International Business Finance
Exam Materials
Course Introduction
International Business Finance examines the principles and practices of financial management in an international context. The course covers topics such as foreign exchange markets, currency risk management, international financial markets and instruments, cross-border investment decisions, and the impact of political and economic factors on global financial operations. Students will analyze how multinational corporations make financing and investment decisions, manage risks associated with exchange rate fluctuations, and optimize capital structure and funding strategies in diverse regulatory environments. Through case studies and real-world examples, the course equips students with the skills to navigate the complexities of global financial markets and make informed decisions in multinational business settings.
Recommended Textbook
International Money and Finance 8th Edition by Michael Melvin
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694 Verified Questions
694 Flashcards
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Page 2
Chapter 1: The Foreign Exchange Market
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Sample Questions
Q1) Refer to Figure 1.1.Suppose that the market for British pound is initially in equilibrium at point A with the exchange rate $2.00 per pound.Which of the following could shift the demand for pound from D<sub>1</sub> to D<sub>2</sub>?
A) Americans want to buy British goods more than before.
B) Americans want to buy British goods less than before.
C) British want to buy American goods more than before.
D) British want to buy American goods less than before.
Answer: A
Q2) The Citibank trading desk quotes a buy rate of 1.25 and a sell rate of 2.00 for the dollar/euro exchange rate S<sub>$/ </sub>.How much euros would you receive,if you sell $1,000 to Citibank?
A) 500 euros
B) 800 euros
C) 1,250 euros
D) 2,000 euros
Answer: A
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3
Chapter 2: International Monetary Arrangements
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Sample Questions
Q1) The gold standard eliminates the possibility of a balance of payments disequilibrium by:
A) Changing the peg value of the currency to an ounce of gold.
B) Inflating prices in countries with net inflows of gold and deflating prices in countries with net outflows.
C) Shifting trade to the British pound.
D) Encouraging the discovery of gold deposits.
Answer: B
Q2) The European Monetary System was established in 1979 to form a common currency for all member countries to be managed by a European Central Bank.
A)True
B)False
Answer: False
Q3) Countries with floating exchange rates tend to have large,closed economies and trade largely with a single foreign country.
A)True
B)False
Answer: False
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Chapter 3: The Balance of Payments
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Sample Questions
Q1) Remittances by foreigners in the U.S.,pension paid and aid offered by the U.S.to its citizens living abroad are examples of:
A) Reserve asset transfers
B) Investment income
C) Export of services
D) Unilateral transfers
Q2) A foreign resident increasing her holdings of a U.S.financial asset causes a:
A) Credit in the U.S. merchandise account
B) Debit in the U.S. current account
C) Credit in the U.S. private capital account
D) Debit in the U.S. private capital account
Q3) A U.S.resident increasing her holdings of a foreign financial asset causes a:
A) Credit in the U.S. current account
B) Debit in the U.S. current account
C) Credit in the U.S. capital account
D) Debit in the U.S. capital account
Q4) In the balance of payments debits are recorded as negative entries and credits are recorded as positive entries.
A)True
B)False
Page 5
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Chapter 4: Forward-Looking Market Instruments
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Sample Questions
Q1) Which financial instrument provides a buyer the right but not the obligation to purchase or sell a fixed amount of currency at a prearranged price,within a few days to a couple of years?
A) Futures contract
B) Foreign currency option
C) Currency swap
D) Forward contract
Q2) If you hold the futures contract until September 15<sup>th</sup> and the spot rate for pounds on September 15<sup>th</sup> is $1.67 per pound,you will:
A) not exercise the futures contract.
B) lose on your position by $1,250.
C) gain on your position by $1,250.
D) break even by the amount of the margin.
Q3) The fixed rate of currencies that will be delivered at an agreed upon future date is called the:
A) Swap price.
B) Future rate.
C) Forward rate.
D) Strike price.
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Page 6
Chapter 6: Exchange Rates, interest Rates, and Interest
Parity
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Sample Questions
Q1) Suppose that the one-year U.S.interest rate is 8% and the equivalent one-year U.K.interest rate is 10%.According to the covered interest rate parity,there is a ________ on the U.S dollar.
A) 2% forward discount
B) 2% forward premium
C) 18% forward discount
D) 18% forward premium
Q2) Profit-seeking arbitrage activity ensures:
A) Covered interest rate parity.
B) Decreased competition.
C) Higher interest rates on loans.
D) Increased banking regulation.
Q3) Refer to Figure 6.1.The forward _________ on the U.S.dollar becomes ______ at higher maturities.
A) discount, larger
B) discount, smaller
C) premium, larger
D) premium, smaller
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Chapter 7: Prices and Exchange Rates: Purchasing Power
Parity
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Sample Questions
Q1) Suppose the exchange rate between the U.S.dollar and the Japanese yen is initially 90 yen per dollar.According to relative purchasing-power parity,if the price of traded goods rises by 10 percent in the United States and remains constant in Japan,the exchange rate will become:
A) 72 yen per dollar
B) 81 yen per dollar
C) 99 yen per dollar
D) 108 yen per dollar
Q2) If a bicycle costs $200 in the U.S.and 50 Swedish kronor in Sweden and the exchange rate is 0.25 Swedish krona per dollar,then the Swedish krona is:
A) Correctly valued according to PPP.
B) Undervalued relative to PPP.
C) Overvalued relative to PPP.
D) Not enough information to find answer.
