International Business Question Bank
Course Introduction
International Business explores the strategic, economic, and cultural complexities of conducting commercial operations across national borders. The course covers topics such as globalization, international trade theories, foreign direct investment, global supply chains, cross-cultural management, and international marketing. Students will examine how multinational corporations adapt their strategies to different political, legal, and economic environments, analyze the impact of global economic integration, and develop skills necessary for effective decision-making in the international business arena. The course also addresses the ethical and sustainability challenges faced by businesses in a rapidly changing global landscape.
Recommended Textbook
Multinational Business Finance 12th Edition by
Arthur I. Stonehill
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22 Chapters
929 Verified Questions
929 Flashcards
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Page 2
Chapter 1: Globalization and the Multinational Enterprise
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Sample Questions
Q1) The authors describe the multinational phase of globalization for a firm as one characterized by the
A)ownership of assets and enterprises in foreign countries.
B)potential for international competitors or suppliers even though all accounts are with domestic firms and are denominated in dollars.
C)imports from foreign suppliers and exports to foreign buyers.
D)requirement that all employees be multilingual.
Answer: A
Q2) Three necessary conditions for a firm to reach the top of the "firm value pyramid" are an open market place, high quality strategic management, and access to capital.
A)True
B)False
Answer: True
Q3) Comparative advantage is one of the underlying principles driving the growth of global business.
A)True
B)False
Answer: True
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Chapter 2: Financial Goals and Corporate Governance
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Sample Questions
Q1) The study of how shareholders can motivate management to accept the prescriptions of the shareholder wealth maximization model is called
A)market efficiency.
B)the SWM model.
C)agency theory.
D)the SCM model.
Answer: C
Q2) The stakeholder capitalism model does not assume that equity markets are either efficient or inefficient.
A)True
B)False
Answer: True
Q3) Which of the following is NOT commonly associated with a government affiliated form of corporate governance regime?
A)No minority influence.
B)Lack of transparency.
C)State ownership of enterprise.
D)All are associated with this type of corporate governance regime.
Answer: D
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Page 4
Chapter 3: The International Monetary System
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Q1) Based on the premise that, other things equal, countries would prefer a fixed exchange rate, which of the following statements is NOT true?
A)Fixed rates provide stability in international prices for the conduct of trade.
B)Fixed exchange rate regimes necessitate that central banks maintain large quantities of international reserves for use in the occasional defense of the fixed rate.
C)Fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies.
D)Stable prices aid in the growth of international trade and lessen exchange rate risks for businesses.
Answer: C
Q2) Dollarization is a common solution for countries suffering from currency revaluation. A)True
B)False
Answer: False
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Chapter 4: The Balance of Payments
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Sample Questions
Q1) When the world went to a system of floating exchange rates, the Balance of Payments became a relic of a system of fixed exchange rates and is no longer watched by serious economic groups.
A)True
B)False
Q2) Which of the following statements about the balance of payments is NOT true?
A)The BOP is the summary statement of all international transactions between one country and all other countries.
B)The BOP is a flow statement, summarizing all international transactions that occur across the geographic borders over a period of time, typically a year.
C)Although the BOP must always balance in theory, in practice there are substantial imbalances as a result of statistical errors and misreporting of current account and financial account flows.
D)All of the above are true.
Q3) The authors identify a tip for understanding BOP accounting. They recommend that you "follow the cash flow."
A)True
B)False
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Chapter 5: Current Multinational Financial Challenges: the Credit
Crisis of 2007-2009
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Sample Questions
Q1) The typical TED spread, the difference between the LIBOR and the interest rate swap index, is typically about ________ basis points.
A)350
B)180
C)120
D)80
Q2) In finance, a liquid asset:
A)sells quickly.
B)sells at or near its market value.
C)both A and B
D)none of the above
Q3) From 1990 through 2007, the amount of securitized loans outstanding dropped from over $25 trillion to less than $5 trillion and was a key element in the loss of market liquidity.
A)True
B)False
Q4) Bear-Stearns is the largest single bankruptcy in U.S. history.
A)True
B)False
7
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Chapter 6: The Foreign Exchange Market
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Sample Questions
Q1) A ________ transaction in the foreign exchange market requires delivery of foreign exchange at some future date.
A)spot
B)forward
C)swap
D)currency
Q2) Refer to Table 6.1. The one-month forward bid price for dollars as denominated in Japanese yen is ________.
A)-¥20
B)-¥18
C)¥129.74/$
D)¥129.62/$
Q3) ________ make money on currency exchanges by the difference between the ________ price, or the price they offer to pay, and the ________ price, or the price at which they offer to sell the currency.
A)Dealers; ask; bid
B)Dealers; bid; ask
C)Brokers; ask; bid
D)Brokers; bid; ask
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Page 8
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 an identical product can be sold in two different markets, and no restrictions exist on the sale or transportation costs, the product's price should be the same in both markets. This is known as
A)relative purchasing power parity.
B)interest rate parity.
C)the law of one price.
D)equilibrium.
