Managerial Finance
Test Preparation
Course Introduction
Managerial Finance explores the fundamental principles and techniques financial managers use to make informed business decisions within organizations. The course covers topics such as financial statement analysis, budgeting, working capital management, time value of money, capital budgeting, risk analysis, and long-term financing decisions. Students learn how to apply quantitative and qualitative tools to evaluate financial performance, assess investment opportunities, and optimize the allocation of resources to achieve organizational goals. Emphasis is placed on real-world applications, ethical considerations, and the strategic role of finance in business planning and growth.
Recommended Textbook
Multinational Business Finance 12th Edition by
Arthur I. Stonehill
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22 Chapters
929 Verified Questions
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Page 2
Chapter 1: Globalization and the Multinational Enterprise
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Sample Questions
Q1) Of the following, which was NOT mentioned by the authors as an increase in the demands of financial management services due to increased globalization by the firm?
A)Evaluation of the credit quality of foreign buyers and sellers.
B)Foreign consumer method of payment preferences.
C)Credit risk management.
D)Evaluation of foreign exchange risk.
Answer: B
Q2) ________ investments are designed to promote and enhance the growth and profitability of the firm. ________ investments are designed to deny those same opportunities to the firm's competitors.
A)Conservative; Aggressive
B)Defensive; Proactive
C)Proactive; Defensive
D)Aggressive; Proactive
Answer: C
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Chapter 2: Financial Goals and Corporate Governance
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Sample Questions
Q1) Regarding comparative corporate governance regimes: Bank-based regimes characterized by government influence in bank lending and a lack of transparency is often found in countries such as Korea and Germany.
A)True
B)False
Answer: True
Q2) Dividend yield is the change in the share price of stock as traded in the public equity markets.
A)True
B)False Answer: False
Q3) "Maximize corporate wealth"
A)is the primary objective of the non-Anglo-American model of management.
B)as a management objective treats shareholders on a par with other corporate stakeholders such as creditors, labor, and local community.
C)has a broader definition than just financial wealth.
D)all of the above
Answer: D
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4
Chapter 3: The International Monetary System
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Sample Questions
Q1) For the three years from early 2002 to early 2005, the euro maintained a strong and steady rise in value against the U.S. dollar (USD). Which of the following were NOT a contributing factor in the assent of the euro and the decline in the dollar?
A)Severe U.S. balance of payments deficits.
B)A general weakening of the dollar after the attacks of September 11, 2001.
C)Large U.S. balance of payment surpluses.
D)All of the above were contributing factors.
Answer: C
Q2) All exchange rate regimes must deal with the trade-off between rules and discretion as well as between cooperation and independence.
A)True
B)False
Answer: True
Q3) The European Central Bank is a strong and independent central bank that has completely replaced the individual central banks of the countries that use the euro as their currency.
A)True
B)False
Answer: False
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Page 5
Chapter 4: The Balance of Payments
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Sample Questions
Q1) In 2007 the United States posted a current account deficit of -$731 billion. The bulk of the negative value came from
A)a net transfer deficit.
B)an income balance deficit.
C)a goods trade deficit.
D)an income trade deficit.
Q2) What is the Official Reserves Account (ORA)and why is it more important for countries under a fixed exchange rate regime than for ones under a floating exchange rate regime?
Q3) Imports have the potential to lower a country's inflation rate because of each of the following EXCEPT:
A)the import of lower priced goods limits what domestic competitors can charge for goods.
B)the import of lower priced services limits what domestic competitors can charge for services.
C)the higher prices of foreign goods spurs domestic competitors to cut prices. D)of all of the above
Q4) What is a country's balance of (merchandise)trade and why is it so widely reported in the financial and popular press?
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Chapter 5: Current Multinational Financial Challenges: the Credit
Crisis of 2007-2009
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Sample Questions
Q1) LIBOR stand for the London Interbank Offered Rate.
A)True
B)False
Q2) Future financial market regulation must include all of the following EXCEPT:
A)renewed regulatory requirements.
B)increased reporting.
C)greater transparency in pricing and valuation.
