International Financial Management
Midterm Exam
Course Introduction
International Financial Management explores the principles and practices that govern financial decision-making in multinational corporations. The course covers topics such as foreign exchange markets, currency risk management, international capital budgeting, cross-border financing, and global investment strategies. Students will develop an understanding of the economic, political, and cultural factors that impact international financial operations and learn tools for evaluating and managing risks in a globalized business environment. Through case studies and practical applications, the course emphasizes strategies for maximizing value and navigating the complexities of operating across diverse regulatory and market contexts.
Recommended Textbook
International Financial Management Canadian Perspectives 2nd Edition by Cheol Eun
Available Study Resources on Quizplus
21 Chapters
535 Verified Questions
535 Flashcards
Source URL: https://quizplus.com/study-set/2894
Page 2
Chapter 1: Globalization and the Multinational Firm
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/57621
Sample Questions
Q1) Recent trends in the globalization of the world economy include all of the following except:
A)emergence of global financial markets
B)economic differentiation
C)advent of the euro
D)privatization
Answer: B
Q2) The "Big Bang" refers to:
A)Deregulation of the Japanese stock market
B)Deregulation of the German stock market
C)Deregulation of the British stock market
D)Deregulation of the Mexican stock market
Answer: C
Q3) What are some of major recent trends in globalization?
Answer: The major trends are (1)the emergence of globalized financial markets,(2)the advent of the euro,(3)trade liberalization and economic integration,and (4)privatization.
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: International Monetary System
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/57610
Sample Questions
Q1) A key element of the Jamaica Agreement from 1976 is
A)fixed exchange rates were declared unacceptable to the IMF members
B)pegged exchange rates were declared unacceptable to the IMF members
C)flexible exchange rates were declared acceptable to the IMF members
D)mixed exchange rates were declared acceptable to the IMF members
Answer: D
Q2) Which of the following is NOT a benefit of a monetary union?
A)Elimination of exchange rate uncertainty
B)Reduced transactions costs
C)Ability to absorb economic shocks
D)Enhanced efficiency and competitiveness
Answer: C
Q3) Which is the following is true for countries with fixed exchange rate regimes?
A)Central banks of these courtiers are required to maintain exchange reserves to cover 100% of the existing domestic currency
B)Centrals banks cannot use monetary policy to affect the economics fundamentals (such as inflation)
C)These countries must use currency board
D)None of these
Answer: B
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Balance of Payments
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/57607
Sample Questions
Q1) Which of the following is true about Canada'a BCA in 2000-2005?
A)Canada had positive BCA
B)Canada had negative BCA
C)Canada's BCA was increasing during that period
D)Canada's BCA was decreasing during that period
Answer: A
Q2) Explain the J-curve effect.
Answer: The J-curve effect explains the reaction of a country's trade balance to a depreciation of the country's currency.The depreciation of the currency means that imports will become more expensive and exports will become cheaper.Therefore,a depreciation of the currency should lead to an increase in the trade balance (more exports and less imports).This will happen,however,only in the long run.In the short run,the demand for imports and exports is price-inelastic,i.e.consumers and businesses will keep buying the same goods as before at the new prices.Therefore,the trade balance will worsen in the short run after a deprecation of the currency.In the long run,consumers and businesses adjust to the new prices and change their purchasing behaviour,resulting in an improved trade balance.
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Corporate Governance Around the World
Available Study Resources on Quizplus for this Chatper
27 Verified Questions
27 Flashcards
Source URL: https://quizplus.com/quiz/57606
Sample Questions
Q1) All of the following are key elements of a forward contract except:
A)forward rate
B)maturity
C)settlement date
D)settlement function
Q2) The 3 month forward rate between British pound and the Swiss franc is £0.5/SF.The current spot rate is £0.51/SF.
A)The Swiss franc is trading at a 1.96% premium to the British pound for delivery in 90 days.
B)The Swiss franc is trading at a 7.84% premium to the British pound for delivery in 90 days.
