International Banking and Finance
Mock Exam
Course Introduction
International Banking and Finance explores the structure, operations, and regulatory environment of banks and financial institutions operating in the global arena. The course examines topics such as international financial markets, foreign exchange mechanisms, risk management, cross-border lending, payment systems, and the impact of international financial regulations. Students will learn about the role of multinational banks, international monetary policy, and the challenges associated with operating in diverse regulatory and economic environments, equipping them with the analytical tools necessary for effective decision-making in international financial settings.
Recommended Textbook
Multinational Business Finance 15th Edition by David K. Eiteman
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18 Chapters
1227 Verified Questions
1227 Flashcards
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Page 2
Chapter 1: Multinational Financial Management: Opportunities and Challenges
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73 Verified Questions
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Sample Questions
Q1) A number of financial instruments that are used in domestic financial management have been modified for use in international financial management. Examples are foreign currency options and futures, interest rate and currency swaps, and letters of credit.
A)True
B)False
Answer: True
Q2) Financial globalization has NOT resulted in:
A) continuing imbalances of balance of payments.
B) an increase in quantity and speed in the flow of capital across the world.
C) capital markets more open and an increase in the availability of capital for many organizations.
D) an increase in the flow of capital into and out of industrialized markets.
Answer: C
Q3) It would be safe to make the statement that modern telecommunications now take business activities to labor rather than moving labor to the places of business.
A)True
B)False
Answer: True
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Chapter 2: The International Monetary System
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Sample Questions
Q1) You have been hired as a consultant to the central bank for a country that has for many years suffered from repeated currency crises and depends heavily on the U.S. financial and product markets. Which of the following policies would have the greatest effectiveness for reducing currency volatility of the client country with the United States?
A) dollarization
B) an exchange rate pegged to the U.S. dollar
C) an exchange rate with a fixed price per ounce of gold
D) an internationally floating exchange rate
Answer: A
Q2) Bretton Woods required less in the way of cooperation among countries than did the gold standard.
A)True
B)False
Answer: False
Q3) From the time of its creation through September 2017, the euro peaked versus the USD in April 2008 at around $1.60/ .
A)True
B)False
Answer: True
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Page 4
Chapter 3: The Balance of Payments
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Sample Questions
Q1) An increase in GDP should lead to a decrease in imports.
A)True
B)False
Answer: False
Q2) In 2016 the United States posted a current account deficit. The bulk of the negative value came from:
A) a net transfer deficit.
B) an income balance deficit.
C) a goods trade deficit.
D) an income trade deficit.
Answer: C
Q3) Expenditures by U.S. tourists in foreign countries for foreign goods or services are factored into BOP calculations.
A)True
B)False
Answer: False
Q4) The BOP must be in balance, but the current account need not be.
A)True
B)False
Answer: False
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Chapter 4: Financial Goals and Corporate Governance
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Sample Questions
Q1) Since movements between exchanges typically are a zero sum within a country, and spinouts and bulletin board movements are few in number, real growth in listings comes from IPOs.
A)True
B)False
Q2) State Owned Enterprises (SOEs) by their very name cannot be traded on stock exchanges because they are government owned.
A)True
B)False
Q3) The Board of Directors:
A) consists exclusively of the officers of the corporation.
B) is the legal body which is accountable for the governance of the corporation.
C) are not subject to the external forces of the marketplace.
D) is appointed by the Securities and Exchange Commission (SEC).
Q4) In recent years the trend has been for markets to increasing focus on the global stakeholders.
A)True
B)False
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Chapter 5: The Foreign Exchange Market
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Sample Questions
Q1) Swap and forward transactions account for an insignificant portion of the foreign exchange market.
A)True
B)False
Q2) A bid is the price in one currency at which a dealer will buy another currency. An ask is the price at which a dealer will sell the other currency. Dealers bid (buy) at one price and ask (sell) at a slightly higher price, making their profit from the spread between the prices. List and explain three reasons/factors that could make the spread small.
Q3) In general, NDF markets normally develop for country currencies having large cross-border capital movements, but still subject to convertibility restrictions.
A)True
B)False
Q4) The following is an example of an American term foreign exchange quote:
A) $20/£
B) 0.85/$
C) ¥100/
D) none of the above
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7
Chapter 6: International Parity Conditions
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Sample Questions
Q1) 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
Q2) The current U.S. dollar-yen spot rate is ¥125/$. If the 90-day forward exchange rate is ¥127/$ then the yen is selling at a per annum ________ of ________.