D)Regulation must include all of the above.
Q3) Securitization may degrade credit quality because the process severs the link of lending and repayment (risk and reward)between the originator of the loan and the borrower.
A)True
B)False
Q4) Alt-A mortgage loans are NOT eligible for sale to GSEs such as Fannie Mae or Freddie Mac.
A)True
B)False
Q5) Bear-Stearns is the largest single bankruptcy in U.S. history.
A)True
B)False
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Chapter 6: The Foreign Exchange Market
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Sample Questions
Q1) Most transactions in the interbank foreign exchange trading are primarily conducted via telecommunication techniques and little is conducted face-to-face.
A)True
B)False
Q2) ________ make money on currency exchanges by the difference between the ________ price, or the price they offer to pay, and the ________ price, or the price at which they offer to sell the currency.
A)Dealers; ask; bid
B)Dealers; bid; ask
C)Brokers; ask; bid
D)Brokers; bid; ask
Q3) Define spot, forward, and swap transactions in the foreign exchange market and give an example of how each could be used.
Q4) 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
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8
Chapter 7: International Parity Conditions
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Sample Questions
Q1) All that is required for a covered interest arbitrage profit is for interest rate parity to not hold.
A)True
B)False
Q2) According to the International Fisher Effect, the forecast change in the spot rate between two countries is equal to:
A)the current spot rate multiplied by the ratio of the inflation rates in the respective countries.
B)but the opposite sign to the different between nominal interest rates.
C)but the opposite sign to the difference between inflation rates.
D)but the opposite sign to the difference between real interest rates.
Q3) If an identical product can be sold in two different markets, and no restrictions exist on the sale or transportation costs, the product's price should be the same in both markets. This is known as
A)relative purchasing power parity.
B)interest rate parity.
C)the law of one price.
D)equilibrium.
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9
Chapter 8: Foreign Currency Derivatives
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Sample Questions
Q1) The buyer of a long call 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 an unlimited maximum gain potential.
D)all of the above
Q2) 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
Q3) The time value is asymmetric in value as you move away from the strike price. (i.e., the time value at two cents above the strike price is not necessarily the same as the time value two cents below the strike price.)
A)True
B)False
Q4) Compare and contrast foreign currency options and futures. Identify situations when you may prefer one vs. the other when speculating on foreign exchange.
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Page 10
Chapter 9: Interest Rate and Currency Swaps
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Sample Questions
Q1) Refer to Instruction 9.1. If your firm felt very confident that interest rates would fall or, at worst, remain at current levels, and were very confident about the firm's credit rating for the next 10 years, which strategy would you likely choose? (Assume your firm is borrowing money.)
A)Strategy #3
B)Strategy #2
C)Strategy #1
D)Strategy #1, #2, or #3, you are indifferent among the choices.
Q2) A firm with variable-rate debt that expects interest rates to rise may engage in a swap agreement to
A)pay fixed-rate interest and receive floating rate interest.
B)pay floating rate and receive fixed rate.
C)pay fixed rate and receive fixed rate.
D)pay floating rate and receive floating rate.
Q3) Which of the following is NOT true regarding a corporate policy?
A)A policy is intended to limit or restrict management actions.
B)Policies make management decision-making more difficult in potentially harmful situations.
C)A policy is intended to restrict some subjective management decision-making.
D)A policy is intended to establish operating guidelines independently of staff.
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Chapter 10: Foreign Exchange Rate Determination and Forecasting
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Sample Questions
Q1) 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.
Q2) The ________ provides a means to account for international cash flows in a standardized and systematic manner.
A)parity conditions
B)asset approach
C)balance of payments
D)international Fisher effect
Q3) Describe the asset market approach to exchange rate determination. How is this consistent with economic theory of (say, security)prices in general?
Q4) The "tequila effect" is a slang term used to describe a form of financial panic called ________.
A)run on the market
B)speculation
C)contrary investing
D)contagion
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Chapter 11: Transaction Exposure
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Sample Questions
Q1) A U.S. firm sells merchandise today to a British company for £100,000. The current exchange rate is $2.03/£, the account is payable in three months, and the firm chooses to avoid any hedging techniques designed to reduce or eliminate the risk of changes in the exchange rate. If the exchange rate changes to $2.05/£ the U.S. firm will realize a ________ of ________.
