Finance for Multinational Corporations Practice Questions
Course Introduction
This course explores the financial management principles and practices essential for multinational corporations operating in the global marketplace. Students will examine topics such as international financial markets, foreign exchange risk, hedging strategies, international investment decisions, and global capital budgeting. The course also covers the complexities of financing international operations, managing international tax and regulatory issues, and designing effective multinational capital structures. Through case studies and real-world examples, students gain insight into how multinational corporations make informed financial decisions in a dynamic, interconnected economy.
Recommended Textbook
International Financial Management 2nd Edition by Geert J Bekaert
Available Study Resources on Quizplus
21 Chapters
665 Verified Questions
665 Flashcards
Source URL: https://quizplus.com/study-set/389
Page 2
Chapter 1: Globalization and the Multinational Corporation
Available Study Resources on Quizplus for this Chatper
33 Verified Questions
33 Flashcards
Source URL: https://quizplus.com/quiz/6776
Sample Questions
Q1) What is the name of the international organization that fosters monetary and financial cooperation and serves as a bank for central banks?
A) WTO
B) EU
C) World Bank
D) Bank for International Settlements
Answer: D
Q2) State-owned investment funds that manage global portfolios of investment assets are known as
A) hedge funds.
B) sovereign wealth funds.
C) city-state pensions.
D) multinational mutual funds.
Answer: B
Q3) Which of the following was created in an effort to promote free trade?
A) World Trade Organization
B) the Sarbanes-Oxley Act
C) multilateral development banks
D) the Organization for Economic Cooperation and Development
Answer: A
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: The Foreign Exchange Market
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6787
Sample Questions
Q1) What do the market makers in the currency markets provide?
A) insurance against default by the buyers
B) solvency
C) stability
D) liquidity
Answer: D
Q2) Which one of the following is not a characteristic of a liquid market?
A) Market makers stand ready to buy and sell currencies.
B) Foreign exchange dealers make transactions only with dealers.
C) It becomes easy to match buyers and sellers.
D) Transaction costs are low.
Answer: B
Q3) Which of the following markets is comprises the world's major banks and other financial institutions?
A) Forex Market
B) Spot Market
C) Interbank Market
D) Money Market
Answer: C
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Forward Markets and Transaction Exchange Risk
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6790
Sample Questions
Q1) What is the name of the action that uses derivative securities to reduce risks arising from underlying business transactions in financial markets?
A) forward contracts
B) hedging
C) forward rates
D) speculating
Answer: B
Q2) If you were asked to forecast the future spot rate of a currency,how much of the probability distribution of the rate is between plus or minus 2 standard deviations?
A) 12.55%
B) 24.55%
C) 62.87%
D) 95.44%
Answer: D
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: The Balance of Payments
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6791
Sample Questions
Q1) All of the following are the reasons why Gross National Income does not equal Gross Domestic Product in an open economy EXCEPT:
A) the capital and labor used to produce the goods in the domestic country do not need to be owned by domestic residents.
B) the country may receive transfer payments from abroad or may give transfer payments to other countries.
C) the country may receive unilateral transfers (gifts and grants) from abroad or may give unilateral transfers to other countries.
D) the capital and labor owned by the country can be located and used to produce goods in different countries.
Q2) In a freely floating exchange rate system,if the capital account surplus for the U.S.rises,what will most likely happen to the real value of the dollar?
A) It will decline.
B) It will rise.
C) There is no impact on the dollar.
D) The IMF will step in to adjust rising exchange rates.
Q3) Explain the double-entry system of the balance of payments.
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Exchange Rate Systems
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6792
Sample Questions
Q1) What is the name of the exchange rate system where the governments attempt to make sure the values of their currencies trade at particular values in the foreign exchange market,relative to another currency or a "basket" of currencies?
A) European currency unit
B) fixed currencies
C) floating currencies
D) dirty float currency
Q2) Why are pegged exchange rates often overvalued and difficult to governments to maintain?
Q3) For a fixed exchange rate system to work successfully,the government that oversees its operations must be able to make tight budget and monetary policies prevail from the beginning.Agree or disagree and explain why.
Q4) What is the name for the set of regulations pertaining to flows of capital into and out of a country?
A) capital controls
B) target zone system
C) crawling peg
D) lead-lag operations
Q5) Why would a central bank buy or sell foreign currency?
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Interest Rate Parity
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/6793
Sample Questions
Q1) Explain the bid-ask spread in the external currency market?
Q2) When the possibility exists that the government of a nation may impose some form of exchange controls or tax on foreign investment,the risk is known as ________ risk.
