International Business
Textbook Exam Questions
Course Introduction
International Business explores the strategies, challenges, and complexities faced by organizations operating across national borders. The course examines global business environments, including economic, cultural, legal, and political factors that affect international operations. Students will analyze topics such as international trade theories, global market entry strategies, cross-cultural management, foreign exchange markets, and international marketing. Emphasis is placed on understanding how multinational corporations adapt to diverse environments and develop competitive advantages in a rapidly changing global economy.
Recommended Textbook
International Financial Management 8th Edition by Madura
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Chapter 1: Multinational Financial Management: An Overview
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Sample Questions
Q1) Which of the following is not a way in which agency problems can be reduced through corporate control
A) executive compensation.
B) threat of hostile takeover.
C) acquisition of a foreign subsidiary.
D) monitoring by large shareholders.
Answer: C
Q2) The Single European Act of 1987 made regulations more uniform among European countries.However,the cost of achieving this goal resulted in the imposition of additional taxes on goods traded between these countries.
A)True
B)False
Answer: False
Q3) In some countries,bribes are commonplace.If a U.S.-based MNC decides to adhere to a strict code of ethics and not pay bribes,its subsidiary may be at a competitive disadvantage in the foreign country.
A)True
B)False
Answer: True
Page 3
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Chapter 2: International Flow of Funds
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Q1) ______________ is (are)income received by investors on foreign investments in financial assets (securities).
A) Portfolio income
B) Direct foreign income
C) Unilateral transfers
D) Factor income
Answer: D
Q2) A balance-of-trade surplus indicates an excess of merchandise imports over merchandise exports.
A)True
B)False
Answer: False
Q3) "Dumping" is used in the text to represent the:
A) exporting of goods that do not meet quality standards.
B) sales of junk bonds to foreign countries.
C) removal of foreign subsidiaries by the host government.
D) exporting of goods at prices below cost.
Answer: D
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Chapter 3: International Financial Markets
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Q1) A share of the ADR of a Dutch firm represents one share of that firm's stock that is traded on a Dutch stock exchange.The share price of the firm was 15 euros when the Dutch market closed.As the U.S.market opens,the euro is worth $1.10.Thus,the price of the ADR should be _____.
A) $13.64
B) $15.00
C) $16.50
D) 16.50 euros
E) none of the above
Answer: C
Q2) Assume the Canadian dollar is equal to $.88 and the Peruvian Sol is equal to $.35. The value of the Peruvian Sol in Canadian dollars is:
A) about .3621 Canadian dollars.
B) about .3977 Canadian dollars.
C) about 2.36 Canadian dollars.
D) about 2.51 Canadian dollars.
Answer: B
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5
Chapter 4: Exchange Rate Determination
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Q1) Which of the following is not mentioned in the text as a factor affecting exchange rates
A) relative interest rates.
B) relative inflation rates.
C) government controls.
D) expectations.
E) all of the above are mentioned in the text as factors affecting exchange rates.
Q2) Assume that Japan places a strict quota on goods imported from the U.S.and the U.S.places a strict quota on goods imported from Japan. This event should immediately cause the U.S.demand for Japanese yen to _______,and the supply of Japanese yen to be exchanged for U.S.dollars to _______.
A) increase;increase
B) increase;decline
C) decline;decline
D) decline;increase
Q3) Liquidity of a currency can affect the extent to which speculation can impact the currency's value.
A)True
B)False
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Chapter 5: Currency Derivatives
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Sample Questions
Q1) There are no transactions costs associated with trading futures or options.
A)True
B)False
Q2) When you own _______,there is no obligation on your part;however,when you own _______,there is an obligation on your part.
A) call options;put options
B) futures contracts;call options
C) forward contracts;futures contracts
D) put options;forward contracts
Q3) A put option on British pounds has a strike (exercise)price of $1.48.The present exchange rate is $1.55.This put option can be referred to as:
A) in the money.
B) out of the money.
C) at the money.
D) at a discount.
