Course Introduction
International Business
Final Exam Questions
International Business explores the complexities of conducting commerce across national borders, examining the economic, cultural, legal, and political factors that influence international markets. This course covers foundational concepts such as global trade theories, foreign direct investment, international marketing strategies, cross-cultural management, global supply chain logistics, and the challenges of operating in diverse regulatory environments. Students will analyze real-world case studies, learn about the impact of globalization, and develop skills to navigate the dynamic landscape of international business.
Recommended Textbook
Multinational Business Finance 12th Edition by Arthur I. Stonehill
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Page 2
Chapter 1: Globalization and the Multinational Enterprise
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Q1) A firm in the International Trade Phase of Globalization
A)makes all foreign payments in foreign currency units and all foreign receipts in domestic currency units.
B)receives all foreign receipts in foreign currency units and makes all foreign payments in domestic currency units.
C)bears direct foreign exchange risk.
D)none of the above
Answer: C
Q2) Comparative advantage is one of the underlying principles driving the growth of global business.
A)True
B)False
Answer: True
Q3) The theory of comparative advantage owes it origins to Ben Bernanke as described in his book The Wealth of Bankers.
A)True
B)False
Answer: False
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Chapter 2: Financial Goals and Corporate Governance
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Q1) Which of the following operational goals for the international firm may be incompatible with the others?
A)Maintaining a strong local currency.
B)Maximization of after-tax income.
C)Minimization of the firm's effective global tax burden.
D)Each of these goals may be incompatible with one or more of the others.
Answer: D
Q2) Signed into law on July 30, 2002, the ________ Act requires CEOs of publicly traded companies to vouch for the veracity of the firm's published financial statements.
A)Smoot-Hawley
B)Humphrey-Hawkins
C)McCain-Merrill
D)Sarbanes-Oxley
Answer: D
Q3) Dividend yield is the change in the share price of stock as traded in the public equity markets.
A)True
B)False
Answer: False
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Page 4
Chapter 3: The International Monetary System
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Q1) Today, the United States has been ejected from the International Monetary Fund for refusal to pay annual dues.
A)True
B)False
Answer: B
Q2) Based on the premise that, other things equal, countries would prefer a fixed exchange rate: Variable rates provide stability in international prices for the conduct of trade.
A)True
B)False
Answer: B
Q3) The International Monetary Fund (IMF)
A)in recent years has provided large loans to Russia, South Korea, and Brazil.
B)was created as a result of the Bretton Woods Agreement.
C)aids countries with balance of payment and exchange rate problems.
D)is all of the above.
Answer: D
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Chapter 4: The Balance of Payments
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Q1) Significant amounts of United States Treasury issues are purchased by foreign investors, therefore the U.S. must earn foreign currency to repay this debt.
A)True B)False
Q2) Because current and financial/capital account balances use double-entry bookkeeping it is unusual to find serious discrepancies in the debits and credits.
A)True B)False
Q3) A country experiencing a serious BOP ________ is more likely to ________ exports than otherwise.
A)surplus; contract B)surplus; expand C)deficit; expand D)none of the above
Q4) The BOP should always balance. A)True B)False
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6
Chapter
Crisis of 2007-2009
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Q1) Investment banks and stock brokerages have traditionally been regulated by the A)Federal Reserve System (FED).
B)Federal Deposit Insurance Corporation (FDIC).
C)Securities and Exchange Commission (SEC).
D)Internal Revenue Service (IRS).
Q2) A ________ is a securitized financial instrument that is sold to the market in tranches representing different levels of default risk.
A)guaranteed security asset (GSA)
B)mortgaged backed security (MBS)
C)credit default swap (CDS)
D)collateralized debt obligation (CDO)
Q3) Credit Default Swaps are highly regulated financial instruments as a result of the Commodity Futures Modernization Act of 2000.
A)True
B)False
Q4) Mortgage loans in the U.S. are classified by risk into one of three types: prime, alt-A, and sub-prime.
