International Business Finance
Final Exam
Course Introduction
International Business Finance explores the financial management practices and strategies employed by multinational corporations in a global context. The course covers key topics such as foreign exchange markets, international monetary systems, currency risk management, global capital budgeting, and international financing decisions. Students learn to analyze and apply financial tools to address challenges created by differing economic, legal, and political environments, evaluate international investment opportunities, and develop an understanding of cross-border financial flows. This course equips students with the analytical skills necessary to make informed financial decisions in the complex landscape of international business.
Recommended Textbook
International Financial Management 7th Edition by Cheol
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21 Chapters
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Page 2
S. Eun
Chapter 1: Globalization and the Multinational Firm
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100 Verified Questions
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Source URL: https://quizplus.com/quiz/59028
Sample Questions
Q1) The euro
A)is the common currency of Europe.
B)is divisible into 100 cents, just like the U.S. dollar.
C)may eventually have a transaction domain larger than the U.S. dollar.
D)all of the above.
Answer: D
Q2) If one country is twice the size of another country and is better at making almost everything than the benighted citizens of the smaller county,
A)the bigger county enjoys an absolute advantage.
B)the bigger county enjoys an relative advantage.
C)the bigger county enjoys an comparative advantage.
D)there is not enough information to make a determination.
Answer: A
Q3) Restrictions or impediments to free trade include such things as A)import quotas.
B)import tariffs.
C)costly transportation.
D)all of the above
Answer: D
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Page 3
Chapter 2: International Monetary System
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Sample Questions
Q1) Suppose that your country officially defines gold as ten times more valuable than silver (i.e. the central bank stands ready to redeem the currency in gold and silver and the official price of gold is ten times the official price of silver). If the market price of gold is only eight times as much as silver.
A)The central bank could go broke if enough arbitrageurs attempt to take advantage of the pricing disparity.
B)The central bank will make money since they are overpricing gold.
Answer: A
Q2) The growth of the Eurodollar market, which is a transnational, unregulated fund market
A)was encouraged by U.S. legislation designed to stem the outflow of dollars from the U.S.
B)was discouraged by U.S. legislation designed to stem the outflow of dollars from the U.S.
Answer: A
Q3) In the years leading to the collapse of the Bretton Woods system
A)it became clear that the dollar was undervalued.
B)it became clear that the dollar was overvalued.
Answer: B
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Page 4
Chapter 3: Balance of Payments
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Sample Questions
Q1) When a country's currency depreciates against the currencies of major trading partners,
A)the country's exports tend to rise and imports fall.
B)the country's exports tend to fall and imports rise.
C)the country's exports tend to rise and imports rise.
D)the country's exports tend to fall and imports fall.
Answer: A
Q2) If the interest rate rises in the U.S. while other variables remain constant
A)capital inflows into the U.S. will increase.
B)capital inflows into the U.S. may not materialize.
C)capital will flow out of the U.S.
D)none of the above
Answer: A
Q3) If the difference between tax revenue and government expenditures is negative, it implies that
A)tax revenue is insufficient to cover government spending.
B)a government budget deficit exists.
C)the government will be issuing new debt securities.
D)all of the above
Answer: D
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Chapter 4: Corporate Governance Around the World
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Sample Questions
Q1) Private benefits of corporate control will tend to be higher in
A)French civil law countries than in English common law countries.
B)English common law countries than in French civil law countries.
C)French civil law countries than in Scandinavian civil law countries.
D)English common law countries than in German civil law countries.
Q2) The key requirements of the Sarbanes-Oxley Act state that
A)boards of directors should include at least three outside directors.
B)the positions of CEO and chairman of the board should not reside in the same individual.
C)compliance is mandatory for public corporations, optional for listed non-public corporations.
D)none of the above.
Q3) In high-growth industries where companies' internally generated funds fall short of profitable investment opportunities,
A)managers are less likely to waste funds in unprofitable projects.
B)managers are more likely to waste funds in unprofitable projects.
Q4) The board of directors may grant stock options to managers. These are
A)call options.
B)put options.
C)none of the above
Page 6
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Chapter 5: The Market for Foreign Exchange
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Sample Questions
Q1) Using the table above, what is the ask price of euro in terms of pounds?
A) 1.3371/£
B) 1.3378/£
C)£0.7475/
D)£0.7479/
Q2) What is the BID cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a currency dealer will pay in euro to buy Swiss francs.
A) 0.5386/CHF
B) 0.5389/CHF
C) 0.5463/CHF
D) 0.5466/CHF
Q3) Suppose you observe the following exchange rates: 1 = $1.25; £1 = $2.00. Calculate the euro-pound exchange rate.