Q4) If an actual put option premium is less than what is suggested by the put-call parity relationship,arbitrage can be conducted.
A)True
B)False
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Chapter 6: Government Influence on Exchange Rates
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Q1) In a sterilized exchange rate arrangement,a country's home currency value is pegged to a foreign currency or to some unit of account.
A)True
B)False
Q2) Which of the following is true regarding the euro
A) Exchange rate risk between participating European currencies is completely eliminated, encouraging more trade and capital flows across European borders.
B) It allows for more consistent economic conditions across countries.
C) It prevents each country from conducting its own monetary policy.
D) All of the above are true.
Q3) A major advantage of the euro is the complete elimination of exchange rate risk on transactions between participating European countries,which encourages more trade and capital flows within Europe.
A)True
B)False
Q4) The Asian crisis is generally believed to have started in Japan.
A)True
B)False
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Chapter 7: International Arbitrage and Interest Rate Parity
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Q1) To capitalize on high foreign interest rates using covered interest arbitrage,a U.S.investor would convert dollars to the foreign currency,invest in the foreign country,and simultaneously sell the foreign currency forward.
A)True
B)False
Q2) Bank A quotes a bid rate of $.300 and an ask rate of $.305 for the Malaysian ringgit (MYR).Bank B quotes a bid rate of $.306 and an ask rate of $.310 for the ringgit.What will be the profit for an investor who has $500,000 available to conduct locational arbitrage
A) $2,041,667.
B) $9,804.
C) $500.
D) $1,639.
Q3) Triangular arbitrage tends to force a relationship between the interest rates of two countries and their forward exchange rate premium or discount.
A)True
B)False
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Chapter 8: Relationships among Inflation,Interest Rates,and Exchange Rates
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Q1) Assume a twocountry world: Country A and Country B. Which of the following is correct about purchasing power parity (PPP)as related to these two countries
A) If Country A's inflation rate exceeds Country B's infla tion rate, Country A's currency will weaken.
B) If Country A's interest rate exceeds Country B's infla tion rate, Country A's currency will weaken.
C) If Country A's interest rate exceeds Country B's infla tion rate, Country A's currency will strengthen.
D) If Country B's inflation rate exceeds Country A's infla tion rate, Country A's currency will weaken.
Q2) The Fisher effect is used to determine the:
A) real inflation rate.
B) real interest rate.
C) real spot rate.
D) real forward rate.
Q3) If interest rate parity holds,then the international Fisher effect must hold.
A)True B)False
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Chapter 9: Forecasting Exchange Rates
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Sample Questions
Q1) Which of the following forecasting techniques would best represent sole use of today's spot exchange rate of the euro to forecast the euro's future exchange rate
A) fundamental forecasting.
B) market based forecasting.
C) technical forecasting.
D) mixed forecasting.
Q2) Usually,fundamental forecasting is used for short-term forecasts,while technical forecasting is used for longer-term forecasts.
A)True
B)False
Q3) The most sophisticated forecasting techniques provide consistently accurate forecasts.
A)True
B)False
Q4) Foreign exchange markets appear to be strong-form efficient.
A)True
B)False
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11
Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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Sample Questions
Q1) A reduction in hedging will probably reduce transaction exposure.
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) The Canadian dollar consistently appears to move almost independently of other currencies.That is it exhibits low correlations with the other currencies.
A)True
B)False
Q4) ______________ is(are)not a determinant of translation exposure.
A) The MNC's degree of foreign involvement
B) The locations of foreign subsidiaries
C) The local (domestic) earnings of the MNC
D) The accounting methods used
Q5) A set of currency cash inflows is more volatile if the correlations are low.
A)True
B)False
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Chapter 11: Managing Transaction Exposure
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Sample Questions
Q1) Quasik Corporation will be receiving 300,000 Canadian dollars (C$)in 90 days.Currently,a 90-day call option with an exercise price of $.75 and a premium of $.01 is available.Also,a 90-day put option with an exercise price of $.73 and a premium of $.01 is available.Quasik plans to purchase options to hedge its receivable position.Assuming that the spot rate in 90 days is $.71,what is the net amount received from the currency option hedge
A) $219,000.
