Multinational Corporate Finance Test
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Course Introduction
Multinational Corporate Finance explores the complexities of financial management in organizations operating across international borders. The course covers foreign exchange markets, international funding sources, cross-border investment decisions, risk management techniques, and the effects of global economic factors on corporate financial strategy. Students will develop an understanding of how multinational corporations assess financial risks and opportunities, structure international investments, manage currency exposures, and comply with differing regulatory environments, equipping them with the skills necessary to make informed financial decisions in a global context.
Recommended Textbook
Multinational Business Finance 13th Edition by
David K. Eiteman
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20 Chapters
1145 Verified Questions
1145 Flashcards
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Page 2
Chapter 1: Current Multinational Challenges and the Global Economy
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Sample Questions
Q1) BRICs is a term used in international finance to represent assets that are considered to be inexpensive and sturdy, but fundamentally unsound and and incapable of coping with the upheavals now apparent in international financial markets.
A)True
B)False
Answer: False
Q2) Comparative advantage is one of the underlying principles driving the growth of global business.
A)True
B)False
Answer: True
Q3) 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
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Chapter 2: Corporate Ownership, Goals, and Governance
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Sample Questions
Q1) In the U.S. and U.K. stock markets are characterized by ownership of firms concentrated in the hands of a few controlling shareholders. In contrast, the rest of the world tends to have more widespread ownership of shares.
A)True
B)False
Answer: False
Q2) The goal of all international corporations is to maximize shareholder wealth. A)True
B)False
Answer: False
Q3) What are the most important distinctions that make state owned enterprises (SOEs)different from other forms of government organizations?
Answer: State owned enterprises are created distinctly for the purpose of commercial activities, rather than the multitude of other social, civil, and regulatory activities of government. SOEs are today, in many countries, the dominant form of business entity.
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Chapter 3: The International Monetary System
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Sample Questions
Q1) Dollarization is a common solution for countries suffering from currency revaluation.
A)True
B)False
Answer: False
Q2) Under the terms of Bretton Woods, countries tried to maintain the value of their currencies to within 1% of a hybrid security made up of the U.S. dollar, British pound, and Japanese yen.
A)True
B)False
Answer: False
Q3) Of the following, which is NOT a trade-off that must be dealt with in any exchange rate regime?
A)cooperation vs independence
B)rules vs discretionary action
C)dollars vs pounds
D)All of the above are rate regime trade-offs.
Answer: C
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Chapter 4: The Balance of Payments
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Sample Questions
Q1) The travel services provided to international travelers by United Airlines would be recorded in the current account subcategory of:
A)services trade.
B)income trade.
C)goods trade.
D)current transfers.
Q2) Consider the following: A foreign automobile company builds a manufacturing plant in Tennessee and European investors buy U.S. Treasury Bonds.
A)Both activities would be considered direct investment.
B)Both activities would be considered portfolio investment.
C)The auto manufacturer in engaging in portfolio investment, and the European investors are engaged in direct investing.
D)The auto manufacturer in engaging in direct investment, and the European investors are engaged in portfolio investing.
Q3) 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: The Continuing Global Financial Crisis
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Sample Questions
Q1) Even though household debt as a percentage of disposable income rose rapidly in the United States in early 2000s, the rate was even greater in Britain, topping out at over 170% in 2008.
A)True
B)False
Q2) LIBOR stand for the London Interbank Offered Rate.
A)True
B)False
Q3) The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 explicitly allowed corporate combinations of commercial banks with other types of financial institutions such as insurance companies and investment banking firms.
A)True
B)False
Q4) The process of turning an illiquid asset into a liquid saleable asset is called:
A)swapping.
B)wrapping.
C)securitization.
D)creationism.
Q5) What is TARP? Provide an argument for why TARP was necessary and successful.
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Chapter 6: The Foreign Exchange Theory and Markets
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Sample Questions
Q1) The greatest volume of daily foreign exchange transactions are:
A)spot transactions.
B)forward transactions.
C)swap transactions.
D)This question is inappropriate because the volume of transactions are approximately equal across the three categories above.
Q2) A/An ________ is an agreement between a buyer and seller that a fixed amount of one currency will be delivered at a specified rate for some other currency.
A)Eurodollar transaction
B)import/export exchange
C)foreign exchange transaction
D)interbank market transaction
Q3) Currency trading lacks profitability for large commercial and investment banks but is maintained as a service for corporate and institutional customers.
A)True
B)False
Q4) Define spot, forward, and swap transactions in the foreign exchange market and give an example of how each could be used.
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Chapter 7: International Parity Conditions
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Sample Questions
Q1) Exchange rate pass-through may be defined as:
A)the bid/ask spread on currency exchange rate transactions.
