Multinational Financial Management
Test Preparation
Course Introduction
Multinational Financial Management is a course that explores the financial decisions and strategies of firms operating in a global environment. Topics include foreign exchange markets, risk management techniques, international capital budgeting, financing and investment decisions across borders, and the impact of cultural, legal, and political differences on financial practices. The course also covers currency risk, hedging methods, transfer pricing, multinational tax issues, and working capital management for multinational enterprises. Through case studies and practical examples, students develop the analytical skills needed to address complex financial challenges in international business.
Recommended Textbook
International Financial Management 8th Edition by Madura
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21 Chapters
1110 Verified Questions
1110 Flashcards
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Page 2
Chapter 1: Multinational Financial Management: An Overview
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42 Verified Questions
42 Flashcards
Source URL: https://quizplus.com/quiz/20499
Sample Questions
Q1) A centralized management style,where major decisions about a foreign subsidiary are made by the parent company,results in an increase in agency costs.
A)True
B)False
Answer: False
Q2) 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
Q3) The North American Free Trade Agreement (NAFTA)of 1993 eliminated trade barriers between the United States and Mexico.
A)True
B)False
Answer: True
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Page 3
Chapter 2: International Flow of Funds
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46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/20500
Sample Questions
Q1) Over time,international trade (exports plus imports)as a percentage of GDP has:
A) increased for most major countries.
B) decreased for most major countries.
C) stayed about constant for most major countries.
D) increased for about half the major countries and decreased for the others.
Answer: A
Q2) Which of the following would likely have the least direct influence on a country's current account
A) inflation.
B) national income.
C) exchange rates.
D) tariffs.
E) a tax on income earned from foreign stocks.
Answer: E
Q3) The demand for U.S.exports tends to increase when:
A) economic growth in foreign countries decreases.
B) the currencies of foreign countries strengthen against the dollar.
C) U.S. inflation rises.
D) none of the above
Answer: B
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Chapter 3: International Financial Markets
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52 Verified Questions
52 Flashcards
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Sample Questions
Q1) The U.S.dollar is not ever used as a medium of exchange in:
A) industrialized countries outside the U.S.
B) in any Latin American countries.
C) in Eastern European countries where foreign exchange restrictions exist.
D) none of the above
Answer: D
Q2) The international money market primarily concentrates on:
A) short term lending (one year or less).
B) medium term lending.
C) long term lending.
D) placing bonds with investors.
E) placing newly issued stock in foreign markets.
Answer: A
Q3) Eurobonds are certificates representing bundles of stock.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Exchange Rate Determination
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Sample Questions
Q1) In general,when speculating on exchange rate movements,the speculator will borrow the currency that is expected to appreciate and invest in the country whose currency is expected to depreciate.
A)True
B)False
Q2) Any event that reduces the supply of Swiss francs to be exchanged for U.S.dollars should result in a(an)_______ in the value of the Swiss franc with respect to _______,other things being equal.
A) increase;U.S. dollar
B) increase;nondollar currencies
C) decrease;nondollar currencies
D) decrease;U.S. dollar
Q3) When expecting a foreign currency to depreciate,a possible way to speculate on this movement is to borrow dollars,convert the proceeds to the foreign currency,lend in the foreign country,and use the proceeds from this investment to repay the dollar loan.
A)True
B)False
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Chapter 5: Currency Derivatives
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103 Flashcards
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Sample Questions
Q1) Which of the following is not an instrument used by U.S.-based MNCs to cover their foreign currency positions
A) forward contracts.
B) futures contracts.
C) non-deliverable forward contracts.
D) options.
E) all of the above are instruments used to cover foreign currency positions.
Q2) If the observed put option premium is less than what is suggested by the put-call parity equation,astute arbitrageurs could make a profit by ________ the put option,___________ the call option,and __________ the underlying currency.
A) selling;buying;buying
B) buying;selling;buying
C) selling;buying;selling
D) buying;buying;buying
Q3) Futures and options are available for crossrates.