Q3) The assumptions for relative PPP are more rigid than the assumptions for absolute PPP.
A)True
B)False
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9
Chapter 8: Foreign Currency Derivatives
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Sample Questions
Q1) The buyer of a long call option
A)has a maximum loss equal to the premium paid.
B)has a gain equal to but opposite in sign to the writer of the option.
C)has an unlimited maximum gain potential.
D)all of the above
Q2) An option whose exercise price is equal to the spot rate is said to be ________.
A)in-the-money
B)at-the-money
C)out-of-the-money
D)on-the-spot
Q3) Jack Hemmings bought a 3-month British pound futures contract for $1.4400/£ only to see the dollar appreciate to a value of $1.4250 at which time he sold the pound futures. If each pound futures contract is for an amount of £62,500, how much money did Jack gain or lose from his speculation with pound futures?
A)$937.50 loss
B)$937.50 gain
C)£937.50 loss
D)£937.50 gain
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Chapter 9: Interest Rate and Currency Swaps
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Sample Questions
Q1) Refer to Table 9.1. If the LIBOR rate jumps to 5.00% after the first year what will be the all-in-cost (i.e. the internal rate of return)for Polaris for the entire loan?
A)5.25%
B)5.50%
C)6.09%
D)6.58%
Q2) Refer to Instruction 9.1. After the fact, under which set of circumstances would you prefer strategy #3? (Assume your firm is borrowing money.)
A)Your credit rating stayed the same and interest rates went up.
B)Your credit rating stayed the same and interest rates went down.
C)Your credit rating improved and interest rates went down.
D)Not enough information to make a judgment.
Q3) Some of the world's largest and most financially sound firms may borrow at variable rates less than LIBOR.
A)True
B)False
Q4) How does counterparty risk influence a firm's decision to trade exchange-traded derivatives rather than over-the-counter derivatives?
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Page 11
Chapter 10: Foreign Exchange Rate Determination and Forecasting
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Sample Questions
Q1) The ________ approach states that the exchange rate is determined by the supply and demand for national currency stocks, as well as the expected future levels and rates of growth of monetary stock.
A)balance of payments
B)monetary
C)asset market
D)law of one price
Q2) The balance of payments approach of exchange rate theory is largely dismissed by the academic community today, while the practitioner public still rely on different variations of the theory for their decision making.
A)True
B)False
Q3) ________, traditionally referred to as chartists, focus on price and volume data to determine past trends that are expected to continue into the future.
A)Mappists
B)Trappist Monks
C)Filibusters
D)Technical analysts
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Chapter 11: Transaction Exposure
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Sample Questions
Q1) The stages in the life of a transaction exposure can be broken into three distinct time periods. The first time period is the time between quoting a price and reaching an actual sale agreement or contract. The next time period is the time lag between taking an order and actually filling or delivering it. Finally, the time it takes to get paid after delivering the product. In order, these stages of transaction exposure may be identified as
A)backlog, quotation, and billing exposure.
B)billing, backlog, and quotation exposure.
C)quotation, backlog, and billing exposure.
D)quotation, billing, and backlog exposure.
Q2) Which of the following is NOT cited as a good reason for hedging currency exposures?
A)Reduced risk of future cash flows is a good planning tool.
B)Reduced risk of future cash flows reduces the probability that the firm may not meet required cash flows.
C)Currency risk management increases the expected cash flows to the firm.
D)Management is in a better position to assess firm currency risk than individual investors.
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Page 13
Chapter 12: Operating Exposure
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Sample Questions
Q1) A U.S. timber products firm has a long-term contract to import unprocessed logs from Canada. To avoid occasional and unpredictable changes in the exchange rate between the U.S. dollar and the Canadian dollar, the firms agree to split between the two firms the impact of any exchange rate movement. This type of agreement is referred to as ________.
A)risk-sharing
B)currency-switching
C)matching
D)a natural hedge
Q2) Costs associated with the purchase of sizeable put options positions include each of the following EXCEPT:
A)the purchase price of the options.
B)the opportunity cost of buying the options rather than diversifying operations to reduce risk.
C)executive salaries of having corporate offices in more than one country.
D)none of the above
Q3) Currency swaps are exclusively for periods of time under one year.
A)True
B)False
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Page 14
Chapter 13: Translation Exposure
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Sample Questions
Q1) 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
Q2) Under the U.S. method of translation procedures, if the financial statements of the foreign subsidiary of a U.S. company are maintained in the local currency, and the U.S. dollar is the functional currency, then
A)translation is not required.
B)translation is accomplished through the current rate method.
C)translation is accomplished through the temporal method.
D)none of the above
Q3) Describe a balance sheet hedge and give at least two examples of when such a hedge could be justified.
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15
Chapter 14: The Global Cost and Availability of Capital
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Sample Questions
Q1) The optimal capital budget
A)occurs where the marginal cost of capital equals the marginal rate of return of the opportunity set of projects.
B)is typically larger for purely domestic firms than for MNEs.
C)is an illusion found only in international finance textbooks.