A)loss; $2000
B)gain; $2000
C)loss; £2000
D)gain; £2000
Q2) 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
Q3) ________ is NOT a commonly used contractual hedge against foreign exchange transaction exposure.
A)Forward market hedge
B)Money market hedge
C)Options market hedge
D)All of the above are contractual hedges.
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Page 13
Chapter 12: Operating Exposure
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Sample Questions
Q1) Another name for operating exposure is ________ exposure.
A)economic
B)competitive
C)strategic
D)all of the above
Q2) Costs associated with the purchase of sizeable put options positions include each of the following EXCEPT:
A)the purchase price of the options.
B)the opportunity cost of buying the options rather than diversifying operations to reduce risk.
C)executive salaries of having corporate offices in more than one country.
D)none of the above
Q3) Which of the following is NOT identified by your authors as a proactive management technique to reduce exposure to foreign exchange risk?
A)Matching currency cash flows.
B)Currency swaps.
C)Remaining a purely domestic firm.
D)Parallel loans.
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14
Chapter 13: Translation Exposure
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Sample Questions
Q1) Translation exposure measures
A)changes in the value of outstanding financial obligations incurred prior to a change in exchange rates.
B)the potential for an increase or decrease in the parent company's net worth and reported net income caused by a change in exchange rates since the last consolidation of international operations.
C)an unexpected change in exchange rates impact on short run expected cash flows.
D)none of the above
Q2) If a firm's subsidiary is using the local currency as the functional currency, which of the following is NOT a circumstance that could justify the use of a balance sheet hedge?
A)The foreign subsidiary is about to be liquidated, so that the value of its Cumulative Translation Adjustment (CTA)would be realized.
B)The firm has debt covenants or bank agreements that state the firm's debt/equity ratio will be maintained within specific limits.
C)The foreign subsidiary is operating is a hyperinflationary environment.
D)All of the above are appropriate reasons to use a balance sheet hedge.
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Chapter 14: The Global Cost and Availability of Capital
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Sample Questions
Q1) Which of the following is NOT a key variable in the equation for the capital asset pricing model?
A)The risk-free rate of interest.
B)The expected rate of return on the market portfolio.
C)The marginal tax rate.
D)All are important components of the CAPM.
Q2) The weighted average cost of capital (WACC)is
A)the required rate of return for all of a firm's capital investment projects.
B)the required rate of return for a firm's average risk projects.
C)not applicable for use by MNE.
D)equal to 13%.
Q3) The difference between the expected (or required)return for the market portfolio and the risk-free rate of return is referred to as ________.
A)beta
B)the geometric mean
C)the market risk premium
D)the arithmetic mean
Q4) What are the components of the weighted average cost of capital (WACC)and how do they differ for an MNE compared to a purely domestic firm?
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Chapter 15: Sourcing Equity Globally
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Sample Questions
Q1) ADRs are a popular investment tool for many U.S. investors. In recent years several alternatives for investing in foreign equity securities have become available for U.S. investors, yet ADRs remain popular. Define what an ADR is and provide at least three examples of the advantages they may hold over alternative foreign investment vehicles for U.S. investors.
Q2) Which of the following is the typical order of sourcing capital abroad?
A)An international bond issue, then cross listing the outstanding issues on other exchanges, then an international bond issue in the target market.
B)An international bond issue in the target market then cross listing the outstanding issues on other exchanges, then an international bond issue.
C)An international bond issue, then an international bond issue in the target market, then cross listing the outstanding issues on other exchanges.
D)Cross listing the outstanding issues on other exchanges, then an international bond issue, then an international bond issue in the target market.
Q3) Most firms raise their initial capital in foreign markets.
A)True
B)False
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Page 17
Chapter 16: Sourcing Debt Globally
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Q1) For most firms, the cost of capital decreases to a low point as the firm ________ debt financing. At some point beyond this optimal level, the cost of capital increases as the amount of debt ________.