A)True
B)False
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Page 7
Chapter 6: Government Influence on Exchange Rates
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Sample Questions
Q1) A strong home currency can harm exports;exporters typically benefit from a weaker home country currency.
A)True
B)False
Q2) Which of the following is not true regarding Thailand
A) Thailand was one of the slowest growing countries over the 1985-1994 period.
B) High levels of spending and low levels of saving placed upward pressure on prices of real estate, products, and on Thailand's local interest rate.
C) Thailand's baht was linked to the dollar prior to July 1997, which made Thailand an attractive site for foreign investors.
D) Thai banks provided many loans that were very risky in their attempt to make use of all of their funds.
E) All of the above are true.
Q3) If a government wishes to stimulate its economy in the form of increased foreign demand for its country's products,it could attempt to weaken its currency.
A)True
B)False
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8
Chapter 7: International Arbitrage and Interest Rate Parity
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58 Verified Questions
58 Flashcards
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Sample Questions
Q1) According to interest rate parity (IRP):
A) the forward rate differs from the spot rate by a sufficient amount to offset the inflation differential between two currencies.
B) the future spot rate differs from the current spot rate by a sufficient amount to offset the interest rate differential between two currencies.
C) the future spot rate differs from the current spot rate by a sufficient amount to offset the inflation differential between two currencies.
D) the forward rate differs from the spot rate by a sufficient amount to offset the interest rate differential between two currencies.
Q2) Assume that interest rate parity holds.The Mexican interest rate is 50%,and the U.S.interest rate is 8%.Subsequently,the U.S.interest rate decreases to 7%.According to interest rate parity,the peso's forward ___________ will __________.
A) premium;increase B) discount;decrease C) discount;increase D) premium;decrease
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Chapter 8: Relationships among Inflation,Interest Rates,and Exchange Rates
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37 Verified Questions
37 Flashcards
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Sample Questions
Q1) According to the international Fisher effect (IFE),the exchange rate percentage change should be approximately equal to the differential in income levels between two countries.
A)True
B)False
Q2) According to the IFE,if British interest rates exceed U.S.interest rates:
A) the British pound's value will remain constant.
B) the British pound will depreciate against the dollar.
C) the British inflation rate will decrease.
D) the forward rate of the British pound will contain a premium.
E) today's forward rate of the British pound will equal today's spot rate.
Q3) Because there are a variety of factors in addition to inflation that affect exchange rates,this will:
A) reduce the probability that PPP shall hold.
B) increase the probability that PPP shall hold.
C) increase the probability the IFE will hold.
D) B and C
Q4) Interest rate parity can only hold if purchasing power parity holds.
A)True B)False
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Chapter 9: Forecasting Exchange Rates
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Sample Questions
Q1) If the forward rate is used as an indicator of the future spot rate,the spot rate is expected to appreciate or depreciate by the same amount as the forward premium or discount,respectively.
A)True
B)False
Q2) Assume the following information:
Given this information,the mean absolute forecast error as a percentage of the realized value is about:
A) 1.5%.
B) 26%.
C) 6%.
D) 6.5%.
E) none of the above
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11
Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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59 Verified Questions
59 Flashcards
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Sample Questions
Q1) Consider an MNC that is exposed to the Taiwan dollar (TWD)and the Egyptian pound (EGP).25% of the MNC's funds are Taiwan dollars and 75% are pounds.The standard deviation of exchange movements is 7% for Taiwan dollars and 5% for pounds.The correlation coefficient between movements in the value of the Taiwan dollar and the pound is.7.Based on this information,the standard deviation of this two-currency portfolio is approximately:
A) 5.13%.
B) 2.63%.
C) 4.33%.
D) 5.55%.
Q2) Cerra Co.expects to receive 5 million euros tomorrow as a result of selling goods to the Netherlands.Cerra estimates the standard deviation of daily percentage changes of the euro to be 1 percent over the last 100 days.Assume that these percentage changes are normally distributed.Using the value-at-risk (VAR)method based on a 95% confidence level,what is the maximum one-day loss if the expected percentage change of the euro tomorrow is 0.5%
A) -0.5%
B) -2.2%
C) -1.5%
D) -1.2%
Page 12
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Chapter 11: Managing Transaction Exposure
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63 Verified Questions
63 Flashcards
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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) To hedge a payable position with a currency option hedge,an MNC would write a call option.