D)none of the above
Q2) Empirical studies indicate that MNEs have a lower debt/capital ratio than domestic counterparts, indicating that MNEs have a lower cost of capital.
A)True
B)False
Q3) If a firm lies within a country with ________ or ________ domestic capital markets, it can achieve lower global cost and greater availability of capital with a properly designed and implemented strategy to participate in international capital markets.
A)liquid; segmented
B)liquid; large
C)illiquid; segmented
D)large; illiquid
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16
Chapter 15: Sourcing Equity Globally
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Sample Questions
Q1) What are the two schools of thought regarding the worldwide trend toward increased financial disclosure by publicly traded firms. Explain which school of thought you hold to and why.
Q2) 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.
Q3) In addition to gaining liquidity, which of the following could also be considered a legitimate reason for cross-listing equity?
A)enhance a firm's local image
B)become more familiar with the local financial community
C)get better local press coverage
D)all of the above
Q4) The combined impact of a new equity issue undertaken simultaneously with a cross-listing has a more favorable impact on stock price than cross-listing alone.
A)True
B)False
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17
Chapter 16: Sourcing Debt Globally
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Sample Questions
Q1) TropiKana Inc., a U.S firm, has just borrowed $1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 6.00% per year, how much interest will they pay in the first year?
A)$6,000
B)$60,000
C)$600,000
D) 60,000
Q2) If we accept the MNE objective of minimizing the consolidated cost of capital then A)the subsidiary's cost of capital is relevant only to the extent that it affects this overall goal.
B)the objective of minimizing the cost of capital for each individual subsidiary may not be appropriate.
C)the value of the MNE as a whole should be maximized.
D)all of the above
Q3) Financial theory has at last provided us with a single optimal capital structure for domestic firms.
A)True
B)False
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Chapter 17: International Portfolio Theory and Diversification
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Q1) Refer to Instruction 17.1. At the end of the year the investor sells his stock that now has an average price per share of 57. What is the investor's average rate of return after converting the stock back into dollars?
A)-1.35%
B)5.0%
C)-5.0%
D)-7.24%
Q2) The Sharpe and Treynor Measures tend to be consistent in their ranking of portfolios when the portfolios
A)are poorly diversified.
B)are properly diversified.
C)contain only U.S. equity investments.
D)none of the above
Q3) Refer to Table 17.1. 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
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Chapter 18: Foreign Direct Investment Theory and Political Risk
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Q1) Which of the following is NOT a factor of Porter's "diamond of national advantage"?
A)Factor conditions.
B)Demand conditions.
C)Related and supporting industries.
D)All of the above are factors of the diamond of national advantage.
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) Local partners in a foreign country and in a joint venture with an MNE are likely to make decisions that maximize the value of the subsidiary. Such actions probably will not maximize the value of the entire firm.
A)True
B)False
Q4) What does the OLI Paradigm propose to explain? Define each component and provide an example of each.
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Chapter 19: Multinational Capital Budgeting
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Q1) When estimating a firm's cost of equity capital using the CAPM, you need to estimate
A)the risk-free rate of return.
B)the expected return on the market portfolio.
C)the firm's beta.
D)all of the above
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.
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21
Chapter 20: Multinational Tax Management
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Q1) The United States taxes the domestic and remitted foreign earnings of U.S. based MNEs no matter where the earnings occurred. This is an example of a ________ approach to levying taxes.
A)worldwide
B)territorial
C)neutral
D)equitable
Q2) Tax credits are less valuable on a dollar-for-dollar basis than are tax-deductible expenses.
A)True
B)False
Q3) The issue of ethics in the reporting of income and the payment of taxes is a considerable one. The authors state that most MNEs operating in foreign countries tend to follow the general principle of A)"when in Rome, do as the Romans do."
B)full disclosure to the tax authorities.
C)maintain a competitive playing field by cheating as much as the local competition, no more, no less.
D)none of the above
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Page 22
Chapter 21: Working Capital Management
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Q1) Working capital management involves the management of
A)current and long-term assets.
B)current assets and current liabilities.
C)current liabilities and long-term assets.
D)current liabilities and long-term debt and equity.
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) Refer to Instruction 21.1. What is the amount of money SureDrip will save on accounts payable if they accept the discount?
A)$400,000
B)$8,000
C)$33,333
D)$20,000
Q4) In an inflationary economy, demand for credit usually exceeds supply.
A)True
B)False
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Chapter 22: International Trade Finance
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Sample Questions
Q1) The person or company to whom the draft or bill of exchange is addressed is the A)drawee.
B)drawer.
C)maker.
D)originator.
Q2) The primary advantage of a letter of credit is that it reduces risk.
A)True
B)False
Q3) Today, international trade is dominated by transactions between unaffiliated parties (known or unknown).
A)True
B)False
Q4) Drafts that have been accepted by banks become A)clean drafts.
B)nonmarketable.
C)banker's acceptances.
D)none of the above
Q5) What is a banker's acceptance? How are they initiated? Why are they desirable for the exporter?
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