Canadian International Business Exam Solutions
Course Introduction
Canadian International Business examines the principles, strategies, and challenges involved in conducting business across international borders, with a specific focus on Canadas unique geopolitical, economic, and cultural context. The course explores how Canadian firms engage in global markets, navigate trade agreements like USMCA and CETA, manage risks, and adapt to diverse cultural, legal, and regulatory environments.
Students will analyze case studies of Canadian multinationals, consider the impact of government policies and economic trends, and develop skills for international market entry, global supply chain management, and cross-cultural negotiation. The course also delves into the ethical responsibilities and sustainable practices required for success in the global business landscape.
Recommended Textbook
International Financial Management Canadian Perspective 3rd Edition by
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Page 2
Don Brean
Chapter 1: Globalization and the Multinational Firm
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Sample Questions
Q1) David Ricardo's theory of comparative advantage has the following policy implication:
A) Liberalization of international trade will enhance the welfare of the world's citizens
B) International trade is a zero-sum game
C) One country will benefit from trade at the expense of another country
D) Restriction of international trade will enhance the welfare of the world's citizens
Answer: A
Q2) Which country has absolute advantage in producing potatoes?
A) Russia
B) Republic of Belarus
C) Both countries
D) Neither country
Answer: A
Q3) What is the goal of sound financial management?
Answer: The goal of financial management is shareholder wealth maximization in domestic and international finance.This goal is generally accepted in the "Anglo-Saxon" countries but less so in other parts of the world where other stakeholders are also considered important.
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3
Chapter 2: International Monetary System
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Sample Questions
Q1) Which of the following is NOT a responsibility of the European System of Central Banks:
A) To define and implement the common monetary policy of the EU
B) To define and implement the common fiscal policy of the EU
C) To conduct foreign exchange operations
D) To hold and manage the official foreign exchange reserves of the euro member states
Answer: B
Q2) Under the Bretton Woods system,
A) there was an explicit set of rules about the conduct of international trade policies
B) each country was responsible for maintaining its exchange rate within 2.50 percent of the adopted par value by buying or selling foreign exchanges as necessary
C) the U.K. sterling pound was the only currency that was fully convertible to gold
D) each country established a par value in relation to the U.S. dollar, which was pegged to gold at $35 per ounce.
Answer: D
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4
Chapter 3: Balance of Payments
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Sample Questions
Q1) If a country has a flexible exchange rate system and a deficit on capital account
A) the balance of payments must be negative.
B) The balance of payments must be positive.
C) The balance on current account must be positive.
D) The balance on current account must be negative.
Answer: C
Q2) The "J-curve effect" shows:
A) the initial deterioration and the eventual improvement of a country's trade balance following a currency depreciation
B) the initial improvement and the eventual depreciation of a country's trade balance following a currency depreciation
C) the trade balance's lack of responsiveness to the interest rate changes
D) short-term price elasticity of exports and imports to the change in the economic growth
Answer: A
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5
Chapter 4: The Market for Foreign Exchange
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Sample Questions
Q1) If CIBC posts 1.10 CA$/US$ - 1.14 CA$/US$ bid-ask exchange rates,Scotiabank posts 1.12 CA$/US$ - 1.15 CA$/US$,and Bank of America posts 0.88 US$/CA$ - 0.9 US$/CA$ exchange rates,what is the maximum amount of CA$ can you get for 1 US$?
A) 1.100
B) 1.111
C) 1.120
D) 1.136
Q2) The AUD/$ spot exchange rate is 1.60 and the SF/$ is 1.25.The AUD/SF cross exchange rate is:
A) 0.7813
B) 2.0000
C) 1.2800
D) 0.3500
Q3) The world's largest foreign exchange trading center is:
A) New York
B) Tokyo
C) London
D) Hong Kong
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Chapter 5: International Parity Relationships and Forecasting Foreign Exchange Rates
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Sample Questions
Q1) Deviations from interest rate parity exist for all of the following reasons except:
A) transaction costs.
B) spreads.
C) interest rate differentials.
D) capital controls.
Q2) Suppose that the two-months interest rate is 8.0 percent per annum in the Canada and 7.0 percent per annum in France,and that the spot exchange rate is $1.50/ and the forward exchange rate,with one-year maturity,is $1.50/ .Assume that an arbitrager can borrow up to $1,000,000 or 666,666.
a)What kind of arbitrage is possible?
b)Determine the arbitrage profit that can be made.
c)What would the French interest rate have to be so that there would be no arbitrage opportunity?
Q3) Uncovered interest rate parity:
A) is an arbitrage condition.
B) holds most of the time.
C) is based on expectations.
D) will provide guaranteed but small profits.
