks in the U.S.has been dismantled in recent years
A) U.S. Securities Exchange Commission
B) Maastricht Treaty
C) Shelf Registration Act
D) Glass-Steagall Act
Q3) What are the most import characteristics of foreign securities that leads to diversification benefits?
Q4) The stock markets of the least developed countries are called ________ markets.
A) emerging
B) start-up
C) frontier
D) secondary
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: International Capital Market Equilibrium
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6780
Sample Questions
Q1) Which one of the following causes the regression computation of a stock's beta to be imprecise?
A) total risk
B) systematic risk
C) idiosyncratic risk
D) home country bias
Q2) Suppose Ford Motors managers would like to invest in a new production line and must determine a cost of capital for the investment.The beta for Ford is 1.185,the beta for the automobile industry is 0.97,the equity premium on the world market is assumed to be 6%,and the risk-free rate is 3%.Propose a range of cost-of-capital estimates to consider in the analysis.
Q3) What are some benefits of a portfolio that is internationally diversified?
Q4) In integrated markets,the covariance with the world should determine the expected return on the ________.
A) international market
B) world market
C) domestic market
D) country market
Q5) What is the trend for the home bias phenomenon.
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Country and Political Risk
Available Study Resources on Quizplus for this Chatper
31 Verified Questions
31 Flashcards
Source URL: https://quizplus.com/quiz/6781
Sample Questions
Q1) What is the name of the type of insurance that can be purchased in the event a government may move against an exporter?
A) credit risk insurance
B) political risk insurance
C) commercial risk insurance
D) sovereign risk insurance
Q2) Suppose you are the Minister of Labor in Brazil and your government is proposing to raise the minimum wage to raise the income of the poorer workers and thereby offset the effects of other economic policies that man adversely impact them.Others in the cabinet are concerned about the effects of the policy will have on employment and competitiveness.What is your response to them?
Q3) When the government of a country may possibly default on its bond payments to outside investors,the risk is referred to as
A) political risk.
B) nationalization risk.
C) sovereign risk.
D) business risk.
Q4) How might a government budget deficit lead to inflation?
Q5) What are some indicators of country health?
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: International Capital Budgeting
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6782
Sample Questions
Q1) The basic principle of capital budgeting is that
A) all projects with positive adjusted cash flows should be accepted.
B) all projects with adjusted cash flows of zero or greater.
C) only projects with adjusted cash flows should be accepted.
D) only projects financed entirely with equity be accepted.
Q2) Adjusted net present value is developed using the following steps: first,discount the cash flows of the all-equity firm,second,add the value of the financial side effects,and,third,
A) add the salvage value of the project.
B) add the value of any growth options that arise during the project.
C) add financing costs.
D) add cash flows from project financing such as bank loans.
Q3) Of the following which cash flow provides pure profit to the parent company: licensing agreements,royalties,and overhead allocation fees?
Q4) The first step in deriving an ANPV for a project is to
A) add the net present value of financial side effects.
B) add the present value of any growth options.
C) calculate the net present value of the project's cash flows.
D) determine the terminal value of the project.
Q5) How does the role of underwriting affect the issuing of securities?
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Additional Topics in International Capital Budgeting
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6783
Sample Questions
Q1) Because the cash flows from an international project may be denominated in different currencies from the headquarters,one of the very first decisions is to
A) do the valuation using forecasts of the foreign or home currency.
B) determine the salvage value at the terminal stage of the project.
C) calculate the stream of free cash flows.
D) arrange the financing in the foreign or domestic currency.
Q2) Assuming an upward-sloping term structure of spot interest rates,if the expected profits from a foreign project are discounted by a higher discount rate found in later years,the ________ of the project is penalized needlessly.
A) future value
B) future market value
C) total risk
D) present value
Q3) What is the most important reason to consider real currency appreciation and depreciation forecasts when doing an international capital budgeting analysis?
Q4) With respect to project value,what is meant by the underinvestment problem?
Q5) Explain how equity is a residual claimant in the flow-to-equity approach to capital budgeting?
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Risk Management and the Foreign Currency
Hedging Decision
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6784
Sample Questions
Q1) If a country's corporate tax rate is flat,when does it not make sense for a firm to hedge?