A) premium; 1.57%
B) premium; 6.30%
C) discount; 1.57%
D) discount; 6.30%
Q3) The price elasticity of demand for DVD players manufactured by Sony of Japan is greater than one. If the Japanese yen appreciates against the U.S. dollar by 10% and the price of the Sony DVD players in the U.S also rises by 10%, then other things equal, the total dollar sales revenues of Sony DVDs would:
A) decline.
B) increase.
C) stay the same.
D) insufficient information
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Chapter 7: Foreign Currency Derivatives: Futures and Options
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88 Verified Questions
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Sample Questions
Q1) A trader who is purchasing a call option on foreign currency should do so before the domestic interest rate rises.
A)True
B)False
Q2) Assume that a call option has an exercise price of $1.50/£. At a spot price of $1.45/£, the call option has:
A) a time value of $0.04.
B) a time value of $0.00.
C) an intrinsic value of $0.00.
D) an intrinsic value of -$0.04.
Q3) The main advantage(s) of over-the-counter foreign currency options over exchange traded options is (are):
A) expiration dates tailored to the needs of the client.
B) amounts that are tailor made.
C) client desired expiration dates.
D) all of the above
Q4) Compare and contrast foreign currency options and futures. Identify situations when you may prefer one vs. the other when speculating on foreign exchange.
Page 9
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Chapter 8: Interest Risk and Swaps
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Sample Questions
Q1) A firm with fixed-rate debt that expects interest rates to fall 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.
Q2) A basis point is one-tenth of one percent.
A)True
B)False
Q3) Your firm is faced with paying a variable rate debt obligation with the expectation that interest rates are likely to go up. Identify two strategies using interest rate futures and interest rate swaps that could reduce the risk to the firm.
Q4) One of the reasons companies use interest rate swaps is because they are interested in opportunities to lower the cost of their debt.
A)True B)False
Q5) Swap rates are derived from the yield curves in each major currency.
A)True
B)False
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Chapter 9: Foreign Exchange Rate Determination and Intervention
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Sample Questions
Q1) The smaller and less liquid markets and currency markets frequently demonstrate behaviors that follow the principles outlined by the different schools of thought on exchange rate determination (parity conditions, balance of payments approach, and asset approach) relatively well in the medium to long term.
A)True
B)False
Q2) The large and liquid capital and currency markets follow many of the principles outlined by the different schools of thought on exchange rate determination (parity conditions, balance of payments approach, and asset approach) relatively well in the medium to long term.
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
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Page 11
Chapter 10: Transaction Exposure
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Sample Questions
Q1) Does foreign currency exchange hedging both reduce risk and increase expected value? Explain, and list several arguments in favor of currency risk management and several against.
Q2) ________ exposure deals with cash flows that result from existing contractual obligations.
A) Operating
B) Transaction
C) Translation
D) Economic
Q3) ________ are transactions for which there are, at present, no contracts or agreements between parties.
A) Backlog exposure
B) Quotation exposure
C) Anticipated exposure
D) none of the above
Q4) MNE cash flows may be sensitive to changes in which of the following?
A) exchange rates
B) interest rates
C) commodity prices
D) all of the above
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Chapter 11: Translation Exposure
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Sample Questions
Q1) Consider two different foreign subsidiaries of Georgia-Pacific Wood Products Inc. The first subsidiary mills trees in Canada and ships its entire product to the Georgia-Pacific U.S. The second subsidiary is also owned by the parent firm but is located in Japan and retails tropical hardwood furniture that it buys from many different sources. The first subsidiary is likely a/an ________ foreign entity with most of its cash flows in U.S. dollars, and the second subsidiary is more of a/an ________ foreign entity.
A) domestic; integrated
B) self-sustaining; domestic
C) integrated; self-sustaining
D) self-sustaining; integrated
Q2) If the European subsidiary of a U.S. firm has net exposed assets of 200,000, and the euro increases in value from $1.22/ to $1.26/ the U.S. firm has a translation:
A) gain of $8,000.
B) loss of $8,000.
C) gain of $252,000.
D) loss of 252,000.
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 12: Operating Exposure
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Sample Questions
Q1) Diversifying the financing base means diversifying sales, location of production facilities, and raw material sources.
A)True
B)False
Q2) An unexpected change in exchange rates impacts a firm's expected cash flows at three levels, depending on the time horizon used (Short Run, Medium Run, and Long Run).
Describe the three operating exposure's phases of adjustment assuming that parity conditions do not hold among foreign exchange rates, national inflation rates, and national interest rates (disequilibrium).
Q3) Which of the following is probably NOT an advantage of foreign exchange risk management?
A) the reduction of the variability of cash flows due to domestic business cycles
B) increased availability of capital
C) reduced cost of capital
D) All of the above are potential advantages of foreign exchange risk management.