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Chapter 6: International Banking and Money Market
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Sample Questions
Q1) A loss that will be exceeded with a specific probability over a specified time horizon is called:
A) Capital reserves
B) Systematic risk
C) Value at risk
D) Money-market risk
Q2) ABC International can borrow $4,000,000 at LIBOR plus a lending margin of 0.65 percent per annum on a three-month rollover basis from Barclays in London.Three month LIBOR is currently 5.5 percent.Suppose that over the second three-month interval LIBOR falls to 5.0 percent.How much will ABC pay in interest to Barclays over the six-month period for the Eurodollar loan?
A) $50,000
B) $100,000
C) $118,000
D) $120,000
Q3) How are Canadian dollar interest rates in the Euromarkets and in the Canadian domestic financial markets related?
Q4) Explain Eurocommerical papers.
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Chapter 7: International Bond Market
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Sample Questions
Q1) Bonds with coupon payments indexed to some reference rates are called:
A) straight-fixed rate bonds.
B) euro-medium term notes.
C) floating-rate notes.
D) equity-related bonds.
Q2) Which of the following is not an example of an equity-related bond:
A) Any convertible bond.
B) Any bond with equity warrant.
C) Any corporate stripped bond.
D) Bonds with equity warrants of state companies.
Q3) Consider a bond that was issued by a Canadian corporation in CA$,pays coupon payments in CA$,but repays the face value in Euro.Such bond is called:
A) Global bond.
B) Dual-currency bond.
C) Eurodollar bond.
D) Foreign bond.
Q4) What happens to the present value of the bonds in 4.,if the implied yield to maturity increases by 1%?
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Chapter 8: International Equity Markets
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Sample Questions
Q1) Assume that Accor shares are trading at A$2.5 in Sydney and $28 in New York.Each ADR equals 20 shares.The current exchange rate is A$1.5/$.In the absence of transaction costs,can you make an arbitrage profit?
Q2) "Call market" and "crowd trading" take place on:
A) a non-continuous exchange trading system.
B) a continuous trading exchange system.
C) non-continuous markets and continuous markets, respectively.
D) continuous markets and not in non-continuous markets, respectively.
Q3) Shares trade on foreign exchanges in all of the following forms except:
A) American depository receipts.
B) Global depository receipts.
C) American registered shares.
D) Global registered shares.
Q4) Assume that Nestle shares are trading at SF 300 in Zurich and $51 in New York.Each share equals 4 ADRs.The current exchange rate is SF1.5/$.If transaction costs are $1 per ADR,can you make an arbitrage profit?
Q5) What factors go into the decision to cross-list on a foreign exchange?
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Page 10
Chapter 9: Futures and Options on Foreign Exchange
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Sample Questions
Q1) The value of a European call will increase with all of the following except:
A) the spot exchange rate.
B) the exercise price.
C) time to maturity.
D) the foreign interest rate.
Q2) You paid $0.1 for a one-year European call option for £1 with the strike price of $1.7/£.At which exchange rates on the maturity date will you exercise your option?
A) Less than $1.7/£
B) Less than $1.8/£
C) More than $1.7/£
D) More than $1.8/£
Q3) Which of the following statements is true?
A) The buyer of a forward contract holds a short position.
B) The buyer of a futures contract holds a short position.
C) The buyer of a forward contract holds a wining position.
D) The buyer of a futures contract holds a long position.
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11
Chapter 10: Interest Rate and Currency Swaps
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Sample Questions
Q1) Which combination of the following statements is true about a swap bank?
(i)- It is a generic term to describe a financial institution that facilitates swaps between counterparties.
(ii)- It can be an international commercial bank.
(iii)- It can be an investment bank.
(iv)- It can be a merchant bank.
(v)- It can be an independent operator.
A) (i) and (ii)
B) (i), (ii) and (iii)
C) (i), (ii), (iii) and (iv)
D) (i), (ii), (iii), (iv) and (v)
Q2) If company A and company B share the interest savings from the interest rate swap equally,company A will pay after the swap on its preferred debt:
A) 5.5%.
B) 5.75%.
C) LIBOR - 0.75%.
D) LIBOR.
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Chapter 11: International Portfolio Investment
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Sample Questions
Q1) Calculate the investor's annual percentage rate of return in Canadian dollars.(Round final percentage answer to 2 decimal places,and do not round intermediate calculations.)
A) -13.14%
B) -3.19%
C) 3.19%
D) 13.14%
Q2) In May 1995 when the exchange rate was 80 yen per dollar,Japan Life Insurance Company invested ¥800,000,000 in pure-discount U.S.bonds.The investment was liquidated one year later when the exchange rate was 110 yen per dollar.If the rate of return earned on this investment was 46% in terms of yen,calculate the dollar amount that the bonds were sold at:(Round your final answer to nearest thousand dollar)
A) $10,618,000.