A) 1 = £1.60
B) 1 = £0.625
C) 2.50 = £1
D) 1 = £2.50
Q4) Using the table what is the 6-month forward pound-yen cross-exchange rate?
Q5) Using the table, what is the Canadian dollar-euro spot cross-exchange rate?
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Chapter 6: International Parity Relationships and Forecasting Foreign Exchange Rates
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Sample Questions
Q1) The International Fisher Effect suggests that
A)any forward premium or discount is equal to the expected change in the exchange rate.
B)any forward premium or discount is equal to the actual change in the exchange rate. C)the nominal interest rate differential reflects the expected change in the exchange rate.
D)an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase (decrease) in the interest rate in the country.
Q2) USING YOUR PREVIOUS ANSWERS and a bit more work, find the 1-year forward BID exchange rate in $ per that that satisfies IRP from the perspective of a customer.
Q3) If you had 1,000,000 and traded it for USD at the spot rate, how many USD will you get?
Q4) If you had 1,000,000 and traded it for USD at the spot rate, how many USD will you get?
Q5) If you borrowed $1,000,000 for one year, how much money would you owe at maturity?
Q6) There is (at least) one profitable arbitrage at these prices. What is it?
Page 8
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Chapter 7: Futures and Options on Foreign Exchange
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Sample Questions
Q1) An "option" is
A)a contract giving the seller (writer) of the option the right, but not the obligation, to buy (call) or sell (put) a given quantity of an asset at a specified price at some time in the future.
B)a contract giving the owner (buyer) of the option the right, but not the obligation, to buy (call) or sell (put) a given quantity of an asset at a specified price at some time in the future.
C)a contract giving the owner (buyer) of the option the right, but not the obligation, to buy (put) or sell (call) a given quantity of an asset at a specified price at some time in the future.
D)a contract giving the owner (buyer) of the option the right, but not the obligation, to buy (put) or sell (sell) a given quantity of an asset at a specified price at some time in the future.
Q2) If the call finishes in-the-money what is your portfolio cash flow?
Q3) A CME contract on 125,000 with September delivery
A)is an example of a forward contract.
B)is an example of a futures contract.
C)is an example of a put option.
D)is an example of a call option.
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Page 9
Chapter 8: Management of Transaction Exposure
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Sample Questions
Q1) A put option to sell $18,000 at a strike price of $1.80 = £1.00 is equivalent to
A)a call option to buy £10,000 at a strike price of $1.80 = £1.00.
B)a call option on $18,000 at a strike price of $1.80 = £1.00.
C)a put option on £10,000 at a strike price of $1.80 = £1.00.
D)none of the above
Q2) The most direct and popular way of hedging transaction exposure is by
A)exchange-traded futures options.
B)currency forward contracts.
C)foreign currency warrants.
D)borrowing and lending in the domestic and foreign money markets.
Q3) To hedge a foreign currency payable,
A)buy call options on the foreign currency.
B)buy put options on the foreign currency.
C)sell call options on the foreign currency.
D)sell put options on the foreign currency.
Q4) If you own a foreign currency denominated bond, you can hedge with
A)a long position in a currency forward contract.
B)a long position in an exchange-traded futures option.
C)buying the foreign currency today and investing it in the foreign county.
D)a swap contract where pay the cash flows of the bond in exchange for dollars.
Page 10
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Chapter 9: Management of Economic Exposure
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Sample Questions
Q1) When exchange rates change,
A)this can alter the operating cash flow of a domestic firm.
B)this can alter the competitive position of a domestic firm.
C)this can alter the home currency values of a multinational firm's assets and liabilities.
D)all of the above
Q2) With regard to operational hedging versus financial hedging,
A)operational hedging provides a more stable long-term approach than does financial hedging.
B)financial hedging, when instituted on a rollover basis, is a superior long-term approach to operational hedging.
C)since they both have the same goal, stabilizing the firm's cash flows in domestic currency, they are fungible in use.
D)none of the above
Q3) The variance of the exchange rate is:
A)0.0200
B)0.10
C)0.002
D)none of the above
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Chapter 10: Management of Translation Exposure
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Sample Questions
Q1) Which of the above statements pertain to FASB 8?
A)(i)
B)(i) and (ii)
C)(iii) and (iv)
D)(i), (ii), and (iii)
Q2) The currency of the primary economic environment in which the entity operates is defined in FASB 52 as
A)the "reporting currency".
B)the "functional currency".
C)the "current currency".
D)none of the above
Q3) The "reporting currency" is defined in FASB 52 as
A)the currency of the primary economic environment in which the entity operates.