Q3) If prices in the U.K.are rising slower than prices in the U.S.then
A) The pound depreciates.
B) The exchange rate stays the same.
C) The dollar depreciates.
D) The dollar appreciates.
Page 8
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Chapter 8: Foreign Exchange Risk and Forecasting
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Sample Questions
Q1) Which forecasting technique uses the past movements in the exchange rate movements to predict the future level?
A) Structural
B) Hedging
C) Atheoretical
D) Flow
Q2) Suppose that the 1-year forward rate of dollar per pound is $1.32,the current spot rate $/pound is $1.20,and the expected future spot rate $/pound is $1.40.The forward premium on the pound is:
A) -6.7%
B) 5.7%
C) 10%
D) 16.7%
Q3) Investors would be willing to hold foreign investments even if the foreign investments yield lower expected returns than the domestic investments,if:
A) There is a negative risk premium on domestic currency.
B) The foreign exchange market is efficient.
C) The foreign currency carries no risk premium.
D) There is a positive risk premium on domestic currency.
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Page 9
Chapter 9: Financial Management of the Multinational Firm
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Sample Questions
Q1) Political instability and currency conversion are reasons why ________ is more complicated for foreign subsidiaries than domestic ones.
A) Currency lagging
B) Capital budgeting
C) Patterning cash flows
D) Forward financing
Q2) Refer to Table 9.1.The net present value NPV of this project in U.S.dollar is estimated at:
A) $2.86 million
B) $3.65 million
C) $4.56 million
D) - $9.21 million
Q3) The sum of the project's initial investment cost,the present values of cash flows,and all financial effects related to the investment is called the adjusted present value.
A)True
B)False
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Chapter 10: International Portfolio Investment
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Sample Questions
Q1) A foreign firm has stock that can be purchased in New York,London,and Tokyo.The firm must be using an:
A) GDR
B) ADR
C) Variant stock
D) Preferred stock
Q2) The smaller the variance of variability of returns on a portfolio,the more uncertain the returns on the portfolio.
A)True
B)False
Q3) The home-bias puzzle could be used to describe:
A) The gains investors earn when over investing in foreign markets.
B) The lack of international diversification in the United States.
C) The increased preference for high variance investments in the domestic market.
D) The surprisingly low level of domestic investment in the United States.
Q4) The risk present in all investment opportunities is known as systematic risk.
A)True
B)False
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Chapter 12: Determinants of the Balance of Trade
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Sample Questions
Q1) Suppose the dollar is devalued.If an export contract is written in dollars,then the value of U.S.exports:
A) Decrease
B) Increase
C) Stay the same
D) Not possible to answer with the given information
Q2) Suppose the dollar is devalued.If an import contract is written in a foreign currency,then the value of U.S.imports:
A) Decrease
B) Increase
C) Stay the same
D) Not possible to answer with the given information
Q3) The elasticity approach to the balance of trade:
A) focuses on the effects of changing relative prices of domestic and foreign goods on the balance of trade.
B) indicates that the elasticity of demand for exports is always perfectly inelastic.
C) assumes a flexible exchange rate regime.
D) All of the above are correct.
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12
Chapter 13: The Is-Lm-Bp Approach
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Sample Questions
Q1) Refer to Figure 13.1.Starting from an equilibrium point A,if the LM curve shifts to the left to LM<sub>2</sub>,
A) there will be official settlement deficit which pressures the domestic currency to depreciate.
B) there will be official settlement deficit which pressures the domestic currency to appreciate.
C) there will be official settlement surplus which pressures the domestic currency to depreciate.
D) there will be official settlement surplus which pressures the domestic currency to appreciate.
Q2) "An expansionary monetary policy shifts the LM curve to the right and causes the domestic interest rate to rise."
A)True
B)False
Q3) Suppose that the government uses an expansionary fiscal policy.Then:
A) The IS curve shifts right
B) The IS curve shifts left
C) The LM curve shifts right
D) The LM curve shifts left
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Chapter 14: The Monetary Approach
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Sample Questions
Q1) Sterilized intervention is the policy that:
A) targets a domestic inflation rate within a certain range of values.
B) attempts to influence exchange rate movements with official statements on the government's preferred rate, without taking any direct action in the financial markets.
C) coordinates monetary and fiscal policies with one's trading partners so as to achieve particular international economic outcomes.
D) offsets private capital movements with changes in the asset portfolio of the central bank.
Q2) The official holdings of gold and foreign exchange,special drawing rights SDRs,and changes in reserves at the International Monetary Fund are known as:
A) Official settlements balance
B) Central bank holdings
C) Current account balance
D) Capital account balance
Q3) The MAER emphasizes money demand and money supply as determinants of exchange rate movements.
A)True
B)False
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Chapter 15: Extensions to the Monetary Approach of Exchange Rate Determination
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Sample Questions
Q1) The following example supports which extension to the Monetary Approach to Exchange rates: The announcement of a new trade deal between South Korea and Japan,lead investors to predict that Japan may be a path to a trade deficit.Thus,the Japanese yen saw an immediate decline in value.
A) Portfolio balance approach
B) Trade balance approach
C) News approach
D) Currency substitution approach
Q2) In general,the basic Monetary Approach to Exchange Rate MAER does not capture the short run volatility of:
A) Prices
B) Money supply
C) Exchange rates
D) Foreign currency inflation
Q3) When a high degree of currency substitution exists,to prevent currencies from becoming too variable,countries need international coordination of monetary policy.
A)True
B)False
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