B) $222,000.
C) $216,000.
D) $213,000.
Q2) If a Salerno Inc.desired to lock in a minimum rate at which it could sell its net receivables in Japanese yen but wanted to be able to capitalize if the yen appreciates substantially against the dollar by the time payment arrives,the most appropriate hedge would be:
A) a money market hedge.
B) a forward sale of yen.
C) purchasing yen call options.
D) purchasing yen put options.
E) selling yen put options.
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Page 13
Chapter 12: Managing Economic Exposure and Translation Exposure
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Q1) The translation gain (or loss)is simply a paper gain (or loss).Conversely,the gain (or loss)resulting from a hedge strategy is a real gain (or loss).
A)True
B)False
Q2) Depreciation of the euro relative to the U.S.dollar will cause a U.S.-based multinational firm's reported earnings (from the consolidated income statement)to _______. If a firm desired to protect against this possibility,it could stabilize its reported earnings by _______ euros forward in the foreign exchange market.
A) be reduced;purchasing
B) be reduced;selling
C) increase;selling
D) increase;purchasing
Q3) Translation losses are __________,while gains on forward contracts used to hedge translation exposure are _______.
A) tax deductible;not taxed
B) not tax deductible;not taxed
C) not tax deductible;taxed
D) tax deductible;taxed
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Chapter 13: Direct Foreign Investment
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Sample Questions
Q1) A country with high unemployment could best increase its employment by:
A) encouraging foreign firms to establish subsidiaries that produce the same products local firms produce.
B) encouraging foreign firms to establish licensing arrange ments for products local firms produce.
C) encouraging foreign firms to establish subsidiaries that produce products local firms do not produce.
D) none of the above would reduce employment.
Q2) When a firm analyzes the feasibility of a project,it should consider the:
A) variability of the project's cash flow.
B) correlation of the project's cash flow relative to the prevailing cash flows of the MNC.
C) A and B
D) none of the above
Q3) Direct foreign investment is perceived by foreign governments to:
A) be a cause of national problems.
B) be a remedy for national problems.
C) either A or B is possible.
D) have no impact on national problems.
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15
Chapter 14: Multinational Capital Budgeting
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Sample Questions
Q1) An international project's NPV is _________ related to the size of the initial investment and _________ related to the project's required rate of return.
A) positively;positively
B) positive;negatively
C) negatively;positively
D) negatively;negatively
Q2) The impact of blocked funds on the net present value of a foreign project will be greater if interest rates are _______ in the host country and there are _______ investment opportunities in the host country.
A) very high;limited
B) very low;limited
C) very low;numerous
D) very high;numerous
Q3) Blocked funds may penalize a project if the return on the forced reinvestment in the foreign country is less than the required rate of return on the project.
A)True
B)False
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Page 16
Chapter 15: Multinational Restructuring
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Sample Questions
Q1) Even if an existing business adds value to an MNC,it may be worthwhile to assess whether the business would generate more value to the MNC if it was restructured.
A)True
B)False
Q2) Even after an MNC's accept/reject decision of a foreign acquisition has been made,it should be reassessed at various times.In fact,this analysis may indicate that a previously accepted project should be divested.
A)True
B)False
Q3) 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
Q4) An MNC that plans to acquire a target would prefer to time its bid for the target when the local stock market prices are generally high.
A)True
B)False
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Chapter 16: Country Risk Analysis
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Q1) Higher interest rates tend to increase the growth of an economy and increase the demand for an MNC's products.
A)True
B)False
Q2) A macro assessment of country risk:
A) is adjusted for the particular business of the firm involved.
B) excludes all aspects relevant to a particular firm or project.
C) A and B
D) none of the above
Q3) A mild form of political risk is a tendency of residents to purchase only:
A) imported products.
B) locally produced products.
