International Investment
Test Questions
Course Introduction
International Investment explores the principles, strategies, and challenges associated with investing across national borders. The course examines the motivations for international investment, the functioning of global financial markets, foreign direct investment (FDI) versus portfolio investment, and the impact of economic, political, and regulatory environments on investment decisions. Students will analyze risk management techniques, currency exchange mechanisms, and the role of multinational corporations in shaping the global investment landscape. Through case studies and real-world examples, the course aims to equip students with the skills necessary to assess investment opportunities and risks in an increasingly interconnected world economy.
Recommended Textbook
International Financial Management 8th Edition by Madura
Available Study Resources on Quizplus
21 Chapters
1110 Verified Questions
1110 Flashcards
Source URL: https://quizplus.com/study-set/1035
Page 2
Chapter 1: Multinational Financial Management: An Overview
Available Study Resources on Quizplus for this Chatper
42 Verified Questions
42 Flashcards
Source URL: https://quizplus.com/quiz/20499
Sample Questions
Q1) Privatization is a venture that is jointly owned and operated by two or more firms.
A)True
B)False
Answer: False
Q2) Due to the risks involved in international business,firms should:
A) only consider international business in major countries.
B) maintain international business to no more than 20% of total business.
C) maintain international business to no more than 35% of total business.
D) none of the above
Answer: D
Q3) Which of the following theories identifies the nontransferability of resources as a reason for international business
A) theory of comparative advantage.
B) imperfect markets theory.
C) product cycle theory.
D) none of the above
Answer: B
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: International Flow of Funds
Available Study Resources on Quizplus for this Chatper
46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/20500
Sample Questions
Q1) An increase in the current account deficit will place _______ pressure on the home currency value,other things equal.
A) upward
B) downward
C) no
D) upward or downward (depending on the size of the deficit)
Answer: B
Q2) The North American Free Trade Agreement (NAFTA)increased restrictions on:
A) trade between Canada and Mexico.
B) trade between Canada and the U.S.
C) direct foreign investment in Mexico by U.S. firms.
D) none of the above.
Answer: D
Q3) A weakening of the U.S.dollar with respect to the British pound would likely reduce the U.S.exports to Britain and increase U.S.imports from Britain.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
4
Chapter 3: International Financial Markets
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/20501
Sample Questions
Q1) Which of the following is not true regarding the Bretton Woods Agreement
A) It called for fixed exchange rates between currencies.
B) Governments intervened to prevent exchange rates from moving more than 1 percent above or below their initially established levels.
C) The agreement lasted from 1944 until 1971.
D) Each country used gold to back its currency.
E) All of the above are true regarding the Bretton Woods Agreement.
Answer: D
Q2) The ask quote is the price for which a bank offers to sell a currency.
A)True
B)False
Answer: True
Q3) The strike price is also known as the premium price.
A)True
B)False
Answer: False
Q4) The forward rate is the exchange rate used for immediate exchange of currencies.
A)True
B)False
Answer: False
Page 5
To view all questions and flashcards with answers, click on the resource link above.
Chapter 4: Exchange Rate Determination
Available Study Resources on Quizplus for this Chatper
45 Verified Questions
45 Flashcards
Source URL: https://quizplus.com/quiz/20502
Sample Questions
Q1) Assume that Swiss investors have francs available to invest in securities,and they initially view U.S.and British interest rates as equally attractive. Now assume that U.S.interest rates increase while British interest rates stay the same. This would likely cause:
A) the Swiss demand for dollars to decrease and the dollar will depreciate against the pound.
B) the Swiss demand for dollars to increase and the dollar will depreciate against the Swiss franc.
C) the Swiss demand for dollars to increase and the dollar will appreciate against the Swiss franc.
D) the Swiss demand for dollars to decrease and the dollar will appreciate against the pound.
Q2) The value of the Australian dollar (A$)today is $0.73.Yesterday,the value of the Australian dollar was $0.69.The Australian dollar ________ by _______%.
A) depreciated;5.80
B) depreciated;4.00
C) appreciated;5.80
D) appreciated;4.00
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Currency Derivatives
Available Study Resources on Quizplus for this Chatper
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/20503
Sample Questions
Q1) Futures contracts are standardized with respect to delivery date and the futures price specified for the settlement date.
A)True
B)False
Q2) An option writer is the seller of a call or a put option.
A)True
B)False
Q3) A firm sells a currency futures contract,then decides before the settlement date that it no longer wants to maintain such a position. It can close out its position by:
A) buying an identical futures contract.
B) selling an identical futures contract.
C) buying a futures contract with a different settlement date.
D) selling a futures contract for a different amount of currency.
E) purchasing a put option contract in the same currency.
