International Management Test Questions
Course Introduction
International Management explores the complexities and challenges of managing organizations in a globalized business environment. This course examines key concepts such as cross-cultural communication, international strategy, leadership in a multicultural context, global human resource management, and ethical considerations in international operations. Students will analyze case studies and engage in discussions to understand the impact of cultural, legal, economic, and political factors on organizational decision-making and performance in different countries. Through theoretical frameworks and practical applications, the course prepares learners to effectively lead diverse teams and make informed management decisions in the global marketplace.
Recommended Textbook
Multinational Business Finance 15th Edition by
David K. Eiteman
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Page 2
Chapter 1: Multinational Financial Management: Opportunities and Challenges
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Sample Questions
Q1) When discussing comparative advantage, it is apparent that today at least two of the factors of production, capital and technology, now flow directly and easily between countries, rather than only indirectly through traded goods and services.
A)True
B)False
Answer: True
Q2) As the general principle of comparative advantage is still valid, complete specialization remains a realistic case.
A)True
B)False
Answer: False
Q3) Several of the world's major currency exchange rates follow a specific quotation convention that is the result of tradition and history. The exchange rate between the U.S. dollar and the British pound is always quoted as "dollars per pound."
A)True
B)False
Answer: True
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Page 3
Chapter 2: The International Monetary System
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Sample Questions
Q1) One of the innovations introduced by Bretton Woods was the creation of the Special Drawing Right or SDR. The SDR is an international reserve asset created by the:
A) U.S. Department of the Treasury.
B) International Bank of Reconstruction and Development (IBRD).
C) World Bank (WB).
D) International Monetary Fund (IMF).
Answer: D
Q2) According to the terminology associated with changes in currency values, depreciation is a case when a currency's value relative to other currencies is changed by a government.
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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Chapter 3: The Balance of Payments
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Sample Questions
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
Answer: False
Q2) Expenditures by U.S. tourists in foreign countries for foreign goods or services are factored into BOP calculations.
A)True
B)False
Answer: False
Q3) China's current political plan includes reducing their foreign exchange reserve balance by allowing the yuan to float freely and by switching their goods balance from one of a net surplus to a net deficit.
A)True
B)False
Answer: False
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Chapter 4: Financial Goals and Corporate Governance
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Sample Questions
Q1) The Sarbanes-Oxley Act, passed by the U.S. Congress in July 2002, was designed to:
A) reinstitute heavy tariffs on international trade.
B) reform corporate governance.
C) limit the Federal Reserve Board's ability to engage in the buying and selling of gold.
D) limit trade with countries deemed lenient on terrorism.
Q2) The problems that may arise due to the separation of ownership and management in large business organizations are known as:
A) separation anxiety.
B) the agency problem.
C) corporate disconnect theory.
D) none of the above
Q3) Which of the following is NOT typically associated with the private ownership of business organizations?
A) the government
B) families
C) individuals
D) publicly traded, widely-held organizations
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Chapter 5: The Foreign Exchange Market
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Sample Questions
Q1) The ________ is the mechanism by which participants transfer purchasing power between countries, obtain or provide credit for international trade transactions, and minimize exposure to the risks of exchange rate changes.
A) futures market
B) federal open market
C) foreign exchange market
D) LIBOR
Q2) The primary motive of foreign exchange activities by most central banks is profit.
A)True
B)False
Q3) 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.
Q4) What are some of the reasons central banks and treasuries enter the foreign exchange markets, and in what important ways are they different from other foreign exchange participants?
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Chapter 6: International Parity Conditions
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Sample Questions
Q1) The relationship between the percentage change in the spot exchange rate over time and the differential between comparable interest rates in different national capital markets is known as:
A) absolute PPP.
B) the law of one price.
C) relative PPP.
D) the international Fisher Effect.
Q2) Arbitragers applying Covered Interest Arbitrage drive the international currency and money markets toward the equilibrium described by:
A) the effective exchange rate index.
B) the purchasing power parity.
C) the nominal effective exchange rate index.
D) the interest rate parity.