C)The Swiss franc is trading at a 1.96% discount to the British pound for delivery in 90 days.
D)The Swiss franc is trading at a 7.84% discount to the British pound for delivery in 90 days.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: The Market for Foreign Exchange
Available Study Resources on Quizplus for this Chatper
27 Verified Questions
27 Flashcards
Source URL: https://quizplus.com/quiz/57605
Sample Questions
Q1) The above mentioned scenario
A)is an example of covered interest arbitrage (CIA), and interest rate parity (IRP) holds
B)is an example of covered interest arbitrage (CIA), and interest rate parity (IRP) does NOT hold
C)is an example of Purchasing Power Parity (PPP), and hyperinflation
D)none of these
Q2) Assume the current $/£ exchange rate is 1.7 $/£ and 1-year forward exchange rate is 1.68$/£.The risk-free interest rates at which you can invest in US and UK are 4% and 6% respectively.However,since you do not have a very good credit rating,you can borrow funds only at higher rates.Namely,you can borrow $s at 5% and you can borrow £s at 7%.Is there an arbitrage opportunity?
Q3) Germany has a higher rate of inflation than Japan.The nominal exchange rate is constant.
A)Germany experiences an increase in its real exchange rate
B)Germany experiences a decrease in its real exchange rate
C)Japan experiences an increase in its real exchange rate
D)German goods are cheaper now
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: International Parity Relationships and Forecasting Foreign Exchange Rates
Available Study Resources on Quizplus for this Chatper
24 Verified Questions
24 Flashcards
Source URL: https://quizplus.com/quiz/57604
Sample Questions
Q1) A forward rate agreement (FRA)is a contract between two banks
A)that allows the Eurobank to hedge the interest rate risk in mismatched deposits and credits
B)in which the buyer agrees to pay the seller the increased interest cost on a notional amount if interest rates fall below an agreed rate, and the seller agrees to pay the buyer the increased interest cost if interest rates increase above the agreed rate
C)that is structured to capture the maturity mismatch in standard-length Eurodeposits and credits
D)All of these
Q2) The payment amount under this FRA is:
A)$2,510
B)$2,526
C)$25,555
D)$100,000
Q3) The Basle Accord calls for the following minimum bank capital
A)Tier I capital 4%, Tier II capital 4%
B)Tier I capital 4%, Tier II capital 8%
C)Tier I capital 8%, Tier II capital 4%
D)Tier I capital 8%, Tier II capital 8%
Page 8
To view all questions and flashcards with answers, click on the resource link above.
Chapter 7: Futures and Options on Foreign Exchange
Available Study Resources on Quizplus for this Chatper
26 Verified Questions
26 Flashcards
Source URL: https://quizplus.com/quiz/57603
Sample Questions
Q1) Shelf registration allows an issuer to
A)shelve a securities issue and buy the securities later
B)shelve a securities issue and sell the securities later
C)preregister a securities issue and then shelve the securities for later sale
D)preregister a securities issue and then shelve the securities for later purchase
Q2) Taxes on interest paid by nonresidents are called
A)interest taxes
B)non-resident taxes
C)non-resident interest taxes
D)withholding taxes
Q3) A "bearer bond" is one that
A)shows the owner's name on the bond
B)the owner's name is recorded by the issuer
C)possession is evidence of ownership
D)a and b
Q4) Assume Bank of Montreal has two zero-coupon bonds outstanding,each for a face value $100,000,000.Bond A matures in 10 years and sells at a discount of 35% off face value and bond B matures in 20 years and sells at a discount of 60% off face value.Calculate the implied yield to maturity of each bond.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Management of Transaction Exposure
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/57602
Sample Questions
Q1) Which of the following statements is true?
A)In the primary market, firms sell shares to investors and in the secondary market investors sell shares to investors.
B)In the primary market, investors sell shares to investors and in the secondary market firms sell shares to investors.