B) $10,720,000.
C) $14,600,000.
D) None of these.
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Chapter 12: Management of Economic Exposure
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Sample Questions
Q1) A firm's operating exposure is:
A) defined as the extent to which the firm's operating cash flows would be affected by the random changes in exchange rates.
B) determined by the structure of the markets in which the firm sources its inputs, such as labor and materials, and sells its products.
C) determined by the firm's ability to mitigate the effect of exchange rate changes by adjusting its markets, product mix, and sourcing.
D) all of these
Q2) The variance of the exchange rate is: (Round your final answer and intermediate calculations to 6 decimal places)
A) 0.001968.
B) 0.002969.
C) 0.003968.
D) 0.004968.
Q3) ABC Inc.,a Canadian paper manufacturer,has a subsidiary in the United States which sources its wood from Canada.The US dollar depreciates rapidly.Discuss the likely competitive and conversion effects of the depreciation of the US dollar.
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14
Chapter 13: Management of Transaction Exposure
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Sample Questions
Q1) The future dollar amount of this receivable using the forward hedge is:
A) $800,000
B) $820,000
C) $836,400
D) $856,900
Q2) ABC Inc.,an exporting firm,expects to earn $20 million if the dollar depreciates,but only $10 million if the dollar appreciates.Assume that the dollar has an equal chance of appreciating or depreciating.Calculate the expected tax of ABC if it is operating in a foreign country that has progressive corporate taxes as shown below: Corporate income tax rate = 15% for the first $7,500,000.
Corporate income tax rate = 30% for earnings exceeding $7,500,000.
A) $3,375,000
B) $6,000,000
C) $1,500,000
D) $4,500,000
Q3) Which of the following is a financial hedge?
A) Invoice currency selection
B) Lead/lag strategy
C) Exposure netting
D) Money market hedge
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Chapter 14: Management of Translation Exposure
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Sample Questions
Q1) Consider an MNC based in Canada with manufacturing activities in Japan.The result of a change in the ¥/$ exchange rate on the assets and liabilities of the consolidated balance sheet is: Exposed assets \(\quad ¥ 700,000,000\)
Exposed liabilities \(\quad ¥ 500,000,000\) Ignoring transaction exposure in the yen,the translation exposure will indicate a possible need for a "balance sheet hedge" of:
A) ¥200,000,000 less liabilities denominated in yen.
B) ¥200,000,000 more assets denominated in yen.
C) ¥200,000,000 of net exposure denominated in yen.
D) None of these.
Q2) Which of the above statements pertain to self-sustaining foreign operations?
A) (i)
B) (i) and (ii)
C) (iii) and (iv)
D) (i), (ii), and (iii)
Q3) Assume that translation or transaction exposure cannot be hedged at the same time and you have to decide on the firm's hedging policy.What should you do?
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Page 16
Chapter 15: Foreign Direct Investment and Cross-Border Acquisitions
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Sample Questions
Q1) Synergistic gains refer to:
A) gains from hedging.
B) gains obtained when the value of the acquiring and target firms, combined together, is greater than the stand-alone valuations of the individual firms.
C) gains arising if the companies can save on the costs of production, marketing, distribution, and R&D standalone.
D) gains obtained when the companies face together into a competition for a particular product market.
Q2) How can firms establish a wholly owned subsidiary in a foreign country? What are the advantages and disadvantages of each method?
Q3) Operational risk refers to the risk which arises from the uncertainty about:
A) the host's country's policies affecting the local operations of an MNC.
B) the host's country's policy regarding ownership and control of local operations.
C) cross-border flows of capital, payment, know-how, and the like.
D) None of these.
Q4) Explain the role of market imperfections in FDI.
Q5) How can Export Development Canada (EDC)help firms to deal with political risk?
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Chapter 16: International Capital Structure and the Cost of Capital
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Sample Questions
Q1) Which of the following statements is not true about the pricing-to-market phenomenon?
A) It is due to legal restrictions imposed on foreigners.
B) It may lead to dual pricing.
C) It occurs only when the restrictions are binding.
D) Foreigners will always pay a premium for shares if legal restrictions are imposed on foreigners.
Q2) Calculate the debt-to-total-market-value ratio that would result in XYZ having a weighted average cost of capital of 9.3%.(Do not round intermediate calculations)
A) 35%
B) 40%
C) 45%
D) 50%
Q3) The cost of equity capital is:
A) the expected return on the firm's stock that investors require.
