Multinational Financial Management
Exam Materials
Course Introduction
Multinational Financial Management explores the financial decision-making processes of firms operating in an international environment. The course covers crucial topics such as foreign exchange markets, risk management techniques, international capital budgeting, cross-border financing, and strategies for minimizing tax and political risk. Students will analyze how global economic factors, different regulatory frameworks, and cultural considerations impact financial planning and operations in multinational corporations. Through case studies and practical applications, the course equips students with the tools needed to manage exchange rate fluctuations, structure international investments, assess country risk, and optimize global financial performance.
Recommended Textbook
International Financial Management 11th Edition by Jeff Madura
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21 Chapters
1676 Verified Questions
1676 Flashcards
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Page 2
Chapter 1: Multinational Financial Management: An Overview
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79 Verified Questions
79 Flashcards
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Sample Questions
Q1) International trade generally results in ____ exposure to international political risk and ____ exposure to international economic conditions, when compared to other methods of international business.
A) higher; lower
B) higher; higher
C) lower; higher
D) lower; lower
Answer: D
Q2) Institutional investors such as mutual funds or pension funds which have large holdings of an MNC's stock do not normally want to take control of it and therefore have no influence over management of the MNC.
A)True
B)False
Answer: False
Q3) The Sarbanes-Oxley Act ensures a more transparent process for managers to report on the productivity and financial condition of their firm.
A)True
B)False
Answer: True
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Chapter 2: International Flow of Funds
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75 Verified Questions
75 Flashcards
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Sample Questions
Q1) The ____, an accord among 117 nations, called for lower tariffs around the world.
A) General Agreement on Tariffs and Trade (GATT)
B) North American Free Trade Agreement (NAFTA)
C) Single European Act of 1987
D) European Union Accord
E) None of the above
Answer: A
Q2) Recently, the U.S. experienced an annual balance of trade representing a ____.
A) large surplus (exceeding $100 billion)
B) small surplus
C) level of zero
D) deficit
Answer: D
Q3) Exporting of products by one country to other countries at prices below cost is called elasticity.
A)True
B)False
Answer: False
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Chapter 3: International Financial Markets
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) A share of the ADR of a Dutch firm represents one share of that firm's stock that is traded on a Dutch stock exchange. The share price of the firm was 15 euros when the Dutch market closed. As the U.S. market opens, the euro is worth $1.10. Thus, the price of the ADR should be ____.
A) $13.64
B) $15.00
C) $16.50
D) 16.50 euros
E) none of the above
Answer: C
Q2) Futures contracts are typically ____; forward contracts are typically ____.
A) sold on an exchange; sold on an exchange
B) offered by commercial banks; sold on an exchange
C) sold on an exchange; offered by commercial banks
D) offered by commercial banks; offered by commercial banks
Answer: C
Q3) The forward rate is the exchange rate used for immediate exchange of currencies.
A)True
B)False
Answer: False
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Chapter 4: Exchange Rate Determination
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Sample Questions
Q1) If a country experiences high inflation relative to the U.S., its exports to the U.S. should ____, its imports should ____, and there is ____ pressure on its currency's equilibrium value.
A) decrease; increase; upward B) decrease; decrease; upward C) increase; decrease; downward D) decrease; increase; downward E) increase; decrease; upward
Q2) When the Japanese yen appreciates against the U.S. dollar, this means that the U.S. dollar is strengthening relative to the yen.
A)True
B)False
Q3) An increase in U.S. inflation relative to Singapore inflation places upward pressure on the Singapore dollar.
A)True
B)False
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6
Chapter 5: Currency Derivatives
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163 Flashcards
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Sample Questions
Q1) The writer of a put option has a right, but not obligation, to buy the underlying currency from the option buyer.
A)True
B)False
Q2) A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms. The premium is $.03. The exercise price is $.55. If the option is exercised, what is the total amount of dollars received (after accounting for the premium paid)?
A) $6,875,000.
B) $7,250,000.
C) $7,000,000.
D) $6,500,000.