A)True
B)False
Q3) When the real cost of hedging is positive,this implies that hedging was more favorable than not hedging.
A)True
B)False
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Chapter 12: Managing Economic Exposure and Translation Exposure
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43 Flashcards
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Sample Questions
Q1) Sycamore (a U.S.firm)has no subsidiaries and presently has sales to Mexican customers amounting to MXP98 million,while its pesodenominated expenses amount to MXP41 million. If it shifts its material orders from its Mexican suppliers to U.S.suppliers,it could reduce pesodenominated expenses by MXP12 million and increase dollardenominated expenses by $800,000. This strategy would _______ the Sycamore's exposure to changes in the peso's movements against the U.S.dollar. Regardless of whether the firm shifts expenses,it is likely to perform better when the peso is valued _______ relative to the dollar.
A) reduce;high
B) reduce;low
C) increase;low
D) increase;high
Q2) If revenues and costs are equally sensitive to exchange rate movements,MNCs may reduce their economic exposure by restructuring their operations to shift the sources of costs or revenues to other locations so that:
A) cash inflows exceed cash outflows in each foreign currency.
B) cash outflows exceed cash inflows in each foreign currency.
C) cash inflows match cash outflows in each foreign currency.
D) none of the above
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Chapter 13: Direct Foreign Investment
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45 Flashcards
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Sample Questions
Q1) According to information in the text,a host government would be least likely to provide incentives for direct foreign investment (DFI)into its country if the firm planning DFI:
A) would compete with local firms of the host country.
B) would produce a good not currently available in the host country.
C) would produce a good and export it to other countries.
D) B and C
Q2) To fully benefit from economies of scale,an MNC should:
A) establish a subsidiary in a new market that can sell products produced elsewhere.
B) establish a subsidiary in a market that has relatively low costs of labor or land.
C) establish a subsidiary in a market where raw materials are cheap and accessible.
D) participate in a joint venture in order to learn about a production process or other operations.
Q3) Although direct foreign investment is sometimes conducted,benefits are rarely realized.
A)True
B)False
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15
Chapter 14: Multinational Capital Budgeting
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49 Verified Questions
49 Flashcards
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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 the parent of a U.S.based MNC plans to completely finance the establishment of its British subsidiary with existing funds from retained earnings in U.S.operations. According to the text,the discount rate used in the capital budgeting analysis on this project should be most affected by:
A) the cost of borrowing funds in the U.K.
B) the cost of borrowing funds in the U.S.
C) the parent's cost of capital.
D) A and B
Q3) In conducting a multinational capital budgeting analysis,the subsidiary's perspective should always be used.
A)True
B)False
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Chapter 15: Multinational Restructuring
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52 Verified Questions
52 Flashcards
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Sample Questions
Q1) From a foreign currency perspective,the ideal conditions would be a weak foreign currency at the time of acquisition and a strengthening of the foreign currency over time as funds are remitted back to the parent.
A)True
B)False
Q2) 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
Q3) Which of the following is not an example of multinational restructuring
A) An MNC builds a new subsidiary in Malaysia.
B) An MNC acquires a company in Germany.
C) An MNC downsizes its operations in Hong Kong.
D) An MNC shifts some production from its Swiss subsidiary to its Dutch subsidiary.
E) All of the above are examples of multinational restructuring.
Q4) Most countries discourage hostile takeovers.
A)True
B)False
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Chapter 16: Country Risk Analysis
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Sample Questions
Q1) Delphi analysis examines the financial and political factors of various countries and attempts to identify which factors help to distinguish between tolerable-risk and intolerable-risk countries.
A)True
B)False
Q2) When determining whether a particular proposed project in a foreign country is feasible:
A) a country risk rating can adequately substitute for a capital budgeting analysis.
B) country risk analysis should be incorporated within the capital budgeting analysis.