Q4) American style options can be exercised any time up to maturity. A)True B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 6: Government Influence on Exchange Rates
Available Study Resources on Quizplus for this Chatper
68 Verified Questions
68 Flashcards
Source URL: https://quizplus.com/quiz/20504
Sample Questions
Q1) The currency of country X is pegged to the currency of country Y.Assume that county Y's currency depreciates against the currency of country Z.It is likely that country X will export _______ to country Z and import _______ from country Z.
A) more;more
B) less;less
C) more;less
D) less;more
Q2) Which of the following is an example of direct intervention in foreign exchange markets
A) lowering interest rates.
B) increasing the discount rate.
C) exchanging dollars for foreign currency.
D) imposing barriers on international trade.
Q3) The value of the Canadian dollar,Japanese yen,and Australian dollar with respect to the U.S.dollar are part of a:
A) pegged system.
B) fixed system.
C) managed float system.
D) crawling peg system.
To view all questions and flashcards with answers, click on the resource link above.
Page 8
Chapter 7: International Arbitrage and Interest Rate Parity
Available Study Resources on Quizplus for this Chatper
58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/20505
Sample Questions
Q1) Based on interest rate parity,the larger the degree by which the foreign interest rate exceeds the U.S.interest rate,the:
A) larger will be the forward discount of the foreign currency.
B) larger will be the forward premium of the foreign currency.
C) smaller will be the forward premium of the foreign currency.
D) smaller will be the forward discount of the foreign currency.
Q2) 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
Q3) When using _______,funds are typically tied up for a significant period of time.
A) covered interest arbitrage
B) locational arbitrage
C) triangular arbitrage
D) B and C
Q4) Capitalizing on discrepancies in quoted prices involving no risk and no investment of funds is referred to as interest rate parity.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Relationships among Inflation,Interest Rates,and Exchange Rates
Available Study Resources on Quizplus for this Chatper
37 Verified Questions
37 Flashcards
Source URL: https://quizplus.com/quiz/20506
Sample Questions
Q1) According to the international Fisher effect,if Venezuela has a much higher nominal rate than other countries,its inflation rate will likely be _______ than other countries,and its currency will _______.
A) lower;strengthen B) lower;weaken C) higher;weaken D) higher;strengthen
Q2) If the international Fisher effect (IFE)did not hold based on historical data,then this suggests that:
A) some corporations with excess cash can lock in a guar anteed higher return on future foreign short term invest ments.
B) some corporations with excess cash could have generated profits on average from covered interest arbitrage.
C) some corporations with excess cash could have generated higher profits on average from foreign short term invest ments than from domestic short term investments.
D) most corporations that consistently invest in foreign short term investments would have generated the same profits (on average) as from domestic short term invest ments.
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Forecasting Exchange Rates
Available Study Resources on Quizplus for this Chatper
58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/20507
Sample Questions
Q1) Assume that the U.S.interest rate is 11 percent,while Australia's one-year interest rate is 12 percent.Assume interest rate parity holds.If the one-year forward rate of the Australian dollar was used to forecast the future spot rate,the forecast would reflect an expectation of:
A) depreciation in the Australian dollar's value over the next year.
B) appreciation in the Australian dollar's value over the next year.
C) no change in the Australian dollar's value over the next year.
D) information on future interest rates is needed to answer this question.
Q2) When measuring forecast performance of different currencies,it is often useful to adjust for their relative sizes.Thus,percentages,rather than nominal amounts,are often used to compute forecast errors.
A)True
B)False
Q3) Usually,fundamental forecasting is used for short-term forecasts,while technical forecasting is used for longer-term forecasts.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
Available Study Resources on Quizplus for this Chatper
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/20508
Sample Questions
Q1) If the U.S.dollar appreciates:
A) an MNC's U.S. sales will probably decrease.
B) an MNC's exports denominated in U.S. dollars will probably increase.
C) an MNC's interest owed on foreign funds borrowed will probably increase.
D) an MNC's exports denominated in foreign currencies will probably increase.
E) all of the above
Q2) Appreciation in a firm's local currency causes a(n)__________ in cash inflows and a(n)_________ in cash outflows.
A) reduction;reduction
B) increase;increase
C) increase;reduction
D) reduction;increase
Q3) The maximum one-day loss computed for the value-at-risk (VAR)method,does not depend on:
A) the expected percentage change in the currency for the next day.
B) the standard deviation of the daily percentage changes in the currency over a previous period.
C) the current level of interest rates.
D) the confidence level used.
Page 12
To view all questions and flashcards with answers, click on the resource link above.
Chapter 11: Managing Transaction Exposure
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/20509
Sample Questions
Q1) Your company will receive C$600,000 in 90 days. The 90day forward rate in the Canadian dollar is $.80. If you use a forward hedge,you will:
A) receive $750,000 today.