B) frequently estimated by using the Capital Asset Pricing Model (CAPM).
C) generally considered to be a linear function of the systematic risk inherent in the security.
D) All of these.
Page 18
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Chapter 17: International Capital Budgeting
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Sample Questions
Q1) Which of the following is not an example of a real option?
A) Timing option
B) Abandonment option
C) Growth option
D) Exercise option
Q2) The APV is calculated using the following formula:
A) (I) + (II) + (III) + (IV) - (V)
B) (I) + (II) + (III) + (IV) + (V)
C) - (I) + (II) + (III) + (IV) + (V)
D) (I) - (II) + (III) + (IV) - (V)
Q3) The current spot rate between the Canadian dollar and the Euro is C$1.6000/euro.The Canadian and European inflation rates are expected to be 2% and 4% per year for the next 10 years respectively.Using purchasing power parity to predict the exchange rate in 10 years,the predicted exchange rate is:
A) C$1.3176/euro.
B) C$1.5692/euro.
C) C$1.6000/euro.
D) C$1.6923/euro.
Q4) Which cash flows are relevant for the international capital budgeting analysis?
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Chapter 18: Multinational Cash Management
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Sample Questions
Q1) The United States decides to block funds leaving the country.What is the optimum transfer price?
A) $6,000.
B) $7,000.
C) $9,000.
D) $10,000.
Q2) Soleil Inc.has an affiliate in France and one in Singapore.The entire production of the French affiliate is sold to the affiliate in Singapore which sells the final product to customers.The Singaporean affiliate has sales of 300 and overhead costs of 20.The cost of goods sold in France is 150.The income tax rates are 40 percent in France and 20 percent in Singapore.Assume that neither Singapore nor France put any restrictions on the transfer price.What is the optimal transfer price? What are the total taxes paid?
Q3) If Canada changes its corporate income tax to 35%,does the optimum transfer price change?
A) Yes, it increases.
B) Yes, it decreases.
C) No, it doesn't change.
D) Need more information.
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Page 20
Chapter 19: Exports and Imports
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Q1) The term "forfaiting":
A) means relinquishing, waiving, yielding, and penalty.
B) is a type of long-term trade financing used to finance the purchase of capital goods.
C) involves the sale of promissory notes signed by the exporter in favor of the importer, who might sell the notes at a discount from face value.
D) is a type of medium-term trade financing used to finance the sale of capital goods.
Q2) ABC Inc.is a manufacturer of office furniture located in Quebec.XYZ Corp.is a Romanian manufacturer of pots.XYZ Corp.has approached ABC Inc.and would like to barter pots for office furniture.You are the financial manager of ABC Inc.and your job is to explain the pros and cons of this transaction to management.
Q3) Which forms of countertrade involve immediate use of money?
A) Barter, switch trading, buyback.
B) Barter, clearing arrangement, switch trading.
C) Buy-back, switch trading, counterpurchase.
D) Buy-back, counterpurchase, offset.
Q4) Explain the major differences between international and domestic trade.
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Chapter 20: International Tax Environment
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Sample Questions
Q1) Withholding tax is:
A) a tax levied on passive income earned by an individual or corporation of one country within the jurisdiction of another country.
B) a direct tax on personal and corporate income.
C) an indirect national tax levied on the value added in the production of a good or service.
D) an indirect national tax levied on personal and corporate income.
Q2) Income tax is:
A) a tax levied on passive income earned by an individual or corporation of one country within the jurisdiction of another country.
B) a direct tax on personal and corporate income.
C) an indirect national tax levied on the value added in the production of a good or service.
D) an indirect national tax levied on personal and corporate income.
Q3) What are the major ways in which countries levy taxes?
Q4) How can double taxation result out of the two major ways to determine who has to pay taxes?
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Chapter 21: Corporate Governance Around the World
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Q1) Dominant investors may acquire control through all of the following except:
A) interfirm cross-holdings.
B) intrafirm cross-holdings.
C) shares with superior voting rights.
D) pyramidal ownership structure.
Q2) Which of the following is not used to mitigate the agency problem?
A) Debt.
B) Incentive contracts.
C) Overseas share listings.
D) All of these mechanisms are used to mitigate the agency problem.
Q3) Corporate governance can be defined as:
A) the government-imposed rules and regulations affecting corporate management.
B) the general framework in which company management is selected and monitored.
C) the rules and regulations adopted by boards of directors specifying how to manage companies.
D) the economic, legal, and institutional framework in which corporate control and cash flow rights are distributed among shareholders, managers and other stakeholders of the company.
Q4) Explain the agency problem and how it can be remedied.
Q5) How can listing overseas benefit the corporate governance of a public company?
Page 23
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