International Finance
Final Test Solutions
Course Introduction
International Finance explores the complexities of financial management in a global context, focusing on the flow of capital across international borders, exchange rate mechanisms, and the structure of global financial markets. The course examines key topics such as international monetary systems, foreign exchange risk management, international investment strategies, balance of payments, and the role of multinational corporations in global finance. Students will develop an understanding of the economic and political factors affecting international financial decisions and gain practical skills to analyze and manage the financial challenges faced by firms operating in multiple countries.
Recommended Textbook
Corporate Finance Asia 1st Global Edition by Stephen Ross
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16 Chapters
1174 Verified Questions
1174 Flashcards
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Page 2
Chapter 1: Introduction to Corporate Finance
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61 Flashcards
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Sample Questions
Q1) Managers that are successful in pursuing stockholder goals can
A)See very little reward
B)See no financial gain through raises and bonuses
C)Never become stockholders
D)Reap enormous rewards
E)Start a proxy fight with stockholders
Answer: D
Q2) The Sarbanes Oxley Act of 2002 is intended to:
A)protect financial managers from investors.
B)not have any effect on foreign companies.
C)reduce corporate revenues.
D)protect investors from corporate abuses.
E)decrease audit costs for U.S.firms.
Answer: D
Q3) What advantages does the corporate form of organization have over sole proprietorships or partnerships?
Answer: The advantages of the corporate form of organization over sole proprietorships and partnerships are the ease of transferring ownership,the owners' limited liability for business debts,the ability to raise more capital,and the opportunity of an unlimited life of the business.
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Chapter 2: Financial Statements and Cash Flow
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Sample Questions
Q1) A current asset is:
A)an item currently owned by the firm.
B)an item that the firm expects to own within the next year.
C)an item currently owned by the firm that will convert to cash within the next 12 months.
D)the amount of cash on hand the firm currently shows on its balance sheet.
E)the market value of all items currently owned by the firm.
Answer: C
Q2) Dividends per share:
A)increase as the net income increases as long as the number of shares outstanding remains constant.
B)decrease as the number of shares outstanding decrease,all else constant.
C)are inversely related to the earnings per share.
D)are based upon the dividend requirements established by Generally Accepted Accounting Procedures.
E)are equal to the amount of net income distributed to shareholders divided by the number of shares outstanding.
Answer: E
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4
Chapter 3: Financial Statements Analysis and Long-Term Planning
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117 Verified Questions
117 Flashcards
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Sample Questions
Q1) In 2011,how many days on average did it take Bayside to sell its inventory?
A)126.1 days
B)127.9 days
C)153.8 days
D)176.5 days
E)178.9 days
Answer: E
Q2) A firm has 5,000 shares of stock outstanding,sales of $6,000,net income of $800,a price-ratio of 10,and a book value per share of $.50.What is the market-to-book ratio?
A)1.6
B)2.4
C)3.0
D)3.2
E)3.6
Answer: D
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Chapter 5: Net Present Value and Other Investment Rules
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Sample Questions
Q1) The internal rate of return tends to be:
A)easier for managers to comprehend than the net present value.
B)extremely accurate even when cash flow estimates are faulty.
C)ignored by most financial analysts.
D)used primarily to differentiate between mutually exclusive projects.
E)utilized in project analysis only when multiple net present values apply.
Q2) The primary reason that company projects with positive net present values are considered acceptable is that:
A)they create value for the owners of the firm.
B)the project's rate of return exceeds the rate of inflation.
C)they return the initial cash outlay within three years or less.
D)the required cash inflows exceed the actual cash inflows.
E)the investment's cost exceeds the present value of the cash inflows.
Q3) The Walker Landscaping Company can purchase a piece of equipment for $3,600.The asset has a two-year life,and will produce a cash flow of $600 in the first year and $4,200 in the second year.The interest rate is 15%.Calculate the project's payback assuming steady cash flows.Also calculate the project's IRR.Should the project be taken? Check your answer by computing the project's NPV.
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6
Chapter 8: Interest Rates and Bond Valuation
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Sample Questions
Q1) Face value is:
A)always higher than current price.
B)always lower than current price.
C)the same as the current price.
D)the coupon amount.
E)None of the above.
Q2) The principal amount of a bond that is repaid at the end of the loan term is called the bond's:
A)coupon.
B)face value.
C)maturity.
D)yield to maturity.
E)coupon rate.
Q3) The Fisher formula is expressed as _____ where R is the nominal rate,r is the real rate,and h is the inflation rate.