B)the currency in which the MNC prepares its consolidated financial statements.
C)a currency that is not the parent firm's home country currency.
D)both a and c
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Chapter 11: International Banking and Money Market
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Sample Questions
Q1) Foreign banks that establish subsidiary and affiliate banks in the U.S.
A)tend to locate in states that are major centers of financial activity.
B)tend to locate in the highly populous states of New York, California, Illinois, Florida, Georgia, and Texas.
C)can underwrite securities, but not accept dollar-denominated deposits.
D)both a and b
Q2) Since SR < AR, then
A)ABC Bank will pay XYZ Bank a cash settlement at the beginning of the 91-day FRA period.
B)XYZ Bank will pay ABC Bank a cash settlement at the beginning of the 91-day FRA period.
C)ABC Bank will pay XYZ Bank a cash settlement at the end of the 91-day FRA period.
D)XYZ Bank will pay ABC Bank a cash settlement at the end of the 91-day FRA period.
Q3) The most popular way for a U.S. bank to expand overseas is
A)branch banks.
B)representative offices.
C)subsidiary banks.
D)affiliate banks.
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Page 13
Chapter 12: International Bond Market
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Sample Questions
Q1) Find the present value of a 3-year bond that pays an annual coupon, has a coupon rate of 6%, a yield to maturity of 5%, a par value of 1,000 when the yield to maturity is 5%.
A) 1,018.81
B) 1,027.23
C) 1,099.96
D)none of the above
Q2) A "global bond" issue
A)is a very large international bond offering by several borrowers pooled together.
B)is a very large international bond offering by a single borrower that is simultaneously sold in several national bond markets.
C)has higher yields for the purchasers.
D)has a lower liquidity.
Q3) A "registered bond" is one that
A)shows the owner's name on the bond.
B)the owner's name is recorded by the issuer.
C)the owner's name is assigned to a bond serial number recorded by the issuer.
D)all of the above
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Chapter 13: International Equity Markets
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Sample Questions
Q1) The smaller the concentration percentage,
A)the more concentrated a market is in a few stock issues.
B)the less concentrated a market is.
C)the more liquid the secondary stock market is.
D)none of the above
Q2) Public traders do not trade directly with one another in a dealer market.
A)True
B)False
Q3) The first ADRs began trading ________ as a means of eliminating some of the risks, delays, inconveniences, and expenses of trading the actual shares.
A)in 1997
B)in 1987
C)in 1977
D)in 1927
Q4) The European Stock Exchange, comparable in volume to the NYSE
A)is located in Milan.
B)is located in London.
C)is located in Frankfurt.
D)none of the above
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Chapter 14: Interest Rate and Currency Swaps
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Sample Questions
Q1) Which combination of the following represent the risks that a swap dealer confronts:
(i) - interest rate risk
(ii) - basis risk
(iii) - exchange rate risk
(iv) - political risk
(v) - sovereign risk
A)(i), (ii), (iii), and (v)
B)(i), (iii), and (iv)
C)(iii), (iv), and (iv)
D)(i), (ii), (iii), (iv), and (v)
Q2) When a swap bank serves as a dealer:
A)The swap bank stands willing to accept either side of a swap.
B)The swap bank matches counterparties but does not assume any risk of the swap.
C)The swap bank receives a commission for matching buyers and sellers.
D)None of the above
Q3) A major risk faced by a swap dealer is credit risk. This is
A)the probability that a counterparty will default.
B)the probability that both counterparties default.
C)the probability floating rates will move against the dealer.
D)none of the above
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Chapter 15: International Portfolio Investment
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Sample Questions
Q1) With regard to the past price performance of closed end mutual funds
A)most funds have traded at both a premium and a discount to NAV.
B)most funds trade on a stock exchange just like a publicly traded corporation.
C)suggests the risk-return characteristics can be quite different from those of the securities underlying the fund.
D)all of the above
Q2) Current research suggests that
A)investors can get more diversification with shares of domestic, large-cap stocks.
B)investors can get more diversification with shares of domestic, small-cap stocks.
C)investors can get more diversification with shares of foreign, large-cap stocks.
D)investors can get more diversification with shares of foreign, small-cap stocks.
Q3) Calculate the euro-based return an Italian investor would have realized by investing 10,000 into a $50 American stock. The stock pays a $0.30 quarterly dividend, and after one year the investment sells for $54 the exchange has changed from .625 per dollar to .6875 per dollar.
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Chapter 16: Foreign Direct Investment and Cross-Border Acquisitions
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Sample Questions
Q1) Shareholders of U.S. targets experience higher wealth gains when they are acquired by foreign firms than when acquired by U.S. firms.