C)In the primary market, firms sell shares to investors for the first time and in the secondary market firms sell shares to investors in subsequent equity issues.
D)In the primary market, investors sell shares to investors for the first time and in the secondary market investors sell shares to investors after the initial sale.
Q2) The no arbitrage U.S.price of one ADR is:
A)$4.87
B)$5.87
C)$6.87
D)$7.87
Q3) Assume that Nestle shares are trading at SF 300 in Zurich and $ 51 in New York.Each share equals 4 ADRs.The current exchange rate is SF1.5/$.If transaction costs are $1 per ADR,can you make an arbitrage profit?
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Management of Economic Exposure
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/57601
Sample Questions
Q1) In reference to the derivatives market,a "hedger"
A)attempts to profit from a change in the futures price
B)wants to avoid price variation by locking in a purchase price of the underlying asset through a long position in the futures contract or a sales price through a short position C)plays a zero-sum game
D)b and c
Q2) Comparing "forward" and "futures" exchange contracts,we can say that:
A)they are both "marked-to-market" daily
B)their major difference is in the way the underlying asset is priced for future purchase or sale
C)a futures contract is negotiated by open outcry between floor brokers or traders and is traded on organized exchanges, while forward contract is tailor-made by an international bank for its clients and is traded OTC
D)b and c
Q3) Assume that the spot Euro is $1.2000 and the six-months forward rate is $1.2100.Determine the minimum price for which a six-month American put should sell for.The strike price is $1.1900 and the annualized six-month Eurodollar rate is 4%.
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Management of Translation Exposure
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/57620
Sample Questions
Q1) Company A swaps fixed-rate US dollar debt with Company B for floating-rate Canadian dollar debt.This is a
A)single-currency interest rate swap
B)currency swap
C)cross-currency interest rate swap
D)none of these
Q2) Calculate the quality spread differential (QSD):
A)0.50%
B)1.00%
C)1.50%
D)2.00%
Q3) Which firms will benefit from a currency swap?
A)neither firm
B)the Canadian firm only
C)both firms
D)need more information
Q4) The following information is given:
To view all questions and flashcards with answers, click on the resource link above.
12
Chapter 11: International Banking and Money Market
Available Study Resources on Quizplus for this Chatper
24 Verified Questions
24 Flashcards
Source URL: https://quizplus.com/quiz/57619
Sample Questions
Q1) Which of the following characterizes international investor behaviour?
A)Investors are fully diversified
B)Investors hold optimal international portfolios
C)Investors show a home bias in their portfolio holdings
D)Investors don't invest in international stocks
Q2) Exchange rate fluctuations contribute to the risk of foreign investment through three possible channels:
(i)- the volatility of the investment due to the volatility of the exchange rate
(ii)- the contribution of the cross-product term
(iii)- its covariance with the local market returns
Which of the following contributes and accounts for most of the volatility?
A)(i) and (ii)
B)(ii) and (iii)
C)(i) and (iii)
D)only (ii)
Q3) Gains from portfolio diversification are largest when
A)The securities are perfectly positively correlated
B)The securities are not correlated
C)The securities are perfectly negatively correlated
D)Need more information
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: International Bond Market
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/57618
Sample Questions
Q1) The dollar operating cash flows following a depreciation of a foreign currency may change for the following reasons:
A)the conversion effect
B)the competitive effect
C)a and b
D)none of these
Q2) Operating exposure can be defined as:
A)the future home currency values of the firm's assets and liabilities
B)the extent to which the firm's operating cash flows would be affected by random changes in exchange rates
C)the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes
D)the potential that the firm's consolidated financial statement can be affected by changes in exchange rates
Q3) How can operating exposure be managed?
To view all questions and flashcards with answers, click on the resource link above.
14
Chapter 13: International Equity Markets
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/57617
Sample Questions
Q1) Suppose that on the maturity date of the forward contract,the spot rate turns out to be $1.40/£ (i.e.less than the forward rate of $1.46/£).Which of the following is true?