E) none of the above
Q3) The highest amount a buyer of a call or a put option can lose is the exercise price. A)True
B)False
Q4) It is possible to have an opportunity loss when using futures to hedge.
A)True
B)False
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Chapter 6: Government Influence on Exchange Rates
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117 Flashcards
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Sample Questions
Q1) Assume that the dollar has been consistently depreciating over a long period. The Fed decides to counteract this movement by intervening in the foreign exchange market using sterilized intervention. The Fed would
A) buy dollars with foreign currency and simultaneously sell Treasury securities for dollars.
B) buy dollars with foreign currency and simultaneously buy Treasury securities with dollars.
C) sell dollars for foreign currency and simultaneously sell Treasury securities for dollars. D) sell dollars for foreign currency and simultaneously buy Treasury securities with dollars.
E) none of the above
Q2) One of the best-known pegged exchange rate arrangements that was established by several European countries in April 1972 and was difficult to maintain is called the: A) European Monetary System (EMS).
B) snake agreement.
C) Maastricht Treaty.
D) European Union.
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Chapter 7: International Arbitrage and Interest Rate Parity
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97 Flashcards
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Sample Questions
Q1) Bank A quotes a bid rate of $0.300 and an ask rate of $0.305 for the Malaysian ringgit (MYR). Bank B quotes a bid rate of $0.306 and an ask rate of $0.310 for the ringgit. What will be the profit for an investor that has $500,000 available to conduct locational arbitrage?
A) $2,041,667
B) $9,804
C) $500
D) $1,639
Q2) The larger the degree by which the foreign interest rate exceeds the home interest rate, the larger will be the forward discount of the foreign currency specified by the interest rate parity (IRP) formula.
A)True
B)False
Q3) If interest rate parity exists, then the rate of return achieved from covered interest arbitrage should be equal to the interest rate available in the foreign country.
A)True
B)False
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Chapter 8: Relationships among Inflation, Interest Rates, and Exchange Rates
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Sample Questions
Q1) Under purchasing power parity, the future spot exchange rate is a function of the initial spot rate in equilibrium and:
A) the income differential.
B) the forward discount or premium.
C) the inflation differential.
D) none of the above
Q2) Latin American countries have historically experienced relatively high inflation, and their currencies have weakened. This information is somewhat consistent with the concept of:
A) interest rate parity.
B) locational arbitrage.
C) purchasing power parity.
D) the exchange rate mechanism.
Q3) There is much evidence to suggest that Japanese investors invest in U.S. Treasury securities when U.S. interest rates are higher than Japanese interest rates. These investors most likely believe in the international Fisher effect.
A)True
B)False
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Chapter 9: Forecasting Exchange Rates
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Sample Questions
Q1) In market-based forecasting, a forward rate quoted for a specific date in the future can be used as the forecasted spot rate on that future date.
A)True
B)False
Q2) If the pattern of currency values over time appears random, then technical forecasting is appropriate.
A)True
B)False
Q3) If the foreign exchange market is ____ efficient, then historical and current exchange rate information is not useful for forecasting exchange rate movements.
A) weak-form
B) semistrong-form
C) strong form
D) all of the above
Q4) Fundamental models examine moving averages over time and thus allow the development of a forecasting rule.
A)True
B)False
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Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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Sample Questions
Q1) A firm's transaction exposure in any foreign currency is based solely on the size of its open position in that currency.
A)True
B)False
Q2) U.S. exporters may not necessarily benefit from weak-dollar periods if foreign competitors are willing to reduce their profit margin.
A)True
B)False
Q3) Which of the following is not true regarding currency correlations?
A) Two highly positively correlated currencies act almost as if they are the same currency.
B) If two inflow currencies are highly positively correlated transaction exposure is somewhat offset.
C) If two inflow currencies are negatively correlated transaction exposure is somewhat offset.
D) If two currencies, one an inflow currency and the other an outflow currency, are highly positively correlated, transaction exposure is somewhat offset.
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Page 12
Chapter 11: Managing Transaction Exposure
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92 Flashcards
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Sample Questions
Q1) A ____ involves an exchange of currencies between two parties, with a promise to re-exchange currencies at a specified exchange rate and future date.