A)True
B)False
Page 7
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Chapter 6: The Foreign Exchange Market
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Q1) 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
Q2) ________ are NOT one of the three categories reported for foreign exchange.
A)Spot transactions
B)Swap transactions
C)Strip transactions
D)Futures transactions
Q3) The four currencies that constitute about 80% of all foreign exchange trading are
A)U.K pound, Chinese yuan, euro, and Japanese yen.
B)U.S. dollar, euro, Chinese yuan, and U.K. pound.
C)U.S. dollar, Japanese yen, euro, and U.K. pound.
D)U.S. dollar, U.K. pound, yen, and Chinese yuan.
Q4) Which of the following may be participants in the foreign exchange markets?
A)Bank and nonbank foreign exchange dealers.
B)Central banks and treasuries.
C)Speculators and arbitragers.
D)All of the above.
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Chapter 7: International Parity Conditions
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Q1) If exchange markets were not efficient, it would pay for a firm to spend resources on forecasting exchange 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) If the forward rate is an unbiased predictor of the expected spot rate, which of the following is NOT true?
A)The expected value of the future spot rate at time 2 equals the present forward rate for time 2 delivery, available now.
B)The distribution of possible actual spot rates in the future is centered on the forward rate.
C)The future spot rate will actually be equal to what the forward rate predicts.
D)All of the above are true.
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9
Chapter 8: Foreign Currency Derivatives
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Sample Questions
Q1) The buyer of a long put option
A)has a maximum loss equal to the premium paid.
B)has a gain equal to but opposite in sign to the writer of the option.
C)has maximum gain potential limited to the difference between the strike price and the premium paid.
D)all of the above
Q2) Which of the following is NOT true for the writer of a put option?
A)The maximum loss is limited to the strike price of the underlying asset less the premium.
B)The gain or loss is equal to but of the opposite sign of the buyer of a put option.
C)The maximum gain is the amount of the premium.
D)All of the above are true.
Q3) The ________ of an option is the value if the option were to be exercised immediately. It is the options ________ value.
A)intrinsic value; maximum
B)intrinsic value; minimum
C)time value; maximum
D)time value; minimum
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Chapter 9: Interest Rate and Currency Swaps
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Q1) Refer to Instruction 9.1. Which strategy (strategies)will eliminate credit risk?
A)Strategy #1
B)Strategy #2
C)Strategy #3
D)Strategy #1 and #2
Q2) The most widely used reference rate for standardized quotations, loan agreements, or financial derivative valuations is the ________.
A)Federal Reserve Discount rate
B)federal funds rate
C)LIBOR
D)one-year U.S. Treasury Bill
Q3) Interest rate futures are relatively unpopular among financial managers because of their relative illiquidity and their difficulty of use.
A)True
B)False
Q4) How does counterparty risk influence a firm's decision to trade exchange-traded derivatives rather than over-the-counter derivatives?
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Chapter 10: Foreign Exchange Rate Determination and Forecasting
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Sample Questions
Q1) The ________ is the Argentine currency unit.
A)peso
B)dollar
C)real
D)peseta
Q2) The asset market approach to forecasting is not applicable to emerging markets.
A)True
B)False
Q3) The Asian Currency crisis appeared to begin in ________.
A)South Korea.
B)Taiwan.
C)Thailand.
D)Japan.
Q4) The more efficient the foreign exchange market is, the more likely it is that exchange rate movements are random walks.
A)True
B)False
Q5) Foreign exchange forecasting can be either long-term, or short-term in duration. Compare and contrast the motivation for and the techniques a forecaster might use for each of the time periods.
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Chapter 11: Transaction Exposure
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Q1) Refer to Instruction 11.2. If OTI locks in the forward hedge at $1.38/euro, and the spot rate when the transaction was recorded on the books was $1.40/euro, this will result in a "foreign exchange accounting transaction ________" of ________.
A)loss; $50,000.
B)loss; 50,000.
C)gain; $50,000.
D)gain; 50,000.
