International Corporate Governance
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Course Introduction
International Corporate Governance explores the systems, principles, and processes by which companies are directed and controlled across different countries and regions. The course examines the roles and interactions of key stakeholders such as shareholders, boards of directors, managers, and regulators, highlighting variations in governance models such as Anglo-American, Continental European, and Asian frameworks. Through case studies and comparative analysis, students will gain an understanding of the implications of governance structures on corporate performance, accountability, and ethical standards. Topics include regulatory environments, corporate scandals, emerging best practices, and the influence of globalization on corporate governance reforms.
Recommended Textbook
International Financial Management 2nd Edition by Geert J Bekaert
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Page 2
Chapter 1: Globalization and the Multinational Corporation
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Q1) In 1992,the European Union decided to create an economic as well as a monetary union involving the introduction of
A) a pegged currency known as the euro.
B) a managed currency know as the ecu.
C) a freely floating exchange rate for a currency known as the euro.
D) a single European currency managed by a European central bank.
Answer: D
Q2) Which of the following are institutional banks that provide financial support and professional advice for developing countries?
A) multilateral development banks
B) central banks
C) investment banks
D) Barclays bank
Answer: A
Q3) Why do the anti-globalists see globalization as a threat to the home country?
Answer: Anti-globalists believe that one outcome of globalization is the outsourcing phenomenon which they blame for threatening the home country's work force.
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Chapter 2: The Foreign Exchange Market
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Q1) Which one of the following are the main participants in the global currency markets?
A) commercial banks
B) insurance companies
C) hedge funds
D) private equity funds
Answer: A
Q2) 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
Q3) What currency currently serves as the world's primary vehicle currency?
A) Japanese yen
B) British pound
C) U.S. Dollar
D) European euro
Answer: C
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Chapter 3: Forward Markets and Transaction Exchange Risk
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Q1) If you want to hedge and owe a firm a foreign currency in the future,you would
A) buy the foreign currency forward.
B) sell the foreign currency forward.
C) speculate on the possibility to not hedge.
D) buy the currency now and deposit into a bank account until needed.
Answer: A
Q2) What is the term for the conditional mean of the probability distribution of future spot rates?
A) the expected swap rate
B) the future exchange rate
C) the outright rate
D) the expected future spot rate
Answer: D
Q3) What is the name of the exchange rate specified in the forward contract?
A) spot rate
B) forward rate
C) future exchange rate
D) cross-rate
Answer: B
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Chapter 4: The Balance of Payments
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Q1) As the real value of the dollar rises,the balance on the current account is likely to
A) increase
B) decrease
C) stay the same
D) move with the capital account adjustments factor
Q2) If a nation's income exceeds its spending,then
A) savings will exceed domestic investment.
B) the nation must run a current account surplus.
C) the nation must run a capital account deficit.
D) all of the above.
Q3) The Japanese current account surplus can best be attributed to
A) the high rate of Japanese domestic investment.
B) Japanese protectionism.
C) the high rate of Japanese savings.
D) government budget deficits.
Q4) Explain the double-entry system of the balance of payments.
Q5) Suppose the U.S.imposes import restrictions on Japanese cars.What is likely to happen to the U.S.current-account deficit?
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Chapter 5: Exchange Rate Systems
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Q1) Why are pegged exchange rates often overvalued and difficult to governments to maintain?
Q2) What is the relationship of currency risk in a floating exchange rate system to the future exchange rate changes?
Q3) How would a target zone system or a pegged exchange rate system that has been in place mask the true currency risk?
Q4) The exchange rate system in which a country allows the value of the currency to be determined by the market forces of supply and demand is known as a A) currency board.
B) floating exchange rate.
C) target zone.
D) pegged exchange rate system.
Q5) Official international reserves consist of three major components EXCEPT: A) gold reserves.
B) foreign exchange reserves.
C) deposits of private financial institutions.
D) IMF-related reserves assets.
Q6) Why would a central bank buy or sell foreign currency?
Q7) Describe the Bretton Woods currency system?
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Chapter 6: Interest Rate Parity
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Q1) Given an example of how a money market hedge is constructed?
Q2) A bond that promises to pay the owner a single payment denominated in euros or pounds is known as a ________ bond.
A) debenture
B) variable interest rate
C) pure discount
D) foreign
Q3) The term covered means the investment is ________ transaction foreign exchange risk.
A) hedged against
B) exposed to
C) completely free from
D) structured to activate forward contracts that free it from
Q4) An example of an external currency market that was the first to form was the market where the dollar-denominated deposits were known as
A) Euros.
B) Eurodollars.
C) petrodollars.
D) exchange traded funds.
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Chapter 7: Speculation and Risk in the Foreign Exchange Market
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Q1) Which one of the following would be an answer to why the forward exchange rate is an unbiased predictor of the future spot rate?
A) The forward rate is greater than the conditional expectation of the future spot rate.
B) The forward rate equals than the conditional expectation of the future spot rate.
C) The forward rate is less than the conditional expectation of the future spot rate.
D) The current spot rate is greater than the conditional expectation of the future spot rate.