A) long-term forward contract
B) currency option contract
C) parallel loan
D) money market hedge
Q2) Assume zero transaction costs. If the 90-day forward rate of the euro is an accurate estimate of the spot rate 90 days from now, then the real cost of hedging payables will be:
A) positive.
B) negative.
C) positive if the forward rate exhibits a premium, and negative if the forward rate exhibits a discount.
D) zero.
Q3) If a firm is hedging payables with futures contracts, it may end up paying more for the payable than it would have had it remained unhedged if the foreign currency depreciates.
A)True
B)False
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Page 13
Chapter 12: Managing Economic Exposure and Translation Exposure
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64 Flashcards
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Sample Questions
Q1) Managing economic exposure is generally perceived to be ____ managing transaction exposure.
A) more difficult than
B) less difficult than C) just as difficult as
D) none of the above
Q2) To reduce economic exposure when a foreign currency has a greater impact on cash inflows, an MNC could reduce its level of foreign sales, increase its foreign supply orders, or restructure debt to increase debt payments in the foreign currency.
A)True
B)False
Q3) A U.S.-based MNC has a subsidiary in Barbados that generates substantial net cash inflows denominated in Barbados dollars. Given this information, the MNC would ____ from a(n) ____ of the Barbados dollar.
A) benefit; appreciation
B) benefit; depreciation
C) not benefit; appreciation
D) none of the above
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Chapter 13: Direct Foreign Investment
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62 Flashcards
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Sample Questions
Q1) Which of the following is not a cost-related motive of direct foreign investment?
A) International diversification.
B) Low labor costs.
C) Land can be purchased at a low price.
D) Manufacturing plants can be built for a low price.
Q2) The ____ the correlation in project returns is over time, the ____ will be the project portfolio risk as measured by the portfolio variance.
A) lower; lower
B) higher; lower
C) lower; higher
D) none of the above
Q3) When a firm analyzes the feasibility of a project, it should consider the:
A) variability of the project's cash flow.
B) correlation of the project's cash flow relative to the prevailing cash flows of the MNC.
C) A and B
D) none of the above
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Chapter 14: Multinational Capital Budgeting
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Sample Questions
Q1) Other things being equal, a blocked funds restriction is more likely to have a significant adverse effect on a project if the currency of that country is expected to ____ over time, and if the interest rate in that country is relatively ____.
A) appreciate; low
B) appreciate; high
C) depreciate; high
D) depreciate; low
Q2) When assessing a German project administered by a German subsidiary of a U.S.-based MNC solely from the German subsidiary's perspective, which variable will most likely influence the capital budgeting analysis?
A) the withholding tax rate.
B) the euro's exchange rate.
C) the U.S. tax rate on earnings remitted to the U.S.
D) the German government's tax rate.
E) A and C
Q3) In multinational capital budgeting, depreciation is treated as a cash outflow.
A)True
B)False
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16
Chapter 15: International Corporate Governance and Control
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Sample Questions
Q1) It is always the best course of action to divest of a foreign project if the expected cash flows from the project decline substantially.
A)True
B)False
Q2) Which of the following would not enhance the value of a target from the acquirer's perspective?
A) Expected sales of the target have increased.
B) The subsidiary's currency is expected to strengthen after the acquisition.
C) The required rate of return from investing in the target has increased.
D) All of the above would enhance the value of the target.
Q3) Other things being equal, a foreign subsidiary in China would more likely be divested by the U.S. parent if new information caused the parent to suddenly anticipate that:
A) the Chinese yuan would depreciate in the future.
B) the Chinese yuan would appreciate in the future.
C) the Chinese yuan would remain somewhat stable in the future.
D) none of the above; the value of the Chinese yuan has no impact on the feasibility of a divestiture.
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Page 17
Chapter 16: Country Risk Analysis
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Sample Questions
Q1) Insurance purchased to cover the risk of expropriation ____, and will typically cover
A) will be the same for all firms; only a portion of the firm's total exposure.