C) the effect of country risk on sales revenue is more important than the effect on cash flows.
D) the project with the highest country risk rating (lowest country risk) should be accepted.
E) B and D
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Page 18
Chapter 17: Multinational Cost of Capital and Capital Structure
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50 Flashcards
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Sample Questions
Q1) According to the text,there is evidence that the debt ratios (debt/capital)of MNCs based in:
A) the U.S. tend to be generally higher than MNCs headquartered in Japan and Germany.
B) the United Kingdom tend to be generally higher than MNCs headquartered in other non U.S. countries.
C) the U.S. tend to be generally lower than MNCs headquar tered in Japan and Germany.
D) A and B
Q2) Although an MNC can adjust either the discount rate or the cash flows to account for a project's risk,there is no perfect formula to adjust for a project's unique risk.
A)True
B)False
Q3) Country differences,such as differences in the risk-free interest rate and differences in risk premiums across countries,can cause the cost of capital to vary across countries.
A)True
B)False
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Page 19
Chapter 18: Long-Term Financing
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Sample Questions
Q1) The United States typically has a(n)___________-sloping yield curve,which means that the annualized yields are ________ for short-term debt than for long-term debt.
A) downward;higher B) downward;lower C) upward;higher D) upward;lower
Q2) An MNC issues ten-year bonds denominated in 500,000 Philippines pesos (PHP)at par.The bonds have a coupon rate of 15%.If the peso remains stable at its current level of $.025 over the lifetime of the bonds and if the MNC holds the bonds until maturity,the financing cost to the MNC will be:
A) 10.0%.
B) 12.5%.
C) 15.0%.
D) none of the above
Q3) U.S.-based MNCs whose foreign subsidiary generates large earnings may be able to offset exposure to exchange rate risk by issuing bonds denominated in the subsidiary's local currency.
A)True
B)False
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Chapter 19: Financing International Trade
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Sample Questions
Q1) _______________ promises to pay the beneficiary if they buyer fails to pay as agreed.
A) A standby L/C
B) A transferable L/C
C) Assignment of proceeds
D) None of the above
Q2) Which of the following is a reason why commercial banks can facilitate international trade
A) The exporter may not wish to accept credit risk of the importer.
B) The government may impose exchange contracts that prevent payment by the importer to the exporter.
C) The exporter may need financing until payment for the goods is received.
D) All of the above
Q3) A bill of exchange requesting the bank to pay the face amount upon presentation of documents is a:
A) banker's acceptance.
B) time draft.
C) letter of credit.
D) sight draft.
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Page 21
Chapter 20: Short-Term Financing
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Sample Questions
Q1) If interest rate parity exists,the attempt to finance with a foreign currency while covering the position to avoid exchang rate risk will result in an effective financing rate that is _________ the domestic interest rate.
A) lower than B) greater than C) similar to D) none of the above
Q2) If interest rate parity exists,financing with a foreign currency may still be feasible,but it would have to be conducted on an uncovered basis (i.e.,without use of a forward hedge).
A)True
B)False
Q3) Foreign financing costs in a single foreign currency ____________ financing costs in dollars,and the variance of foreign financing costs over time is ___________ than the variance of financing in dollars. A) are higher than;higher than B) can be lower or higher than;higher than C) can be lower or higher than;lower than D) are lower than;higher than
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Page 22
Chapter 21: International Cash Management
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Sample Questions
Q1) The most useful measure of an MNC's liquidity is its:
A) cash balance.
B) amount of securities held as investments.
C) political risk rating.
D) potential access to funds.
Q2) Assume that interest rate parity holds.The U.S.one-year interest rate is 10% and the Australian one-year interest rate is 8%.What will the approximate effective yield be for an Australian citizen of a one-year deposit denominated in U.S.dollars Assume the deposit is covered by a forward sale of dollars.
A) 10%.
B) 8%.
C) 2%.
D) cannot answer without more information
Q3) When investing in a portfolio of foreign currencies,the currencies represented within the portfolio are ideally highly positively correlated.
A)True
B)False
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