A)1 + r = (1 + R) \(\div\) (1 + h)
B)1 + r = (1 + R) \(\times\) (1 + h)
C)1 + h = (1 + r) \(\div\) (1 + R)
D)1 + R = (1 + r) \(\div\) (1 + h)
E)1 + R = (1 + r) \(\times\) (1 + h)
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Chapter 10: Risk and Return: Lessons From Market History
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Sample Questions
Q1) A year ago,you purchased 300 shares of IXC Technologies,Inc.stock at a price of $10.05 per share.The stock pays an annual dividend of $.10 per share.Today,you sold all of your shares for $29.32 per share.What is your total dollar return on this investment?
A)$8,781
B)$8,796
C)$8,811
D)$8,832
E)$8,921
Q2) A stock had returns of 8%,-2%,4%,and 16% over the past four years.What is the standard deviation of this stock for the past four years?
A)6.3%
B)6.6%
C)7.1%
D)7.5%
E)7.9%
Q3) What are the lessons learned from capital market history? What evidence is there to suggest these lessons are correct?
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8
Chapter 11: Return and Risk: the Capital Asset Pricing Model
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) For a highly diversified equally weighted portfolio with a large number of securities,the portfolio variance is:
A)the average covariance.
B)the average expected value.
C)the average variance.
D)the weighted average expected value.
E)the weighted average variance.
Q2) The expected return on Quantpiks is:
A)3.3%
B)8.5%
C)12.5%
D)20.5%
E)None of the above.
Q3) Diversification can effectively reduce risk.Once a portfolio is diversified,the type of risk remaining is:
A)individual security risk.
B)riskless security risk.
C)risk related to the market portfolio.
D)total standard deviations.
E)None of the above.
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Chapter 12: An Alternative View of Risk and Return: the Arbitrage Pricing Theory
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Sample Questions
Q1) A security that has a beta of zero will have an expected return of:
A)zero.
B)the market risk premium.
C)the risk free rate.
D)less than the risk free rate but not negative.
E)less than the risk free rate which can be negative.
Q2) A criticism of the CAPM is that it:
A)ignores the return on the market portfolio.
B)ignores the risk-free return.
C)requires a single measure of systematic risk.
D)utilizes too many factors.
E)None of the above.
Q3) Parametric or empirical models rely on:
A)security betas explaining systematic factor relationships.
B)finding regularities and relations in past market data.
C)there being no true explanations of pricing relationships.
D)always being able to find the exception to the rule.
E)None of the above
Q4) Explain the conceptual differences in the theoretical development of the CAPM and APT.
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Chapter 14: Efficient Capital Markets and Behavioral Challenges
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Sample Questions
Q1) Insider trading does not offer any advantages if the financial markets are:
A)weak form efficient.
B)semiweak form efficient.
C)semistrong form efficient.
D)strong form efficient.
E)inefficient.
Q2) Suppose that firms with unexpectedly high earnings earn abnormally high returns for several months after the announcement.This would be evidence of:
A)efficient markets in the weak form.
B)inefficient markets in the weak form.
C)efficient markets in the semistrong form.
D)inefficient markets in the semistrong form.
E)inefficient markets in the strong form.
Q3) If the weak form of efficient markets holds,then:
A)technical analysis is useless.
B)stock prices reflect all information contained in past prices.
C)stock prices follow a random walk.
D)All of the above.
E)None of the above.
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Chapter 15: Long-Term Financing: an Introduction
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43 Flashcards
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Sample Questions
Q1) Holden Bicycles has 1,000 shares outstanding each with a par value of $0.10.If they are sold to shareholders at $10 each,what would the capital surplus be?
A)$100
B)$900
C)$9,900
D)$10,000
E)$11,000
Q2) James Yachts has 2,000 shares outstanding each with a par value of $0.07.If they are sold to shareholders at $7 each,what would the capital surplus be?
A)$10,000
B)$12,140
C)$13,250
D)$13.860
E)$14,000
Q3) Preferred Stock,as a hybrid security,presents somewhat of a puzzle as to why they are issued.What elements give rise to the puzzle and how is it explained?
Q4) From this information,calculate Eaton's book value per share.
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Chapter 20: Raising Capital
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Sample Questions
Q1) Discuss the stages of venture capital financing,defining each in detail.
Q2) Bradley Power wants to raise $40 million in new equity.The subscription price is $25.There are currently 5 million shares outstanding,each with 1 right.How many rights are needed to purchase 1 share?
A)1.000
B)3.000
C)3.125
D)4.525
E)6.525
Q3) The diagonal listing of investment bankers on tombstone advertisements reflects their ____ relative to the other investment bankers listed below.