B)the degree to which the prices of imported and exported goods change as a result of exchange rate changes.
C)the PPP of lesser-developed countries.
D)the practice by Great Britain of maintaining the relative strength of the currencies of the Commonwealth countries under the current floating exchange rate regime.
Q2) If we set the real effective exchange rate index between Canada and the United States equal to 100 in 1998, and find that the U.S. dollar has risen to a value of 112.6, then from a competitive perspective the U.S. dollar is:
A)overvalued.
B)undervalued.
C)very competitive.
D)There is not enough information to answer this question.
Q3) Consider the price elasticity of demand. If a product has price elasticity less than one it is considered to have relatively elastic demand.
A)True
B)False
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Chapter 8: Foreign Currency Derivatives and Swaps
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Sample Questions
Q1) An interbank-traded contract to buy or sell interest rate payments on a notional principal is called a/an:
A)forward rate agreement.
B)interest rate future.
C)interest rate swap.
D)none of the above
Q2) A basis point is one-tenth of one percent.
A)True
B)False
Q3) Historically, interest rate movements have shown less variability and greater stability than exchange rate movements.
A)True
B)False
Q4) Futures contracts require that the purchaser deposit an initial sum as collateral. This deposit is called a:
A)collateralized deposit.
B)marked market sum.
C)margin.
D)settlement.
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Chapter 9: Foreign Exchange Rate Determination and Forecasting
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Sample Questions
Q1) Which of the following was NOT an international currency crisis in the 1990s and early 2000s?
A)the Asian Crisis
B)the Canadian Crisis
C)the Argentine Crisis
D)All of the above were currency crises in the 1990s and 2000s.
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) Direct intervention for currency valuation involves limiting the ability to exchange domestic currency for foreign currency.
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.
11
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Chapter 10: Transaction Exposure
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Q1) Transaction exposure and operating exposure exist because of unexpected changes in future cash flows. The difference between the two is that ________ exposure deals with cash flows already contracted for, while ________ exposure deals with future cash flows that might change because of changes in exchange rates.
A)transaction; operating
B)operating; transaction
C)operating; accounting
D)none of the above
Q2) Refer to Instruction 10.2. If CVT locks in the forward hedge at $1.22/euro, and the spot rate when the transaction was recorded on the books was $1.25/euro, this will result in a "foreign exchange accounting transaction ________ of ________.
A)loss; $90,000.
B)loss; 90,000.
C)gain; $90,000.
D)gain; 90,000.
Q3) Hedging, or reducing risk, is the same as adding value or return to the firm.
A)True
B)False
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Chapter 11: Translation Exposure
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Sample Questions
Q1) The main technique to minimize translation exposure is called a/an ________ hedge.
A)balance sheet
B)income statement
C)forward
D)translation
Q2) The current rate method is the most prevalent method today for the translation of financial statements.
A)True
B)False
Q3) 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
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13
Chapter 12: Operating Exposure
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Sample Questions
Q1) If a firm diversifies its financing sources, it will be pre-positioned to take advantage of temporary deviations from the International Fisher Effect.
A)True
B)False
Q2) Brimmo Motorcycles Inc., a U.S.-based firm, manufactures and sells electric motorcycles both domestically and internationally. A sudden and unexpected appreciation of the U.S. dollar should allow sales to ________ at home and ________ abroad. (Assume other factors remain unchanged.)
A)increase; increase
B)decrease; decrease
C)increase; decrease
D)decrease; increase
Q3) ________ cash flows arise from intracompany and intercompany receivables and payments, while ________ cash flows are payments for the use of loans and equity.
A)Financing; operating
B)Operating; financing
C)Operating; accounting
D)Accounting; financing
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14
Chapter 13: The Global Cost and Availability of Capital
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Q1) According to your authors, diversifying cash flows internationally may help MNEs reduce the variability of cash flows because:
A)of a lack of competition among international firms.
B)of an offset to cash flow variability caused by exchange rate variability.
C)returns are not perfectly correlated between countries.
D)none of the above
Q2) Which of the following is NOT a contributing factor to the segmentation of capital markets?
A)excessive regulatory control
B)perceived political risk
C)anticipated foreign exchange risk
D)All of the above are contributing factors.
Q3) ________ risk is a function of the variability of expected returns of the firm's stock relative to the market index and the measure of correlation between the expected returns of the firm and the market.
A)Systematic
B)Unsystematic
C)Total
D)Diversifiable
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Page 15
Chapter 14: Raising Equity and Debt Globally
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Q1) The Eurocurrency market continues to thrive because it is a large international money market relatively free of governmental regulation and interference.
A)True
B)False
Q2) One of the most important factors in making debt less expensive than equity is:
A)the tax deductibility of depreciation.