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14
Chapter 13: Global Cost and Availability of Capital
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Sample Questions
Q1) If a company fails to accurately predict it's cost of equity, then:
A) the firm's WACC will also be inaccurate.
B) the firm may not be using the proper interest rate to estimate NPV.
C) the firm may incorrectly accept or reject projects based on decisions made using the cost of capital computed with an incorrect cost of equity.
D) All of the above are true.
Q2) Which of the following statements is NOT true regarding beta?
A) Beta will have a value of less than 1.0 if the firm's returns are less volatile than the market.
B) Beta will have a value of greater than 1.0 if the firm's returns are more volatile than the market.
C) Beta will have a value of equal to 1.0 if the firm's returns are of equal volatility to the market.
D) All of the statements above are true.
Q3) Capital market segmentation is a financial market imperfection caused mainly by government constraints, institutional practices, and investor perceptions. List and explain three imperfections.
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Page 15
Chapter 14: Funding the Multinational Firm
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95 Verified Questions
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Sample Questions
Q1) One of the benefits of investing in Global Registered Shares (GRS) is that GRS allow to invest in foreign companies without foreign exchange risk.
A)True
B)False
Q2) Of the following, which was NOT cited by the authors as a valuable function provided by the Eurocurrency market?
A) Eurocurrency deposits are an efficient and convenient money market device for holding excess corporate liquidity.
B) Eurocurrency deposits are a tool used by the Federal Reserve to regulate the money supply of countries that peg their currency against the U.S. dollar.
C) The Eurocurrency market is a major source of short-term bank loans to finance corporate working capital needs.
D) All of the above were cited by the authors.
Q3) The domestic theory of optimal capital structure does not need to be modified for MNEs.
A)True
B)False
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16
Chapter 15: Multinational Tax Management
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65 Verified Questions
65 Flashcards
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Sample Questions
Q1) Between 2006-2012, global corporate tax rates have trended upward.
A)True
B)False
Q2) Refer to Table 15.1. How much in additional U.S. taxes would be due if BayArea averaged the tax credits and liabilities of the two foreign units, assuming a 50% payout rate from each?
A) $3,750
B) $13,750
C) $2,500
D) $0
Q3) In a typical naked corporate inversion transaction, the corporation's effective global tax liability is reduced, but the effective control does not change.
A)True
B)False
Q4) When a firm is organized with decentralized profit centers, transfer pricing between centers can help in the evaluation of each subsidiary performance.
A)True
B)False
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Chapter 16: International Trade Finance
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75 Verified Questions
75 Flashcards
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Sample Questions
Q1) If a foreign exchange transaction calls for payment in the importer's currency, the exporter has the foreign exchange risk.
A)True
B)False
Q2) Because most international transactions are between affiliated parties, international transaction contracts are less complex, but the management of the total value of the MNE is more complex.
A)True
B)False
Q3) If a foreign exchange transaction calls for payment in the exporter's currency, the importer has the foreign exchange risk.
A)True
B)False
Q4) The primary advantage of a letter of credit is that it reduces risk.
A)True
B)False
Q5) For what reason might an exporter use standard international trade documentation (letter of credit, draft, order bill of lading) on an intrafirm export to its parent or sister subsidiary?
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Chapter 17: Foreign Direct Investment and Political Risk
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Sample Questions
Q1) An investment agreement spells out specific rights and responsibilities of both the foreign firm and the host government. What are the main financial policies that should be included in an investment agreement?
Q2) As a general rule, the decision about where to invest abroad for the first time is the same as the decision about where to reinvest abroad.
A)True
B)False
Q3) Economists have observed that firms tend to invest first in countries that are too far distant in psychic distance (similar cultural, legal, and institutional environment).
A)True
B)False
Q4) According to your authors, MNEs can anticipate government regulations that are discriminatory or wealth depriving from a/an ________ or ________ level view.
A) foreign; domestic
B) micro; macro
C) internal; external
D) local; global
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Chapter 18: Multinational Capital Budgeting and Cross-Border Acquisitions
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Sample Questions
Q1) Generally speaking, a firm wants to receive cash flows from a currency that is ________ relative to their own, and pay out in currencies that are ________ relative to their home currency.
A) appreciating; depreciating
B) depreciating; depreciating
C) appreciating; appreciating
D) depreciating; appreciating
Q2) 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
Q3) What is real option analysis? How is it a better method of making investment decisions than using traditional capital budgeting analysis?
Q4) The drivers of international merger and acquisitions are only MACRO in scope. A)True B)False
Page 20
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