Q3) The authors describe an application of uncovered interest arbitrage (UIA) known as "yen carry trade." Define UIA and describe the example of yen carry trade. Why would an investor engage in the practice of yen carry trade and is there any risk of loss or lesser profit from this investment strategy?
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8
Chapter 7: Foreign Currency Derivatives: Futures and Options
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Sample Questions
Q1) Option premiums deteriorate at a/an ________ as they approach expiration.
A) increasing rate
B) proportional
C) decreasing rate
D) less than proportional rate
Q2) A foreign currency ________ gives the purchaser the right, not the obligation, to buy a given amount of foreign exchange at a fixed price per unit for a specified period.
A) future
B) forward
C) option
D) swap
Q3) The writer of the option is referred to as the seller, and the buyer of the option is referred to as the holder.
A)True
B)False
Q4) Historical volatility is the correct method for the calculation of the option volatility.
A)True
B)False
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Chapter 8: Interest Risk and Swaps
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Sample Questions
Q1) An agreement to exchange interest payments based on a fixed payment for those based on a variable rate (or vice versa) is known as a/an:
A) forward rate agreement.
B) interest rate future.
C) interest rate swap.
D) none of the above
Q2) The potential exposure that any individual firm bears that the second party to any financial contract will be unable to fulfill its obligations under the contract is called:
A) interest rate risk.
B) credit risk.
C) counterparty risk.
D) clearinghouse risk.
Q3) Historically, interest rate movements have shown less variability and greater stability than exchange rate movements.
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 9: Foreign Exchange Rate Determination and Intervention
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Sample Questions
Q1) Direct intervention for currency valuation involves limiting the ability to exchange domestic currency for foreign currency.
A)True
B)False
Q2) The ________ approach argues that exchange rates are determined by the supply and demand for a wide variety of financial assets
A) balance of payments
B) monetary
C) asset market
D) law of one price
Q3) The authors claim that theoretical and empirical studies appear to show that fundamentals do apply to the long-term for foreign exchange.
A)True
B)False
Q4) 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 10: Transaction Exposure
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Sample Questions
Q1) Refer to Instruction 10.1. If CVT chooses NOT to hedge their euro payable, the amount they pay in six months will be:
A) $3,500,000.
B) $3,900,000.
C) 3,000,000.
D) unknown today
Q2) The key arguments in opposition to currency hedging such as market efficiency, agency theory, and diversification do not have financial theory at their core.
A)True
B)False
Q3) A hedge constructed using puts foreign currency options would be symmetric.
A)True
B)False
Q4) The treasury function of most firms, the group typically responsible for transaction exposure management, is NOT usually considered a profit center.
A)True
B)False
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12
Chapter 11: Translation Exposure
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Sample Questions
Q1) The basic advantage of the ________ method of foreign currency translation is that foreign nonmonetary assets are carried at their original cost in the parent's consolidated statement while the most important advantage of the ________ method is that the gain or loss from translation does not pass through the income statement.
A) monetary; current rate
B) temporal; current rate
C) temporal; monetary
D) current rate; temporal
Q2) The main technique to minimize translation exposure is called a/an ________ hedge.
A) balance sheet
B) income statement
C) forward
D) translation
Q3) 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
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13
Chapter 12: Operating Exposure
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Sample Questions
Q1) 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.
Q2) Most swap dealers arrange swaps so that each firm that is a party to the transaction knows who the counterparty is.
A)True
B)False
Q3) The higher the price elasticity of demand, the higher the degree of pass-through.
A)True
B)False
Q4) Swap agreements are treated as off-balance sheet transactions via U.S. accounting methods.
A)True
B)False
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Chapter 13: Global Cost and Availability of Capital
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Sample Questions
Q1) Increasing the number of securities in a portfolio reduces the unsystematic risk but not the systematic risk.
A)True
B)False
Q2) Unsystematic risk:
A) is the remaining risk in a well-diversified portfolio.
B) is measured with beta.
C) can be diversified away.