A)Boeing would have received $14.0 million, rather than $14.6 million, had it not entered into the forward contract
B)Boeing gained $0.6 million from forward hedging
C)a and b
D)none of these
Q2) Which of the following is a financial hedge?
A)Invoice currency selection
B)Lead/lag strategy
C)Exposure netting
D)Money market hedge
Q3) 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
To view all questions and flashcards with answers, click on the resource link above.
15
Chapter 14: Interest Rate and Currency Swaps
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/57616
Sample Questions
Q1) Under the current rate method
A)All balance sheet and all income statement items are translated at the current exchange rate
B)All balance sheet and some income statement items are translated at the current exchange rate
C)Some balance sheet and all income statement items are translated at the current exchange rate
D)Some balance sheet and some income statement items are translated at the current exchange rate
Q2) Under the temporal method
A)All balance sheet and all income statement items are translated at the current exchange rate
B)All balance sheet and some income statement items are translated at the current exchange rate
C)Some balance sheet and all income statement items are translated at the current exchange rate
D)Some balance sheet and some income statement items are translated at the current exchange rate
To view all questions and flashcards with answers, click on the resource link above.
16
Chapter 15: International Portfolio Investment
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/57615
Sample Questions
Q1) How can firms establish a wholly owned subsidiary in a foreign country?
What are the advantages and disadvantages of each method?
Q2) Political risk can be evaluated by studying
A)The host country's political and government system
B)Key economic indicators
C)Regional security
D)All of these
Q3) The key factors that are important in a firm's decision to invest overseas are:
A)Trade barriers, imperfect labor market, and intangible assets
B)vertical integration, product life cycle, and shareholder diversification services
C)profit maximization, global prestige, and competition
D)a and b
Q4) Operational risk refers to the risk which arises from the uncertainty about:
A)the host's country's policies affecting the local operations of an MNC
B)the host's country's policy regarding ownership and control of local operations
C)cross-border flows of capital, payment, know-how, and the like
D)none of these
Q5) Explain the role of market imperfections in FDI.
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Foreign Direct Investment and Cross-Border Acquisitions
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/57614
Sample Questions
Q1) Assume that ABC Corporation is a leveraged company with the following information.Its marginal income tax rate is 35%,its average income tax rate is 25%,and its before tax-cost of borrowing is 6%.The firm's domestic beta is 1.2 and its world market beta is 1.The domestic market return is 10% and the world market return is 11%.The risk-free rate is 4%.The firm's debt-to-equity ratio is 1: 3.Determine the firm's weighted average cost of capital if capital markets are segmented.
Q2) Which one of the following is not an approach to determine a subsidiary's financial structure:
A)conform to the parent company's norm
B)conform to the local norm of the country where the subsidiary operates
C)vary judiciously
D)vary randomly
Q3) What are the potential benefits of cross-listing shares on a foreign stock exchange?
Q4) What are the alternative financial structures for a subsidiary?
Which of the alternatives is the best?
To view all questions and flashcards with answers, click on the resource link above.
Page 18
Chapter 17: International Capital Structure and the Cost of Capital
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/57613
Sample Questions
Q1) The adjusted present value (APV)model that is suitable for an MNC is the basic net present value (NPV)model expanded to:
A)distinguish between the market value of a levered firm and the market value of an unlevered firm
B)discern the blocking of certain cash flows by the host country from being legally remitted to the parent
C)consider foreign currency fluctuations or extra taxes imposed by the host country on foreign exchange remittances
D)all of these
Q2) The "incremental" cash flows of a capital project are calculated by using:
A)(i), (ii), and (iii)
B)(ii), (iv), and (vi)
C)(i), (iii), (v), and (vii)
D)(iv), (v), (vi), and (vii)
Q3) The discount rates to use for the APV calculations are:
A)Cost of domestic debt for (II),(III),(IV) and (V)
B)Cost of domestic debt for (II) and (IV)
C)Cost of foreign debt for (II),(III),(IV) and (V)
D)Cost of foreign debt for (II) and (IV)
Page 19
To view all questions and flashcards with answers, click on the resource link above.