A) political
B) exchange controls
C) business risk
D) government
Q3) If interest rate parity is satisfied,there are no opportunities for covered interest arbitrage.What does this imply about the relationship between spot and forward exchange rates when the foreign currency money market investment offers a higher return than the domestic money market investment?
Q4) If the underlying transaction gives you a liability,denominated in foreign currency,the general principal behind a money market hedge states you need an equivalent ________ in the money market to provide a hedge.
A) liability
B) asset
C) forward contract
D) foreign bank account
To view all questions and flashcards with answers, click on the resource link above.
8
Chapter 7: Speculation and Risk in the Foreign Exchange Market
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6794
Sample Questions
Q1) What is the main determinant of the volatility of forward market returns?
Q2) Which one of the following is the only determinant of volatility in the forward currency markets?
A) interest rate parity
B) economic recovery
C) political turmoil
D) variance of the future exchange rates
Q3) Why is it true that the hypothesis that the forward exchange rate is an unbiased predictor of the future spot exchange rate is equivalent to the hypothesis that the forward premium (or discount)on a foreign currency is an unbiased predictor of the rate of its appreciation (or depreciation)?
Q4) What is the name given to the risk associated with an asset's return arising from the covariance of the return on a large,well-diversified portfolio?
A) covariance
B) systematic risk
C) idiosyncratic risk
D) risk premium
Q5) If interest rate parity prevails,what is the return from a hedged foreign currency investment?
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Purchasing Power Parity and Real Exchange
Rates
Available Study Resources on Quizplus for this Chatper
33 Verified Questions
33 Flashcards
Source URL: https://quizplus.com/quiz/6795
Sample Questions
Q1) Because the real exchange is composed of three variables that can all move simultaneously,many combinations of changes lead to a real appreciation of the pound (in this case).Which one of the following options is NOT a basic movement?
A) a decrease in the pound prices of U.S. goods, not holding the dollar prices constant
B) a decrease in the dollar prices of U.S. goods, holding the exchange rate and the pound prices of goods constant
C) an increase in the pound prices of goods, holding the exchange rate and the dollar prices of goods constant
D) an increase in the nominal exchange rate ($/?), holding the dollar prices and pound prices of goods constant
Q2) If a country's freely floating currency is undervalued in terms of purchasing power parity,its capital account is likely to be
A) in deficit or tending toward a deficit.
B) in surplus or tending toward a surplus.
C) subsidized by the International Monetary Fund.
D) a candidate for loans from the World Bank.
Q3) Under what conditions could the law of one price be violated?
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Measuring and Managing Real Exchange Risk
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6796
Sample Questions
Q1) Another name for operating exposure is ________ exposure.
A) translation
B) sovereign risk
C) accounting
D) economic
Q2) ________ profitability refers to the purchasing power of a firm's nominal profits.
A) Real
B) Relative
C) Global
D) Inflation-adjusted
Q3) Which one of the following is NOT a type of subsidiary?
A) The Net Importer
B) The Net Exporter
C) The Neutral Firm
D) The Monopolist
Q4) Why does the strategy of pricing-to-market depend on the assumption of market segmentation?
Q5) How would an exporter who always shifts exchange rate risk to the importer by invoicing in the home currency actually threaten future sales?
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Exchange Rate Determination and Forecasting
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6777
Sample Questions
Q1) The covered interest rate parity,uncovered interest rate parity,and purchasing power parity,together with the Fisher hypothesis are often referred to as the A) determinants of expected nominal exchange rates.
B) determinants of expected nominal interest rates.
C) international parity conditions.
D) international arbitrage conditions.
Q2) Whereas other forecasters use macroeconomic data to forecast future exchange rates,________ techniques focus entirely on historical financial data.
A) equilibrium condition
B) parity condition
C) rational expectations
D) technical analysis
Q3) In the short run,equality of interest rates across country boundaries is ________.
A) unlikely
B) a good description of reality
C) a good description of purchasing power parity
D) a result of stable foreign currency markets
Q4) Describe how the macroeconomic fundamental,money supply,affects exchange rates.
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: International Debt Financing
Available Study Resources on Quizplus for this Chatper
33 Verified Questions
33 Flashcards
Source URL: https://quizplus.com/quiz/6778
Sample Questions
Q1) What are the major features of the proposed Basel III?
Q2) How has Basel II affected the capital charge of a loan to another bank and a loan to a large MNC?
Q3) What is the name given to the banks that perform both traditional commercial banking and investment banking functions?