D) all of the above
Q3) The beginning share price for a security over a three-year period was $50. Subsequent year-end prices were $62, $58 and $64. The arithmetic average annual rate of return and the geometric average annual rate of return for this stock were:
A) 9.30% and 8.58% respectively.
B) 9.30% and 7.89% respectively.
C) 9.30% and 7.03% respectively.
D) 9.30% and 6.37% respectively.
Q4) Market imperfections do not necessarily imply that national securities markets are inefficient. Develop an argument as to why this is possible.
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Page 15
Chapter 14: Funding the Multinational Firm
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Sample Questions
Q1) Which of the following were NOT identified by the authors as a variable that needs to be modified in the domestic theory of optimal financial structures to accommodate the case of the multinational enterprise?
A) financial distress
B) availability of capital
C) diversification of cash flows
D) foreign exchange risk
Q2) TropiKana Inc., a U.S firm, has just borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 5.50% per year and the Euro appreciates against the dollar from $1.40/ at the time the loan was made to $1.45/ at the end of the first year, how much interest will TropiKana pay at the end of the first year (rounded)?
A) $55,000
B) $79,750
C) $77,000
D) $37,931
Q3) 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 16
Chapter 15: Multinational Tax Management
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Sample Questions
Q1) What is the total value of taxes paid in the following example if the value added tax is 10%? A farmer raises wheat that he sells for $1.50 to the grain company. The grain company sells to the processor for $2.00 per bushel. The processor turns the wheat into a breakfast cereal and wholesales it for $3.00 per bushel. The retailer sells the cereal for $4.00 per bushel.
A) $0.15
B) $0.20
C) $0.30
D) $0.40
Q2) As part of the Act of 2017, the taxation of Foreign-Source Income will not create tax credits or deficits when declared as dividends to the U.S. parent.
A)True
B)False
Q3) Among the G7 nations, the U.S. has a below average corporate income tax rate that makes it attractive for other countries to invest in the U.S.
A)True
B)False
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Page 17
Chapter 16: International Trade Finance
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Sample Questions
Q1) The major advantage of a letter of credit to the exporter is that the exporter does not receive any funds until the documents have arrived at a local port or airfield.
A)True
B)False
Q2) A letter of credit that is confirmed in the ________ country has the additional advantage of eliminating the problem of ________.
A) exporter's; portfolio risk
B) importer's; blocked foreign exchange
C) exporter's; blocked foreign exchange
D) none of the above
Q3) A typical forfaiting transaction involves the following parties EXCEPT:
A) importer.
B) exporter.
C) carrier.
D) importer's Bank.
Q4) A sight draft is payable on presentation to the drawee; a time draft allows a delay in payment.
A)True
B)False
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Chapter 17: Foreign Direct Investment and Political Risk
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Sample Questions
Q1) The L in OLI refers to an advantage in a firm's home market that is a:
A) liability in the domestic market.
B) location-specific advantage.
C) longevity in a particular market.
D) none of the above
Q2) A strongly competitive home market tends to dull the competitive advantage relative to firms located in less competitive home markets.
A)True
B)False
Q3) Greenfield investments are typically ________ and ________ than cross-border acquisition.
A) slower; more uncertain
B) faster; of greater certainty
C) slower; of greater certainty
D) faster; more uncertain
Q4) 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?
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Chapter 18: Multinational Capital Budgeting and Cross-Border Acquisitions
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Sample Questions
Q1) Refer to Instruction 18.1. What is the initial investment for the Velo Rapid Revolutions project?
A) $1,500,000
B) 1,600,000
C) $1,600,000
D) 1,500,000
Q2) Which of the following is NOT a basic step in the capital budgeting process?
A) Identify the initial capital invested.
B) Estimate the cash flows to be derived from the project over time.
C) Identify the appropriate interest rate at which to discount future cash flows.
D) All of the above are steps in the capital budgeting process.
Q3) For purposes of international capital budgeting, it is NOT important to distinguish between parent and total project cash flows.
A)True B)False
Q4) As opposed to greenfield investment, a cross-border acquisition is typically quicker. A)True B)False
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