Q2) Regression tests of the unbiasedness hypothesis indicate that it is ________ with real life events.
A) an unbiased indicator of expected future exchange rates
B) very consistent
C) not consistent
D) has a strong correlation to the current account
Q3) If you were attempting to forecast the forward exchange rate for a particular horizon such as 90 days,how would the forward exchange rate be an unbiased predictor of the future spot exchange rate?
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Chapter 8: Purchasing Power Parity and Real Exchange
Rates
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Q1) The theory of relative purchasing power parity states that,between two nations,the
A) inflation rates are unrelated
B) exchange rate differential reflects the inflation rate differential
C) inflation rate is smaller in weaker currencies
D) the interest rate is greater than the inflation rate during depreciations
Q2) What is the name of the ratio of a price level at one point in time to the price level in a designated base year?
A) bid-ask spread
B) reserve requirement
C) percent spread
D) price index
Q3) When the external purchasing power or a currency is greater than the internal purchasing power,the currency is said to be ________.
A) overvalued
B) undervalued
C) at parity
D) in arbitrage
Q4) Under what conditions could the law of one price be violated?
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Chapter 9: Measuring and Managing Real Exchange Risk
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Q1) For pricing-to-market to be effective,producers must assume that markets are
A) segmented.
B) integrated.
C) uninformed of price changes in other market.
D) dominated by traders who trade for reasons other than responses to fundamental economic change.
Q2) During a change in the real exchange rates,a major factor determining the response of the firm is the ________.
A) supply elasticity of the firm
B) price elasticity of competing product's demand curve
C) price elasticity of the product's demand curve
D) supply elasticity of the industry
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?
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Chapter 10: Exchange Rate Determination and Forecasting
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Q1) To make predictions regarding fixed exchange rate systems and devaluations,forecasters may employ
A) macroeconomic information.
B) financial information.
C) interest rate differentials.
D) macroeconomic, financial and even interest rate differentials.
Q2) Why would technical analysis to forecast future exchange rates be ineffective if all parity conditions prevailed?
A) The best predictor of future rates would be the current spot rates.
B) The only predictor would be the volatility of future exchange rates.
C) The best predictor of future rates would be the forward rate.
D) The unbiased predictor would not exist due to market trends.
Q3) This statistic is calculated by taking the square root of the average squared forecast errors.
A) the mean absolute error
B) the standard deviation
C) the mode
D) the root mean squared error
Q4) Describe how the macroeconomic fundamental,money supply,affects exchange rates.
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Chapter 11: International Debt Financing
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Q1) How are the transactions in the global bond market in reality a simultaneous transaction in two separate markets?
Q2) How has Basel II affected the capital charge of a loan to another bank and a loan to a large MNC?
Q3) ________ is the packaging of assets or obligations such as mortgages or car loans,into securities for sale to third parties.
A) Eurocredits
B) Floating-rate notes
C) Asset securitization
D) Demutualization
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) How is the final payment made for a dual-currency bond?
Q6) What are the three main sources of financing for any firm?
Q7) Why is there a need for international banking regulation?
Page 13
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Chapter 12: International Equity Financing
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Q1) ________ is the total volume of trade done on an exchange measured in dollars during the year divided by the exchange's total market capitalization at the end of the year.
A) The bid-ask spread
B) Turnover
C) Liquidity
D) The credit spread
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) What are the most import characteristics of foreign securities that leads to diversification benefits?
Q4) What is distinguishes a public from a banker's bourse?
Q5) As more global investors shift investment funds to emerging markets,what factors will drive expected returns?
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Chapter 13: International Capital Market Equilibrium
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Q1) The exposure of a return to fluctuations in the return on the market portfolio,which cannot be diversified away is called
A) market risk.
B) risk return.
C) idiosyncratic risk.
D) systematic risk.
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) For the most part,stocks are ________ ________,so you ________ diversify away all of a portfolio's variance.Because the average covariance is ________,even a large portfolio of international stock will have a ________ variance.
A) negatively related, can, negative, negative
B) negatively related, cannot, positive, negative
C) positively correlated, cannot, positive, positive
D) positively correlated, can, negative, positive
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Chapter 14: Country and Political Risk
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Q1) Which one of the following do MNCs use to lower the cost of their investment into a country?
A) foreign bond markets
B) international banks
C) debt-equity swaps
D) long-term forward contracts
Q2) ________ is a broad concept that encompasses political risk and its economic and financial environment.
A) Expropriation
B) Nationalization
C) Country risk
D) Economic risk
Q3) The discount rate in capital budgeting need not be adjusted for political risk.Agree or disagree and explain why.
Q4) What is the difference between political risk and sovereign risk?
Q5) The Baker Plan of 1985 is named for the U.S.________.
A) secretary of state
B) president
C) federal reserve chair
D) treasury secretary
Page 16
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Chapter 15: International Capital Budgeting
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Q1) When a firm's management chooses not to pay out dividends from its free cash flow,it develops ________ that may lead to high agency costs.