Q2) ________ exposure is the potential for accounting-derived changes in owner's equity to occur because of the need to translate foreign currency financial statements into a single reporting currency.
A)Transaction
B)Operating
C)Economic
D)Accounting (aka translation)
Q3) There is considerable question among investors and managers about whether hedging is a good and necessary tool.
A)True
B)False
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13
Chapter 12: Operating Exposure
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Q1) Operating cash flows may occur in different currencies and at different times, but financing cash flows may occur only in a single currency.
A)True
B)False
Q2) Management must be able to predict disequilibria in international markets to take advantage of diversification strategies.
A)True
B)False
Q3) An MNE has a contract for a relatively predictable long-term inflow of Japanese yen that the firm chooses to hedge by seeking out potential suppliers in Japan. This hedging strategy is referred to as ________.
A)a natural hedge.
B)currency-switching.
C)matching.
D)diversification.
Q4) Currency swaps are exclusively for periods of time under one year.
A)True
B)False
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Chapter 13: Translation Exposure
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Q1) If the parent firm and all subsidiaries denominate all exposed assets and liabilities in the parent's reporting currency this will ________ exposure but each subsidiary would have ________ exposure.
A)maximize translation; no transaction
B)eliminate translation; transaction
C)maximize transaction; no translation
D)eliminate transaction; translation
Q2) Exchange rate imbalances that are passed through the balance sheet affect a firm's reported income, but imbalances transferred to the income statement do not.
A)True
B)False
Q3) Under the U.S. method of translation procedures, if the financial statements of the foreign subsidiary of a U.S. company are maintained in the local currency, and the U.S. dollar is the functional currency, then
A)translation is not required.
B)translation is accomplished through the current rate method.
C)translation is accomplished through the temporal method.
D)none of the above
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15
Chapter 14: The Global Cost and Availability of Capital
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Q1) Which of the following statements is NOT true regarding MNEs when compared to purely domestic firms?
A)MNEs tend to rely more on short and intermediate term debt.
B)MNEs have greater foreign exchange risk.
C)MNEs have greater costs of asymmetric information.
D)MNEs have higher agency costs.
Q2) Which of the following is NOT a portfolio diversification technique used by portfolio managers?
A)Diversify by type of security.
B)Diversify by the size of capitalization of the securities held.
C)Diversify by country.
D)All of the above are diversification techniques.
Q3) The WACC is usually used as the risk-adjusted required rate of return for new projects that are of the same average risk as the firm's existing projects.
A)True
B)False
Q4) What do theory and empirical evidence say about capital structure and the cost of capital for MNEs versus their domestic counterparts?
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Page 16
Chapter 15: Sourcing Equity Globally
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Q1) Another school of thought about the worldwide trend toward fuller and more standardized disclosure rules is that the cost of U.S. level equity capital disclosure
A)chases away potential listers of equity.
B)is an onerous costly burden.
C)leads to fewer foreign firms cross listing in U.S. equity markets.
D)all of the above
Q2) ADRs that are created at the request of a foreign firm wanting its shares traded in the United States are ________.
A)facilitated
B)unfacilitated
C)sponsored
D)unsponsored
Q3) In addition to gaining liquidity, which of the following could also be considered a legitimate reason for cross-listing equity?
A)enhance a firm's local image
B)become more familiar with the local financial community
C)get better local press coverage
D)all of the above
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17
Chapter 16: Sourcing Debt Globally
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Q1) Internal sources of funds for a foreign subsidiary of a MNE may come from the parent company but not from a sister subsidiary. Funding from sister subsidiaries are considered external funding.
A)True
B)False
Q2) Which of the following is NOT a factor offsetting the tax advantage of debt as a source of financing?
A)Increased agency costs.
B)Increased probability of financial distress (bankruptcy)due to fixed interest payments.
C)Alternative tax shields to those supplied by interest payments.
D)All of the above offset the tax advantage of debt as a source of financing.
Q3) Eurocurrencies are NOT the same as the euro developed for the common European currency.