B)the tax deductibility of equity.
C)the tax deductibility of dividends.
D)the tax deductibility of interest.
Q3) Each ADR represents ________ of the shares of the underlying foreign stock.
A)a multiple
B)100
C)1
D)ADRs have nothing to do with foreign stocks.
Q4) One of the most important factors in making debt less expensive than equity is:
A)the seniority of equity obligations to debt claims.
B)the tax deductibility of dividends.
C)the tax deductibility of equity.
D)the seniority of debt obligations to equity claims.
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Chapter 15: Multinational Tax Management
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Sample Questions
Q1) Refer to Table 15.1. If BayArea set the payout rate from the Ukraine subsidiary at 25%, how should BayArea set the payout rate of the Korean subsidiary (approximately)to more efficiently manage its total foreign tax bill?
A)28.5%
B)24.5%
C)42.6%
D)82.3%
Q2) A country CANNOT have both a territorial and a worldwide approach as a national tax policy.
A)True
B)False
Q3) Refer to Instruction 15.1. If the U.S. treated the taxes paid on income earned in the host country as a tax-credit, then Green Valley's total U.S. corporate tax on the foreign earnings would be:
A)$51,250.
B)$35,000.
C)$26,250.
D)$10,000.
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17
Chapter 16: International Portfolio Theory and Diversification
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Sample Questions
Q1) Capital markets around the world are on average less integrated today than they were 20 years ago.
A)True
B)False
Q2) International diversification benefits may induce investors to demand foreign securities.
A)True
B)False
Q3) Refer to Table 16.1. What is the value of the Sharpe Measure for France?
A)0.113
B)0.0071
C)either A or B
D)neither A nor B
Q4) Refer to Instruction 16.1. How many euros will the U.S. investor acquire with his initial $500,000 investment?
A) 650,000
B) 370,370
C) 500,000
D) 384,615
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Chapter 17: Foreign Direct Investment and Political Risk
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Sample Questions
Q1) MNEs typically used licensing with independent firms rather than with their own foreign subsidiaries.
A)True
B)False
Q2) 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
Q3) According to your authors, MNEs can anticipate government regulations that are discriminatory or wealth depriving from a/an ________ or ________ level view.
A)foreign; domestic
B)micro; macro
C)internal; external
D)local; global
Q4) List and explain three strategic motives why firms become multinationals and give an example of each.
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19
Chapter 18: Multinational Capital Budgeting and Cross-Border Acquisitions
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Sample Questions
Q1) When a multinational firm invests abroad, it is common to develop two capital budgets: one from the project viewpoint, and one from the parent viewpoint.
A)True
B)False
Q2) When determining a firm's weighted average cost of capital (wacc)which of the following terms is NOT necessary?
A)the firm's tax rate
B)the firm's cost of debt
C)the firm's cost of equity
D)All of the above are necessary.
Q3) When determining a firm's weighted average cost of capital (WACC)which of the following terms is NOT necessary?
A)the firm's weight of equity financing
B)the risk-free rate of return
C)the firm's weight of debt financing
D)All of the above are necessary to determine a firm's WACC.
Q4) Explain how political risk and exchange rate risk increase the uncertainty of international projects for the purpose of capital budgeting.
Page 20
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Chapter 19: Working Capital Management
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Q1) Refer to Instruction 19.1. Should Sunny Manufacturing take the discount offered by Sun Chemical?
A)Yes, Sunny Manufacturing will get to use their raw materials 35 days earlier than if they waited to pay at the end of the 45 days.
B)No, Sunny Manufacturing will not have to pay any interest if they just pay in 45 days.
C)Yes, Sunny Manufacturing's short term borrowing rate of 9.6% is less than Sun's offered cost of carry of 22.9%.
D)No, it costs Sunny Manufacturing 22.9% to accept the discount and they are better off paying the full amount in 45 days.
Q2) A precautionary cash balance:
A)is used to replace spoiled or damaged inventory.
B)is held to facilitate cash disbursements when receipts slow down.
C)is used for normal day-to-day operations.
D)is held for the benefit of a sister affiliate.
Q3) Local liquidity needs sometimes impact a firm's worldwide optimal cash position.
A)True
B)False
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Chapter 20: International Trade Finance
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Sample Questions
Q1) A time draft is payable on presentation to the drawee; the drawee must pay at once or dishonor the draft. A sight draft, allows a delay in payment.
A)True
B)False
Q2) The person or company initiating the draft or bill of exchange is known as the: A)maker.
B)drawer.
C)originator.
D)any of the above
Q3) 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
Q4) Banker's acceptances can be used to finance only international trade receivables but not domestic trade receivables.
A)True
B)False
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