A) merchant banks
B) universal banks
C) full-service banks
D) affiliate banks
Q4) Why are eurocredits not offered by any one bank?
A) They are typically regulated by the government to exclude single banks.
B) They are typically very large and banks prefer to share the risk with other banks.
C) The denominations are too large for any one bank's ability to fund the loan.
D) Single banks are less likely to profit from them.
Q5) Which one of the two main segments of the international bond market has the least local regulation? Why?
Q6) Why is there a need for international banking regulation?
Q7) What are the three main sources of financing for any firm?
Page 13
To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: International Equity Financing
Available Study Resources on Quizplus for this Chatper
31 Verified Questions
31 Flashcards
Source URL: https://quizplus.com/quiz/6779
Sample Questions
Q1) How have global stock markets adjusted to competitive pressure from global investors?
Q2) Which of the following concepts refers to the process of converting exchanges from nonprofit,member-owned organizations to for-profit investor-owned and typically publicly traded companies?
A) demutualization
B) cross-listing
C) consolidation
D) alternative trading system
Q3) A private bourse is owned and operated by a ________ founded for the purpose of trading securities.
A) corporation
B) non-profit corporation
C) syndicate of traders
D) commercial bank
Q4) When one corporation owns shares in another,the practice is known as ________.
A) cross-listing
B) cross-market
C) cross-holding
D) diversification
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: International Capital Market Equilibrium
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6780
Sample Questions
Q1) There has been a gradual increase in the correlations between the ________ that may be related to increased economic and financial integration.
A) NAFTA countries
B) Southeast Asian countries
C) Sub-Saharan countries
D) G7
Q2) Of the following G7 countries,which market returns have the highest correlation with U.S.returns?
A) Japan
B) Canada
C) France
D) U.K.
Q3) The locus of the portfolios in expected return-standard deviation space that have the minimum variance for each expected return is called
A) mean-variance efficient.
B) MVE portfolio.
C) mean standard deviation frontier.
D) efficient frontier.
Q4) What is the trend for the home bias phenomenon.
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Country and Political Risk
Available Study Resources on Quizplus for this Chatper
31 Verified Questions
31 Flashcards
Source URL: https://quizplus.com/quiz/6781
Sample Questions
Q1) ________ are the name of treaties that have helped investors avoid legal problems associated with sovereign debt.
A) Bilateral trade treaties
B) Bilateral investment treaties
C) Free trade zone treaties
D) Currency union treaties
Q2) Which one of the following is the best advice for the MNC that wants to structure an investment so as to minimize the chance that political risk events will adversely affect the firm?
A) focus on the long term
B) rely on common available supplies
C) use local resources
D) refuse to bargain with the government
Q3) Which one of the following places an MNC at the most risk?
A) protective tariffs
B) doing business in countries with inconvertible currencies
C) currency controls
D) currency boards
Q4) How might a government budget deficit lead to inflation?
Q5) What political realities underlie a government budget deficit?
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: International Capital Budgeting
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6782
Sample Questions
Q1) What is meant by the cannibalization of an export market?
Q2) One of the problems with cash flow computations is that it often ignores ________.
A) real options
B) currency exposure
C) terminal value
D) incremental cash flows
Q3) One of the major differences between the WACC analysis and ANPV is the fact that ANPV
A) takes into consideration the interest expense of raising debt capital.
B) allows after-tax interest payments into the cash flows.
C) uses the rate of return on the unlevered assets to get the all-equity value.
D) uses a discount rate that takes into account the after-tax returns on capital.
Q4) If projects are mutually exclusive,the project with the ________ should be accepted by the firm.
A) lowest ANPV
B) highest ANPV
C) highest return
D) lowest tax burden
To view all questions and flashcards with answers, click on the resource link above.
17
Chapter 16: Additional Topics in International Capital Budgeting
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6783
Sample Questions
Q1) What is the most important reason to consider real currency appreciation and depreciation forecasts when doing an international capital budgeting analysis?
Q2) Because the cash flows from an international project may be denominated in different currencies from the headquarters,one of the very first decisions is to
A) do the valuation using forecasts of the foreign or home currency.
B) determine the salvage value at the terminal stage of the project.
C) calculate the stream of free cash flows.
D) arrange the financing in the foreign or domestic currency.
Q3) Which of the following statements about the required rate of return represents the best advice for a firm's management when considering investment in a foreign project?
A) The required rate of return should be project specific.
B) The required rate of return need not represent the market return.
C) If the project were to pay cash directly to the firm's shareholders, the risk associated with the project would be less important to the firm.