Chapter 18: International Capital Budgeting
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/57612
Sample Questions
Q1) Which of the following statements about transfer pricing is true?
A)the higher the transfer price, the larger the gross profits of the transferring division relative to the receiving division
B)very high markup policy used in the transfer pricing to a subsidiary makes the adjusted present value (APV) of that subsidiary's capital expenditure appear less attractive
C)very low markup policy used in the transfer pricing to a subsidiary makes the adjusted present value (APV) of that subsidiary's capital expenditure appear less attractive D)a and b
Q2) If foreign exchange transactions cost ABC 0.45 percent,what savings results from netting?
A)S$ 684
B)S$ 765
C)S$1,449
D)S$1,823
Q3) Explain why governments regulate transfer prices for international transactions.What are the major rules that are applied?
To view all questions and flashcards with answers, click on the resource link above.
Chapter 19: Multinational Cash Management
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/57611
Sample Questions
Q1) ABC Inc.is a manufacturer of office furniture located in Quebec.XYZ Corp.is a Romanian manufacturer of pots.XYZ Corp.has approached ABC Inc.and would like to barter pots for office furniture.You are the financial manager of ABC Inc.and your job is to explain the pros and cons of this transaction to management.
Q2) The time from acceptance to maturity on a banker's acceptance (B/A)is 90 days,the importing bank's acceptance commission is 1 percent and the B/A's discounted value at the time of acceptance is $1,000,000.If the 90-day B/A rates are 5%,determine the amount the exporter will receive if he holds the B/A until maturity.
Q3) Explain the major differences between international and domestic trade.
Q4) The three basic documents needed in a foreign trade transaction are:
A)letter of credit, time draft, and proof of inspection
B)letter of credit, time draft, and a bill of lading
C)letter of credit, bill of lading, and insurance
D)time draft, bill of lading, and a pro forma statement
Q5) Which of the following services are NOT directly offered by EDC?
A)Purchase foreign customer's promissory notes
B)Provide lines of credits to foreign customers
C)Serves as a Factor (i.e., buys receivables)
D)All of these services are directly offered by EDC
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter 20: International Trade Finance
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/57609
Sample Questions
Q1) To tax national residents of a country on their worldwide income is called
A)worldwide or residential taxation
B)worldwide or source taxation
C)territorial or residential taxation
D)territorial or source taxation
Q2) Income tax is
A)a tax levied on passive income earned by an individual or corporation of one country within the jurisdiction of another country
B)a direct tax on personal and corporate income
C)an indirect national tax levied on the value added in the production of a good or service
D)an indirect national tax levied on personal and corporate income
Q3) A tax levied on passive income earned by an individual or a corporation of one country within the tax jurisdiction of another is called
A)foreign income tax
B)value-added tax
C)investment tax
D)withholding tax
Q4) What are the major ways in which countries levy taxes?
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: International Tax Environment and Transfer Pricing
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/57608
Sample Questions
Q1) Private benefits of corporate control
A)are cash flows from owning equity
B)are equally shared by all investors
C)are not equally shared by all investors
D)do not exist
Q2) Agency problems may be alleviated by:
A)incentive contracts
B)debt
C)market for corporate control
D)all of these
Q3) The board of directors may grant stock options to managers in order to
A)save executive compensation costs.
B)use as a substitute for bonus.
C)align the interest of managers with that of shareholders.
D)none of these.
Q4) Discuss the concept of "private benefits of corporate control".
Q5) Discuss the major advantage and key weakness of a public corporation.
Q6) How are investors protected under English common law? What are the implications?
Q7) How can listing overseas benefit the corporate governance of a public company? Page 23
To view all questions and flashcards with answers, click on the resource link above.
Page 24