B) will be the same for all firms; all of the firm's total exposure.
C) will be dependent on the firm's risk; all of the firm's total exposure.
D) will be dependent on the firm's risk; only a portion of the firm's total exposure.
Q2) The Delphi technique:
A) is a method of purchasing information about inspections of the country being evaluated.
B) requires the use of discriminant analysis to assess country risk.
C) involves the collection of independent opinions on country risk.
D) none of the above
Q3) While an overall risk rating of a country can be useful, it cannot always detect upcoming crises.
A)True
B)False
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18
Chapter 17: Multinational Cost of Capital and Capital Structure
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Sample Questions
Q1) Based on the CAPM, the ____ the beta of a project, the ____ the required rate of return on that project.
A) higher; higher
B) lower; higher
C) higher; lower
D) B and C
E) none of the above
Q2) The ____ the MNC's cost of capital, the ____ will be a project's net present value for its proposed project with a given set of expected cash flows.
A) lower; higher
B) higher; higher
C) lower; lower
D) none of the above
Q3) The capital asset pricing model suggests that the required return on a firm's stock is a negative function of:
A) the risk-free rate of interest.
B) the market rate of return.
C) the stock's beta.
D) none of the above
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Chapter 18: Long-Term Debt Financing
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Sample Questions
Q1) Floating-rate bonds are often issued with a floating coupon rate that is tied to LIBOR. A)True
B)False
Q2) If the currency of a foreign currency-denominated bond ____, the funds needed to make coupon payments will ____.
A) appreciates; increase B) depreciates; decrease C) appreciates; decrease D) depreciates; increase
E) A and B
Q3) If an MNC financed with a currency different from its invoice currency, it would prefer that the loan be denominated in a currency that:
A) exhibits a low interest rate and is expected to appreciate.
B) exhibits a low interest rate and is expected to depreciate.
C) exhibits a high interest rate and is expected to depreciate.
D) exhibits a high interest rate and is expected to appreciate.
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Chapter 19: Financing International Trade
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Sample Questions
Q1) The ____ was established in 1934 with the intention to facilitate Soviet-American trade.
A) Domestic International Sales Corporation (DISC)
B) Private Export Funding Corporation (PEFCO)
C) Export-Import Bank
D) Foreign Credit Insurance Association (FCIA)
Q2) In ____, the exporter sells accounts receivable without recourse.
A) accounts receivable financing
B) factoring
C) working capital financing
D) countertrade
Q3) A banker's acceptance is a draft drawn on and accepted by a(n) ____.
A) bank
B) importer
C) exporter
D) none of the above
Q4) The payment method that affords the supplier the greatest degree of protection is the prepayment method.
A)True
B)False
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Chapter 20: Short-Term Financing
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Sample Questions
Q1) ____ are free of default risk.
A) Euronotes
B) Eurobonds
C) Euro-commercial paper
D) None of the above
Q2) Refer to Exhibit 20-1. What is the effective financing rate for the MNC assuming it borrows leu on a covered basis?
A)10%.
B)-10%.
C)-1%.
D)1%.
E)none of the above
Q3) The interest rate of euronotes is based on the T-bill rate.
A)True
B)False
Q4) A negative effective financing rate implies that the U.S. firm actually paid fewer dollars in total loan repayment than the number of dollars borrowed.
A)True
B)False
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Chapter 21: International Cash Management
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Sample Questions
Q1) The effective yield of investing in a foreign currency depends on both the ____ and the ____ of the foreign currency.
A) inflation rate; exchange rate movements
B) income level; interest rates
C) interest rates; exchange rate movements
D) interest rates; amount invested
Q2) Netting can achieve all but one of the following:
A) Cross border transactions between subsidiaries are reduced.
B) Transactions costs are reduced.
C) Currency conversion costs are reduced.
D) Transaction exposure is eliminated.
Q3) According to ____, the effective yield earned by U.S. investors will be the same as the effective yield earned by non-U.S. investors in any given period.
A) interest rate parity (IRP)
B) the international Fisher effect (IFE)
C) purchasing power parity (PPP)
D) none of the above
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