A)True
B)False
Q4) The Euro-medium-term-note (EMTN)has filled a substantial niche market in global financing. What are the distinguishing characteristics of the EMTN and why is it such a popular form of financing for MNEs?
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Page 18
Chapter 17: International Portfolio Theory and Diversification
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Q1) Refer to Table 17.1. What is the value of the Sharpe Measure for France?
A)0.113
B)0.0071
C)either A or B
D)neither A nor B
Q2) The Sharpe and Treynor measures are each measures of return per unit of risk.
A)True
B)False
Q3) The ________ connects the risk-free security with the optimal domestic portfolio.
A)security market line
B)capital asset pricing model
C)capital market line
D)none of the above
Q4) The optimal domestic portfolio of risky securities is the portfolio of minimum risk.
A)True
B)False
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Chapter 18: Foreign Direct Investment Theory and Political Risk
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Q1) List and explain three strategic motives why firms become multinationals and give an example of each.
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) Joint ventures are a more common FDI than wholly owned subsidiaries.
A)True
B)False
Q4) All of the following may be justification for a strategic alliance EXCEPT:
A)takeover defense.
B)a joint venture to pool resources for research and development.
C)joint marketing and serving agreements.
D)All of the above are legitimate reasons for strategic alliances.
Q5) ________ industries are NOT typically "protected" by government policy.
A)Textiles
B)Defense
C)Agriculture
D)"Infant" industries
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Chapter 19: Multinational Capital Budgeting
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Q1) ________ is the risk that a foreign government will place restrictions such as limiting the amount of funds that can be remitted to the parent firm, or even expropriation of cash flows earned in that country.
A)Exchange risk
B)Foreign risk
C)Political risk
D)Unnecessary risk
Q2) Project financing is the arrangement of financing for very large individual long-term capital projects.
A)True
B)False
Q3) 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
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21
Chapter 20: Multinational Tax Management
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Q1) The issue of ethics in the reporting of income and the payment of taxes is a considerable one. The authors state that most MNEs operating in foreign countries tend to follow the general principle of A)"when in Rome, do as the Romans do."
B)full disclosure to the tax authorities.
C)maintain a competitive playing field by cheating as much as the local competition, no more, no less.
D)none of the above
Q2) Refer to Instruction 20.1. If the U.S. treated the taxes paid on income earned in the host country as a tax-deductible expense, then Rogue River's total U.S. corporate tax on the foreign earnings would be ________.
A)$10,000
B)$26,250
C)$35,000
D)$51,250
Q3) A country CANNOT have both a territorial and a worldwide approach as a national tax policy.
A)True
B)False
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Page 22
Chapter 21: Working Capital Management
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Sample Questions
Q1) In an inflationary economy, demand for credit usually exceeds supply.
A)True
B)False
Q2) Refer to Instruction 21.1. What is the amount of money SureDrip will save on accounts payable if they accept the discount?
A)$400,000
B)$8,000
C)$33,333
D)$20,000
Q3) An Edge Act corporation is a subsidiary of a U.S. bank located outside of the U.S. and incorporated to engage in international banking and financing operations.
A)True
B)False
Q4) Political risk may motivate parent firms to require foreign subsidiaries to remit all locally generated funds above that required to internally finance growth in sales and planned capital expansions.
A)True
B)False
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Chapter 22: International Trade Finance
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Q1) Polaris Corporation has made an agreement to ship goods to a foreign firm with whom they have not entered into a contract for three years. However, the firms have communicated regularly since the last sale three years ago. This is an example of an A)unaffiliated known party transaction.
B)unaffiliated unknown party transaction.
C)affiliated party transaction.
D)none of the above
Q2) In effect, the forfaiter functions both as a money market firm and a specialist in packaging financial deals involving country risk.
A)True
B)False
Q3) The primary advantage of a letter of credit is that it reduces risk.
A)True
B)False
Q4) The person or company to whom the draft or bill of exchange is addressed is the A)drawee. B)drawer.
C)maker.
D)originator.
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