A)prestige
B)ability to manage selling syndicates
C)role as a firm commitment buyer
D)role as a best efforts seller
E)None of the above
Q4) If the ex-rights price were set at $7.90,would you as a potential new stockholder choose to buy shares ex-rights or buy shares at the old price and exercise your rights?
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Chapter 22: Options and Corporate Finance
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Sample Questions
Q1) The lower bound of a call option:
A)can be a negative value regardless of the stock or exercise prices.
B)can be a negative value but only when the exercise price exceeds the stock price.
C)can be a negative value but only when the stock price exceeds the exercise price.
D)must be greater than zero.
E)can be equal to zero.
Q2) If a call has a positive intrinsic value at expiration the call is said to be:
A)funded.
B)unfunded.
C)at the money.
D)in the money.
E)out of the money.
Q3) Which one of the following will cause the value of a call to decrease?
A)lowering the exercise price
B)increasing the time to expiration
C)increasing the risk-free rate
D)lowering the risk level of the underlying security
E)increasing the stock price
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14
Chapter 23: Options and Corporate Finance: Extensions and Applications
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Sample Questions
Q1) A firm in the extraction industry whose major assets are cash,equipment and a closed facility may appear to have extraordinary value.This value can be primarily attributed to:
A)the potential sale of the company.
B)the low exercise price held by the shareholders.
C)the option to open the facility when prices rise dramatically.
D)All of the above.
E)None of the above.
Q2) By rewarding executives with large option positions,corporations:
A)cause the executives to hold highly undiversified portfolios.
B)put the firm in a risky position to pay off the options.
C)cause the value of the stock to fall because the options are theft.
D)are really valueless because most options are never exercised.
E)None of the above.
Q3) The CFO of NuValue was granted 1,000,000 options.The stock price at the time of the granting of the options was $20 and the options are at the money.The risk free rate was 4% and the options expire in 5 years.The variance on the stock is .05.What is the value of her options contract? If she had negotiated a larger salary and only 10,000 options,what would be the value of the options contract?
Page 15
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Chapter 24: Warrants and Convertibles
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Sample Questions
Q1) Issuing convertible bonds or bonds with warrants is useful for a company of unknown risk because:
A)the effects of risk are opposite on the two value components and tend to cancel each other out.
B)if the firm is high risk,the option premium will be higher while the straight bond value is fixed.
C)only risky companies issue these instruments.
D)the equity value is dependent on current risks only,not the future risk at conversion.
E)None of the above.
Q2) If a corporate security can be exchanged for a fixed number of shares of stock,the security is said to be:
A)callable.
B)convertible.
C)protected.
D)putable.
E)None of the above.
Q3) Why are warrants and convertibles issued?
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Page 16
Chapter 25: Derivatives and Hedging Risk
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Sample Questions
Q1) Calculate the duration of Tiger State Bank's assets and liabilities.
Q2) A financial institution has equity equal to one-tenth of its assets.If its asset duration is currently equal to its liability duration,then to immunize,the firm needs to:
A)decrease the duration of its assets.
B)increase the duration of its assets.
C)decrease the duration of its liabilities.
D)do nothing,i.e. ,keep the duration of its liabilities equal to the duration of its assets.
Q3) If a firm sells a floor at 6% this will:
A)pay the holder the LIBOR interest below the 6%.
B)pay the firm 6% on their purchase.
C)pay the holder the LIBOR interest above 6%.
D)limit the amount of borrowing to 6% of assets.
E)None of the above.
Q4) Duration is defined as the weighted average time to maturity of a financial instrument.Explain how this knowledge can help protect against interest rate risk.
Q5) What new asset duration will immunize the balance sheet?
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Page 17
Chapter 31: International Corporate Finance
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Sample Questions
Q1) Remitting cash flows is a term used to describe:
A)cash flows earned in a foreign country.
B)moving cash flows from the foreign subsidiary to the parent firm.
C)forecasting the value of foreign currency one-year hence.
D)forecasting the value of U.S.currency one-year hence.
E)None of the above.
Q2) In the spot market,$1 is currently equal to £.55.The expected inflation rate in the U.K.is 4 percent and in the U.S.3 percent.What is the expected exchange rate two years from now if relative purchasing power parity exists?
A)£.5391
B)£.5445
C)£.5555
D)£.5611
E)£.5667
Q3) How well do you think relative purchasing power parity and uncovered interest parity behave? That is,do you think it's possible to forecast the expected future spot exchange rate accurately? What complications might you run into?
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