Q2) When a firm's pretax income is more volatile,
A) the benefits of hedging currency risk are smaller.
B) the benefits of hedging currency risk are greater.
C) hedging will produce mixed benefits to the firm.
D) it is not possible to determines whether any benefits are greater.
Q3) What are the gains from hedging foreign exchange risk?
Q4) Why would a firm ever forgo a positive NPV project? How can hedging help prevent this situation from arising?
Q5) Modigliani and Miller argued that a corporation's financial policies,such as hedging foreign exchange risk,________ unless they lowered the firm's taxes,affected its investment decisions,or could be done more cheaply than individual investors' transactions could be done.
A) do not change the value of the firm's assets
B) always change the value of the firm's assets
C) were difficult to assess
D) were relevant to a firm's dividend policy
Q6) Why is hedging considered a cost center and not a profit center?
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Financing International Trade
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6785
Sample Questions
Q1) With a ________,the exporter retains title and control of the goods until the importer has paid for the goods.
A) sight draft
B) time draft
C) documentary collection
D) clean bill of lading
Q2) A(n)________ is a document required by certain countries which forces the exporter to provide information to customs officials in the importing country with the goal of preventing false declarations of the value of the merchandise.
A) consular invoice
B) order bill of lading
C) commercial invoice
D) clean bill of lading
Q3) What is the most popular way for an exporter to finance its accounts receivable?
Q4) Explain the fundamental financing problem in international trade?
Q5) What is a banker's acceptance? How is one created? Whose liability is it?
Q6) What are four different methods by which an exporter can accept payment from an importer? List them in increasing order of risk to the importer.
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Managing Net Working Capital
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6786
Sample Questions
Q1) What is the name of the type of demand for money that arises because a firm may need to purchase something due to an unanticipated change in its environment?
A) transactions
B) precautionary
C) short-term
D) long-term
Q2) What are the guidelines to use transfer pricing to shift income around the world?
Q3) What is the most important purpose for a foreign affiliate to have a well-defined dividend policy ?
Q4) Suppose ABC International Company's Canadian subsidiary sells 1,300 trucks monthly to the French affiliate at a transfer price of $27,000 per truck.The Canadian and French marginal tax rates on corporate income are 45% and 50%,respectively.Assume the transfer price of the trucks can be set at any level between $25,000 and $30,000.Explain the transfer price you will set in order to minimize the total taxes paid by the Company.
Q5) What are the constraints facing international cash management from purely domestic cash management?
To view all questions and flashcards with answers, click on the resource link above.
Page 21
Chapter 20: Foreign Currency Futures and Options
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6788
Sample Questions
Q1) The original or first seller of the option is known as the ________.
A) option broker
B) writer
C) option commission merchant
D) clearing member
Q2) What is the term for the revenue immediately generated from exercising a currency option?
A) open interest
B) leading payment
C) margin
D) intrinsic value
Q3) What effects does "marking to market" have on futures contracts?
Q4) The ________ is the minimum amount that must be kept in the futures margin account to guard against severe volatility in the futures contract price.
A) initial margin
B) settle price
C) maintenance margin
D) open interest
Q5) What does it mean for an American option to be "in the money"?
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Interest Rates and Foreign Currency Swaps
Available Study Resources on Quizplus for this Chatper
31 Verified Questions
31 Flashcards
Source URL: https://quizplus.com/quiz/6789
Sample Questions
Q1) What is the name of the clause in a back-to-back loan that stipulates that if one party defaults on a payment,the other party can withhold corresponding payments?
A) right of offset
B) topping-off
C) all-in-cost
D) with-recourse
Q2) The ________ is the amount of basis points added to the yield to maturity on a government bond corresponding to that maturity to get the fixed interest rate of an interest rate swap.
A) swap spread
B) all-in cost
C) right of offset
D) yield to call
Q3) Suppose Siemens Corporation would like to borrow fixed-rate yen and can borrow them at 4.5% or floating-rate dollars at LIBOR + 0.25%.The Singapore Development Bank would like to borrow floating-rate dollars and can borrow fixed-rate yen at 4.9% or floating-rate dollars at LIBOR + 0.8%.What is the range of possible cost savings that Siemens can realize through an interest rate/currency swap with Singapore?
To view all questions and flashcards with answers, click on the resource link above. Page 23