A)True
B)False
Q2) Synergistic gains refers 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 combined companies can save on the costs of production, marketing, distribution, and R&D.
D)both b and c
Q3) Governments regulate international trade
A)to raise revenue (e.g. through tariffs).
B)to protect domestic industries.
C)to pursue other economic policy objectives (e.g. North Korea forgoing trade).
D)all of the above
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18
Chapter 17: International Capital Structure and the Cost of Capital
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Sample Questions
Q1) Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 3.
A)<sup>3</sup>/<sub>4</sub>
B)<sup>7</sup>/<sub>9</sub>
C)<sup>4</sup>/<sub>5</sub>
D)<sup>9</sup>/<sub>11</sub>
E)<sup>5</sup>/<sub>6</sub>
Q2) The majority of publicly traded Swiss corporations have up to three classes of common stock: 1) Registered stock
2) Voting bearer stock
3) Nonvoting bearer stock
Until recently, foreigners were not allowed to buy registered stocks: in the case of Nestlé this had the effect of
A)distorting the prices of registered stock downward.
B)distorting the prices of registered stock upward.
C)this had no effect on prices.
D)none of the above
Q3) In the real world, does the cost of capital differ among countries?
A)Yes
B)No
C)None of the above
Page 19
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Chapter 18: International Capital Budgeting
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Sample Questions
Q1) Find the dollar cash flows to compute the dollar-denominated NPV of this project. Please note that your answer is worth ZERO POINTS if it does not contain currency symbols.
Q2) As of today, the spot exchange rate is 1.00 = $1.25 and the rates of inflation expected to prevail for the next year in the U.S. is 2% and 3% in the euro zone. What is the one-year forward rate that should prevail?
A) 1.00 = $1.2379
B) 1.00 = $1.2139
C) 1.00 = $0.9903
D)$1.00 = 1.2623
Q3) The CFO who has a CFA notices the optionality in starting this project today. He asks you to comment and outline your valuation strategy.
Q4) Compute the NPV at the current price of gold. Hint: think of the gold mine as a perpetuity
Q5) Find the IRR in euro for the French firm if they wait one year to undertake the project after the exchange rate falls to S<sub>1</sub>( |£) = 1.80 per £.
Q6) What is the dollar-denominated IRR?
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Page 20
Chapter 19: Multinational Cash Management
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Sample Questions
Q1) Find the net cash flow in (out of) the Canadian affiliate.
A)$55,000 in
B)$15,000 out
C)$0 in or out
D)$40,000 out
E)None of the above
Q2) The U.S. IRS allows transfer prices to be set using Comparable uncontrolled price method. This method requires
A)finding the price that an unrelated willing seller would accept from an unrelated willing buyer.
B)the price at which the good is resold by the distribution affiliate is reduced by an amount sufficient to cover overhead costs and a reasonable profit.
C)an appropriate profit is added to the cost of the manufacturing affiliate.
D)financial models and econometric techniques.
Q3) A central cash manager has a global view of the most favorable borrowing rates and most advantageous investment rates.
A)True
B)False
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Chapter 20: International Trade Finance
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Sample Questions
Q1) A buy-back transaction
A)is also called a bilateral clearing agreement.
B)involves a technology transfer via the sale of a manufacturing plant: as part of the terms, the seller of the plant agrees to purchase a certain portion of the plant output.
C)involves two parties agreeing to buy a specified amount of goods or services from one another.
D)all of the above
Q2) Determine the amount the exporter will receive if he discounts the B/A with the importer's bank.
Q3) If the exporter's opportunity cost of capital is 11 percent, should he discount the B/A or hold it to maturity?
Q4) A switch trade
A)is the purchase by a third party of one country's a clearing agreement balance for hard currency.
B)is a form of barter.
C)involves two parties agreeing to buy a specified amount of goods or services from one another.
D)all of the above
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Page 22
Chapter 21: International Tax Environment and Transfer Pricing
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Sample Questions
Q1) For a parent that sells goods to a subsidiary, transfer pricing can have an effect on international capital expenditure analysis. A very low markup policy makes the APV of a subsidiary's capital expenditure appear
A)more attractive.
B)less attractive.
C)no impact.
Q2) With a MNC
A)the decision to set a transfer price is further complicated by import duty considerations.
B)the decision to set a transfer price can be further complicated by exchange rate restrictions imposed by governments.
C)the decision to set a transfer price is further complicated by tax considerations, if there is a difference in tax rates between the host country and the home country.
D)all of the above
Q3) The criteria of tax neutrality: capital export neutrality, capital import neutrality and national neutrality
A)all consistent with one another.
B)are not always consistent with one another.
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