A) negative net present value
B) additional depreciation
C) no more growth options
D) financial slack
Q2) Based on their computation what is the difference between EBIT and NOPLAT?
Q3) With respect to currency measurement,what is the rule when discounting cash flows?
A) The revenues and expenses must be measured as they occur rather than on an incremental basis.
B) There is no need to incorporate the risk premium of that the firm's stockholders would demand in the discount rate.
C) Revenues and expenses should be measured on a pre-tax cash flow basis.
D) All cash flows should be measured in the same currency.
Q4) What is an interest subsidy? How do you calculate the value of an interest subsidy?
Q5) What is meant by the cannibalization of an export market?
Q6) How does the role of underwriting affect the issuing of securities?
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Chapter 16: Additional Topics in International Capital Budgeting
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Q1) The managers of Apex International accepted a high-variance,low-value project rather than a low-variance,high-value project.When this occurs,mangers are said to have engaged in ________.
A) shifting value from shareholders to bondholders
B) asset substitution
C) export cannibalization
D) underinvestment
Q2) What is the U.S.tax treatment of interest paid on a foreign currency loan?
Q3) The Capital Asset Company has accepted a project for investment.It can be assumed that the firm is earning its WACC and the rate of return on the project ________.
A) should equal the plowback ratio
B) would be irrelevant
C) is the same or greater
D) is the same or less
Q4) Explain what is meant by the weighted average cost of capital?
Q5) Explain how to calculate the rate of return on invested capital?
Page 18
Q6) As an international financial analyst,you inform your superiors that the domestic currency discount rate can be used to do capital budgeting for a foreign project? Explain why.
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Chapter 17: Risk Management and the Foreign Currency
Hedging Decision
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Q1) When a firm's pretax income is more volatile,
A) the benefits of hedging currency risk are smaller.
B) the benefits of hedging currency risk are greater.
C) hedging will produce mixed benefits to the firm.
D) it is not possible to determines whether any benefits are greater.
Q2) Why is hedging considered a cost center and not a profit center?
Q3) It is appropriate for the costs of hedging to be borne by the ________ department of the multinational corporation.
A) marketing
B) treasury
C) legal
D) shipping
Q4) If a country's corporate tax rate is flat,when does it not make sense for a firm to hedge?
Q5) ________ are financial contracts whose values depend on the values of some underlying asset price.
A) Margin calls
B) Derivative securities
C) Tax codes
D) Tax shields
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Chapter 18: Financing International Trade
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Q1) The Financial Credit Insurance Association offers two basic types of insurance polities to protect exporters against ________ and ________ risks.
A) exchange rate, political
B) commercial, political
C) exchange rate, economic
D) commercial, logistics
Q2) Which one of the following methods of payments is most straightforward and one that is the least risky for the exporter?
A) documents against payment
B) time draft
C) documentary collection
D) cash in advance
Q3) When an exporter is dealing with a high credit risk customer,________ as a form of payment is most often used.
A) draft
B) banker's acceptance
C) open account
D) cash in advance
Q4) Explain the fundamental financing problem in international trade?
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Chapter 19: Managing Net Working Capital
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Q1) One technique a multinational may use to avoid the blocked fund strategy of a foreign nation is for the parent to lend funds to the affiliate.The loan is known as a ________ loan.
A) parallel
B) back-to-back
C) fronting
D) transfer pricing
Q2) When the parent lends to an affiliate in order to circumvent blocked fund policies of governments in affiliate countries,a financial intermediary is often used such as a(n)________.
A) eurobank
B) investment bank
C) netting center
D) international bank
Q3) What are the determinants of leading payments between related international affiliates?
Q4) What are the constraints facing international cash management from purely domestic cash management?
Q5) What are the guidelines to use transfer pricing to shift income around the world?
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Chapter 20: Foreign Currency Futures and Options
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Q1) Why do options provide insurance against foreign exchange risks in bidding situations? Why can't you hedge with a forward contract in a bidding situation?
Q2) What are you buying if you purchase a U.S.dollar European put option against the Mexican peso with a strike price of MXN10.0/$ and a maturity of July? (Assume that it is May and the spot rate is MXN10.5/$.)
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) What are the differences between foreign currency option contracts and forward contracts for foreign currency?
Q5) What effects does "marking to market" have on futures contracts?
Q6) What does it mean for an American option to be "in the money"?
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Chapter 21: Interest Rates and Foreign Currency Swaps
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Q1) Most parallel loans include a ________ clause that requires additional advances or repayments of principal under special conditions.
A) notional principal
B) topping-up
C) right of offset
D) yield to call
Q2) Between 2001 and 2004 the phenomenal growth in the use of swap markets has been a rate of over ________ per year.
A) 100%
B) 80%
C) 50%
D) 33%
Q3) Why are swap market transactions costs lower than transaction costs in the long term forward market?
Q4) A currency swaps allows a multinational corporation to change the ________.
A) currency of denomination of its debts
B) forward rate on contracts it secures to hedge exchange rate risk
C) principal and interest rate on its debt
D) nature of its debt from a fixed interest rate to a floating interest rate
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