C) products produced by MNCs.
D) none of the above
Q4) ___________ is not a political risk factor.
A) High interest rates in a foreign country
B) Currency inconvertibility
C) War
D) Corruption
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Chapter 17: Multinational Cost of Capital and Capital Structure
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Q1) Other things being equal,countries with relatively _______ populations and _______ inflation are more likely to have a low cost of capital.
A) young;high
B) old;high C) old;low
D) young;low
Q2) The ____________ an MNC,the __________ its cost of capital is likely to be.
A) larger;higher
B) larger;lower
C) smaller;lower
D) A and C
Q3) The term "global" target capital structure for an MNC represents the MNC's capital structure:
A) in the U.S.
B) relative to competitors across all countries.
C) where it has its largest subsidiary.
D) when consolidating all of its subsidiaries.
Q4) Normally,an MNC will issue stock in all of the countries where it does business.
A)True
B)False
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Chapter 18: Long-Term Financing
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Q1) The yields offered on newly issued bonds denominated in dollars have:
A) consistently increased over the last 10 years.
B) consistently decreased over the last 10 years.
C) remained stable.
D) none of the above
Q2) A ___________ gives its owner the right to enter into a swap.
A) basis swap
B) swaption
C) callable swap
D) putable swap
Q3) A U.S.firm has a Canadian subsidiary that remits some of its earnings to the parent on an annual basis. The firm has no other foreign business. The firm could best reduce its exposure to exchange rate risk by issuing bonds denominated in:
A) U.S. dollars.
B) Canadian dollars.
C) multiple currencies.
D) a unit of account such as the SDR.
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Chapter 19: Financing International Trade
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Q1) A(n)___________ is an unconditional promise drawn by one party,instructing the buyer to pay the face amount upon presentation.
A) draft
B) bill of lading
C) trade acceptance
D) letter of credit
Q2) All types of foreign trade transactions in which the sale of goods to one country is linked to the purchase or exchange of goods from that same country are called countertrade.
A)True
B)False
Q3) The Direct Loan Program is administered by the:
A) Private Export Funding Corporation (PEFCO).
B) Overseas Private Investment Corporation (OPIC).
C) Ex-Imbank.
D) Foreign Credit Insurance Association (FCIA).
Q4) The commission earned by the bank for accepting a draft is reflected in the all-in-rate.
A)True
B)False
Page 21
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Chapter 20: Short-Term Financing
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Q1) Assume the U.S.interest rate is 7.5%,the New Zealand interest rate is 6.5%,the spot rate of the NZ$ is $.52,and the oneyear forward rate of the NZ$ is $.50. At the end of the year,the spot rate is $.48. Based on this information,what is the effective financing rate for a U.S.firm that takes out a oneyear,uncovered NZ$ loan
A) about 1.7%.
B) about 0.0%.
C) about 14.7%.
D) about 15.4%.
E) about 8.3%.
Q2) Assume a U.S.-based MNC is borrowing Romanian leu (ROL)at an interest rate of 8% for one year.Also assume that the spot rate of the leu is $.00012 and the one-year forward rate of the leu is $.00010.The expected spot rate of the leu one-year from now is $.00011.What is the effective financing rate for the MNC assuming it borrows leu on an uncovered basis
A) about 10%.
B) about -10%.
C) about -1%.
D) about -2%.
E) none of the above
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Chapter 21: International Cash Management
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Sample Questions
Q1) Preauthorized payment is an arrangement that allows a corporation to charge a customer's bank account up to some limit.
A)True
B)False
Q2) What is the standard deviation of the portfolio contemplated by Moore Corporation
A) .624%.
B) 7.950%.
C) 1.040%.
D) 10.200%.
E) none of the above
Q3) A subsidiary will normally have a more difficult time forecasting future outflow payments if its purchases are international rather than domestic.
A)True
B)False
Q4) Lockboxes are post office box numbers assigned to employees for picking up their paychecks.
A)True
B)False
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Page 23