A)decreases; increases.
B)decreases; decreases.
C)increases; increases.
D)increases; decreases.
Q2) Eurocredits are
A)bank loans to MNEs and others denominated in a currency other than that of the country where the bank is located.
B)typically variable rate and tied to the LIBOR.
C)usually for maturities of six months or less.
D)All of the above are true.
Q3) Financial practice suggests that there is a range for an optimal capital structure for a firm within an industry rather than a specific optimal ratio of debt to equity.
A)True
B)False
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18
Chapter 17: International Portfolio Theory and Diversification
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Sample Questions
Q1) An internationally diversified portfolio
A)should result in a portfolio with a lower beta than a purely domestic portfolio.
B)has the same overall risk shape as a purely domestic portfolio.
C)is only about 12% as risky as the typical individual stock.
D)all of the above
Q2) A U.S. investor makes an investment in Britain and earns 14% on the investment while the British pound appreciates against the U.S. dollar by 8%. What is the investor's total return?
A)22.00%
B)23.12%
C)6.00%
D)4.88%
Q3) A fully diversified domestic portfolio has a beta of ________.
A)0.0
B)1.0
C)-1.0
D)Not enough information to answer this question.
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Page 19
Chapter 18: Foreign Direct Investment Theory and Political Risk
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Sample Questions
Q1) An alternative strategy to engaging in bribery in international investments include:
A)Refuse bribery outright.
B)Retain local advisors to diffuse requests for bribes.
C)Educate management and local employees about the firm's bribery policy.
D)all of the above
Q2) A/n ________ would be an example of a location-specific advantage for an MNE. A)patent
B)economy of scale
C)unique source of raw materials
D)possession of proprietary information
Q3) Local partners in a foreign country and in a joint venture with an MNE are likely to make decisions that maximize the value of the subsidiary. Such actions probably will not maximize the value of the entire firm.
A)True
B)False
Q4) Business risk can be measured through sensitivity analysis but from only the project viewpoint.
A)True
B)False
20
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Chapter 19: Multinational Capital Budgeting
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Sample Questions
Q1) Generally speaking, a firm wants to receive cash flows from a currency that is ________ relative to their own, and pay out in currencies that are ________ relative to their home currency.
A)appreciating; depreciating
B)depreciating; depreciating
C)appreciating; appreciating
D)depreciating; appreciating
Q2) Real option analysis allows managers to analyze all of the following EXCEPT:
A)the option to defer.
B)the option to abandon.
C)the option to alter capacity.
D)All of the above may be analyzed using real option analysis.
Q3) When evaluating capital budgeting projects, which of the following would NOT necessarily be an indicator of an acceptable project?
A)an NPV > $0
B)an IRR > the project's required rate of return
C)an IRR > $0
D)All of the above are correct indicators.
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Chapter 20: Multinational Tax Management
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Sample Questions
Q1) The territorial approach to taxation policy is also termed the ________ approach.
A)source
B)ethical
C)greedy
D)location
Q2) 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
Q3) Refer to Table 20.1. How much in additional U.S. taxes would be due if MetroCity averaged the tax credits and liabilities of the two foreign units, assuming a 50% payout rate from each?
A)$3,750
B)$13,750
C)$2,500
D)$0
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Chapter 22: International Trade Finance
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Sample Questions
Q1) Refer to Instruction 22.1. ________ is an unsecured promissory note.
A)A banker's acceptance
B)An overdraft
C)A securitized loan
D)Commercial paper
Q2) Which of the following purposes is NOT served by the bill of lading?
A)It acts as a receipt.
B)It acts as a contract.
C)It acts as a document of title.
D)It acts as all of the above.
Q3) Custom Granite Inc. has a Canadian receivables contract for $200,000 due in 270 days. The firm has been approached by a factoring firm that offers to purchase the receivables at a 12% per annum discount plus a 1% charge for a nonrecourse clause. What is the annualized percentage all-in-cost of this factoring alternative?
A)14.82%
B)13.00%
C)12.00%
D)9.09%
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