B) receive $750,000 in 90 days.
C) pay $750,000 in 90 days.
D) receive $480,000 today.
E) receive $480,000 in 90 days.
Q2) The real cost of hedging payables with a forward contract equals:
A) the nominal cost of hedging minus the nominal cost of not hedging.
B) the nominal cost of not hedging minus the nominal cost of hedging.
C) the nominal cost of hedging divided by the nominal cost of not hedging.
D) the nominal cost of not hedging divided by the nominal cost of hedging.
Q3) Since the results of both a money market hedge and a forward hedge are known beforehand,an MNC can implement the one that is more feasible.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Managing Economic Exposure and Translation Exposure
Available Study Resources on Quizplus for this Chatper
43 Verified Questions
43 Flashcards
Source URL: https://quizplus.com/quiz/20510
Sample Questions
Q1) Hedging translation exposure with forward contracts can backfire if the currency being hedged depreciates.
A)True
B)False
Q2) An MNC expects to sell fixed assets it utilizes in Europe in the distant future.In order to hedge the sale of these assets in the distant future,the MNC could create a(n)___________ that _________ the expected value of the assets in the future.
A) asset;matches
B) asset;exceeds
C) liability;matches
D) liability;is less than
Q3) __________ represents any impact of exchange rate fluctuations on a firm's future cash flows.
A) Translation exposure
B) Economic exposure
C) Transaction exposure
D) None of the above
To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 13: Direct Foreign Investment
Available Study Resources on Quizplus for this Chatper
45 Verified Questions
45 Flashcards
Source URL: https://quizplus.com/quiz/20511
Sample Questions
Q1) Which of the following is not true regarding host government attitudes towards direct foreign investment (DFI)
A) Host governments may offer incentives to MNCs in the form of subsidies in certain circumstances.
B) Host governments generally perceive DFI as a remedy to eliminate a country's political problems.
C) The ability of a host government to attract DFI is dependent on the country's markets and resources.
D) Some types of DFI will be more attractive to some governments than to others.
E) All of the above are true.
Q2) Direct foreign investment (DFI)represents investment in real assets (such as land,buildings,or even existing plants)in foreign countries.
A)True
B)False
Q3) ____________ is not a cost-related motive for direct foreign investment.
A) Exploiting monopolistic advantages
B) Fully benefiting from economies of scale
C) Uses foreign factors of production
D) Using foreign raw materials
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Multinational Capital Budgeting
Available Study Resources on Quizplus for this Chatper
49 Verified Questions
49 Flashcards
Source URL: https://quizplus.com/quiz/20512
Sample Questions
Q1) The break-even salvage value of a particular project is the salvage value necessary to:
A) offset any losses incurred by the subsidiary in a given year.
B) offset any losses incurred by the MNC overall in a given year.
C) make the project have zero profits.
D) make the project's return equal the required rate of return.
Q2) Assume a U.S.based MNC has a Chilean subsidiary that annually remits 30 million Chilean pesos to the U.S. If the peso _______,the dollar amount of remitted funds
A) appreciates;decreases
B) depreciates;is unaffected
C) appreciates;is unaffected
D) depreciates;decreases
E) B and C
Q3) The feasibility of a multinational project from the parent's perspective is dependent not on the subsidiary cash flows but on the cash flows that it ultimately receives.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Multinational Restructuring
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/20513
Sample Questions
Q1) The value of an MNC (from the parent's perspective)is independent of the MNC's desired scheduling of remitted funds from the target.
A)True
B)False
Q2) Which of the following factors is least likely to cause the required rate of return to vary among MNCs assessing the same foreign target
A) differences in the timing of remittances from the target to the parent.
B) differences in the desired use of the target.
C) differences in the local risk-free interest rate.
D) differences in the ability to use financial leverage.
Q3) The valuation of newly privatized businesses is generally more difficult than the valuation of a foreign target that has operated privately for several years.
A)True
B)False
Q4) An MNC should periodically reassess its investments to determine whether to divest them.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Country Risk Analysis
Available Study Resources on Quizplus for this Chatper
49 Verified Questions
49 Flashcards
Source URL: https://quizplus.com/quiz/20514
Sample Questions
Q1) Country risk analysis is important because it:
A) can be used by MNCs as a screening device to avoid countries with excessive risk.
B) can be used by MNCs to monitor countries where the MNC is presently engaged in international business.
C) can be used to improve the analysis used to make long-term investing or financing decisions.
D) all of the above
Q2) According to the text,the most appropriate method of incorporating country risk into capital budgeting analysis is to:
A) compare each form of a country risk rating to a benchmark level.