D) The required rate of return should be the same rate for all of the firm's projects.
Q4) What is the U.S.tax treatment of interest paid on a foreign currency loan?
To view all questions and flashcards with answers, click on the resource link above.
Page 18
Chapter 17: Risk Management and the Foreign Currency
Hedging Decision
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6784
Sample Questions
Q1) When a firm is unprofitable it generates a ________ that allows it to offset the losses that were incurred against future income.
A) tax credit
B) itemized deductions
C) tax-loss carry-forward
D) a write-down
Q2) How can hedging increase the value of a firm?
A) by reducing its liabilities
B) by reducing its future income taxes
C) by increasing its interest expense
D) by increasing its headquarter expense
Q3) ________ is the use of derivative securities to take positions in financial markets that offset the underlying sources of risk that arise in a company's normal course of business.
A) Hedging
B) Risk management
C) Asset securitization
D) Option premium
Q4) What are the gains from hedging foreign exchange risk?
Q5) Why is hedging considered a cost center and not a profit center?
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Financing International Trade
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6785
Sample Questions
Q1) A(n)________ is a document required by certain countries which forces the exporter to provide information to customs officials in the importing country with the goal of preventing false declarations of the value of the merchandise.
A) consular invoice
B) order bill of lading
C) commercial invoice
D) clean bill of lading
Q2) The terms and conditions of a(n)________ documentary credit cannot be changed unless all parties involved first agree to the change.
A) revocable
B) irrevocable
C) confirmed
D) straight
Q3) The International Chamber of Commerce provides the following EXCEPT:
A) writing export credit insurance.
B) promoting international trade and investment.
C) setting rules and standards for international trade.
D) arbitration and other forms of dispute resolution.
Q4) What are the advantages of a documentary credit to an exporter and an importer?
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Managing Net Working Capital
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6786
Sample Questions
Q1) If the cash a firm invests in net working capital does not earn the weighted average cost of capital,it should be ________.
A) paid instead in returns to the firm's investors
B) held in retained earnings
C) placed in marketable securities
D) held as cash
Q2) What is the impact on the firm with if it always invoices their customers in hard currencies?
Q3) A firm would increase its investment in net working capital in order to produce ________.
A) dividends in the future
B) cash in the future
C) more marketable securities
D) larger inventories
Q4) What are the guidelines to use transfer pricing to shift income around the world?
Q5) What are the determinants of leading payments between related international affiliates?
To view all questions and flashcards with answers, click on the resource link above.
Page 21
Chapter 20: Foreign Currency Futures and Options
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/6788
Sample Questions
Q1) The hedging contract that gives the buyer the right,but not the obligation,to buy a specific amount of foreign currency with domestic currency is known as the ________.
A) call option
B) put option
C) American option
D) European option
Q2) What does it mean for an American option to be "in the money"?
Q3) Why is a currency put or call not profitable to exercise when it is "at the money"?
A) because the spot equals the price but the premium is not recovered if it is exercised resulting in a loss
B) When an option is "at the money," the Exchange will charge a higher fee.
C) When it is "at the money," the Exchange shuts down trading of the option contract.
D) The Exchange will use mark to market accounting to record a loss.
Q4) Suppose that you have a foreign currency receivable (payable).What option strategy places a floor (ceiling)on your domestic currency revenue (cost)?
Q5) What effects does "marking to market" have on futures contracts?
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Interest Rates and Foreign Currency Swaps
Available Study Resources on Quizplus for this Chatper
31 Verified Questions
31 Flashcards
Source URL: https://quizplus.com/quiz/6789
Sample Questions
Q1) Suppose Siemens Corporation would like to borrow fixed-rate yen and can borrow them at 4.5% or floating-rate dollars at LIBOR + 0.25%.The Singapore Development Bank would like to borrow floating-rate dollars and can borrow fixed-rate yen at 4.9% or floating-rate dollars at LIBOR + 0.8%.What is the range of possible cost savings that Siemens can realize through an interest rate/currency swap with Singapore?
Q2) Which one of the following statements is most accurate about financial markets that provide swaps today?
A) No longer are corporations tied to the financial markets of their country of residence. B) Banks do not like swaps because the associated cash flows are just like those of bonds.
C) The result is that some companies have more difficulty is issuing debt in one currency that in other currencies.
D) Because the cash flows of swaps are not like the cash flows of bonds, banks find it easy to offset their exposures in long-term forward contracts.
Q3) Describe how the cash flows of swaps are similar in structure to the cash flow of bonds.
To view all questions and flashcards with answers, click on the resource link above. Page 23