B) estimate the effect of each form of country risk on cash flows.
C) estimate the effect of each form of country risk on the income statement and balance sheet.
D) adjust the discount rate to reflect the level of country risk using the conventional adjustment formula that is used by virtually all MNCs.
To view all questions and flashcards with answers, click on the resource link above.
18
Chapter 17: Multinational Cost of Capital and Capital Structure
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/20515
Sample Questions
Q1) The capital asset pricing theory is based on the premise that:
A) only unsystematic variability in cash flows is relevant.
B) only systematic variability in cash flows is relevant.
C) both systematic and unsystematic variability in cash flows are relevant.
D) neither systematic nor unsystematic variability in cash flows is relevant.
Q2) Because their economies have lower growth,the cost of debt in industrialized countries is much higher than the cost of debt in many less developed countries.
A)True
B)False
Q3) In the United States,government rescues are not as common as in other countries,such as the United Kingdom.Therefore,the risk premium on a given level of debt would be higher for U.S.firms than for firms of the United Kingdom,everything else being equal.
A)True
B)False
Q4) If an MNC's cash flows are more stable,it can probably handle more debt than an MNC with erratic cash flows.
A)True
B)False
Page 19
To view all questions and flashcards with answers, click on the resource link above.
Chapter 18: Long-Term Financing
Available Study Resources on Quizplus for this Chatper
45 Verified Questions
45 Flashcards
Source URL: https://quizplus.com/quiz/20516
Sample Questions
Q1) Most MNCs obtain equity funding:
A) in foreign countries.
B) in their home country.
C) through global offerings.
D) through private placements.
Q2) If U.S.firms issue bonds in _______,the dollar outflows to cover fixed coupon payments increase as the dollar _______.
A) a foreign currency;weakens B) dollars;strengthens
C) a foreign currency;strengthens D) dollars;weakens
Q3) When an MNC financesin a currency that matches its cash inflows using a relatively _______ maturity,the MNC is exposed to __________ risk.
A) short;interest rate
B) long;interest rate
C) short;exchange rate
D) none of the above
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Financing International Trade
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/20517
Sample Questions
Q1) From a bank's viewpoint,issuing a letter of credit is analogous to making a loan as far as risk is concerned.
A)True
B)False
Q2) The Working Capital Guarantee 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).
Q3) Which of the following is not true regarding letters of credit
A) They are issued by banks on behalf of the importer promising to pay the exporter.
B) A revocable letter of credit can be cancelled or revoked at any time without prior notification to the beneficiary.
C) They guarantee that the goods shipped are the goods purchased.
D) All of the above are true.
Q4) A draft drawn on and accepted by a bank is called a banker's acceptance.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 21
Chapter 20: Short-Term Financing
Available Study Resources on Quizplus for this Chatper
48 Verified Questions
48 Flashcards
Source URL: https://quizplus.com/quiz/20518
Sample Questions
Q1) Firms that believe the forward rate is an unbiased predictor of the future spot rate will prefer borrowing the foreign currency.
A)True
B)False
Q2) Assume that interest rate parity exists,and there are zero transactions costs. If the forward rate consistently underestimates the future spot rate,then:
A) on average, the foreign effective financing rate is greater than the domestic interest rate.
B) on average, the foreign effective financing rate is less than the domestic rate.
C) the foreign effective financing rate exceeds the U.S. interest rate when its forward rate exhibits a discount and is less than the U.S. interest rate when its forward rate exhibits a premium.
D) the foreign effective financing rate is less than the U.S. interest rate when its forward rate exhibits a discount and exceeds the U.S. interest rate when its forward rate exhibits a discount.
To view all questions and flashcards with answers, click on the resource link above.
22
Chapter 21: International Cash Management
Available Study Resources on Quizplus for this Chatper
38 Verified Questions
38 Flashcards
Source URL: https://quizplus.com/quiz/20519
Sample Questions
Q1) A common purpose of intersubsidiary leading or lagging strategies is to:
A) allow subsidiaries with excess funds to provide financing to subsidiaries with deficient funds.
B) assure that the inventory levels at subsidiaries are maintained within tolerable ranges.
C) change the prices a high tax rate subsidiary charges a low tax rate subsidiary.
D) measure the performance of subsidiaries according to how quickly subsidiaries remit dividend payments to the parent.
Q2) According to the international Fisher effect:
A) exchange rates adjust to compensate for income differen tials between countries.
B) interest rates adjust to compensate for income differen tials between countries.
C) exchange rates adjust to compensate for interest rate differentials between countries.
D) exchange rates adjust to compensate for risk differ entials between countries.
To view all questions and flashcards with answers, click on the resource link above.
23