Fundamentals of Corporate Finance 3e Test Bank
Chapter 21: International Financial Management
1.
Globalization refers to the removal of barriers to free trade and the closer integration of national
economies.
A)
True
B)
False
2.
While the production of goods and services has become globalized, American consumers only
purchase domestic goods.
A)
True
B)
False
Ans:
B
AICPA: Industry/Global Perspective
3.
The production of goods and services has become highly globalized due to emergence of large
multinational companies.
A)
True
B)
False
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
4.
Integration of the financial system globally is a result of deregulation of foreign exchange
markets, money and capital markets, and banking systems.
A)
True
B)
False
Ans:
A
AICPA: Industry/Global Perspective
5.
A transnational corporation is a business firm that operates in more than one country but is
headquartered or based in its home country.
A)
True
B)
False
Ans:
B
AICPA: Industry/Global Perspective
6.
Royal Dutch Shell is a transnational corporation.
A)
True
B)
False
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
7.
Differences in legal systems and tax codes have no impact on the way firms operate in foreign
countries.
A)
True
B)
False
Ans:
B
AICPA: Industry/Global Perspective
8.
Legal systems can vary on simple matters, such as opening a business, selecting a site location,
and hiring employees.
A)
True
B)
False
Ans:
A
AICPA: Industry/Global Perspective
9.
English is the world’s social language.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
10.
English is the language for international business, but not the world’s social language.
A)
True
B)
False
Ans:
A
11.
Cultural views shape business practices and people’s attitudes toward business.
A)
True
B)
False
Ans:
A
12.
Both China and the nations that formerly made up the Soviet Union are currently moving
toward centrally planned economies.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
13.
Country risk has no effect on a firm’s cash flows.
A)
True
B)
False
Ans:
B
AICPA: Industry/Global Perspective
14.
Stockholder wealth maximization is the accepted goal for firms in all countries around the
world.
A)
True
B)
False
Ans:
B
AICPA: Industry/Global Perspective
15.
The European manager’s goal is to earn as much wealth as possible for a firm while considering
the overall welfare of both the stockholders and stakeholders.
A)
True
B)
False
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
16.
European firms focus on maximizing market share rather than stockholder wealth.
A)
True
B)
False
Ans:
B
17.
Japanese managers focus on maximizing market share rather than stockholder wealth.
A)
True
B)
False
Ans:
A
18.
The foreign exchange market is a group of international markets connected electronically where
currencies are bought and sold in wholesale amounts.
A)
True
B)
False
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
19.
Tokyo is the largest foreign exchange trading center.
A)
True
B)
False
Ans:
B
20.
When a U.S. bank in Chicago gives a quote of £0.5089/$, it is a direct quote.
A)
True
B)
False
Ans:
B
21.
If the exchange rate is the price in foreign currency for a dollar, the quote is called direct quote.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
22.
The bid quote is the rate at which the dealer will sell foreign currency.
A)
True
B)
False
Ans:
B
AICPA: Industry/Global Perspective
23.
The decision to accept international projects with a positive NPV increases the value of a firm,
and it should be consistent with maximizing stockholder wealth.
A)
True
B)
False
Ans:
A
AICPA: Industry/Global Perspective
24.
Most companies find it easier to estimate the incremental cash flows for foreign projects than
for domestic projects.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
25.
To convert a project’s future cash flows into another currency, we need to come up with
projected or forecast exchange rates.
A)
True
B)
False
Ans:
A
AICPA: Industry/Global Perspective
26.
To convert a project’s future cash flows into another currency, we need to use today’s spot
exchange rates.
A)
True
B)
False
Ans:
B
AICPA: Industry/Global Perspective
27.
If a firm is located in a country with a relatively unstable political environment, management
will require a lower rate of return on capital projects.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
28.
A Eurodollar is defined as a U.S. dollar deposited in a bank outside the United States.
A)
True
B)
False
Ans:
A
AICPA: Industry/Global Perspective
29.
Long-term loans of a Eurocurrency made to multinational corporations and governments of
poor credit quality are called Eurocredits.
A)
True
B)
False
Ans:
B
AICPA: Industry/Global Perspective
30.
Eurodollar and other Eurocurrency bonds have all characteristics identical to similar U.S
corporate bonds.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Industry/Global Perspective
31.
Evidence of globalization include
A)
consumers in many countries buy goods that are purchased from a number of countries,
other than just their own.
B)
goods and services are produced around the world.
C)
the financial system has also become highly integrated.
D)
All of these
32.
Which of the following statements about multinational firms is NOT true?
A)
A multinational corporation is a business firm that operates in more than one country but
is headquartered or based in its home country.
B)
Multinational corporations are owned by domestic stockholders only.
C)
Multinational corporations may purchase raw materials from one country, obtain
financing from a capital market in another country, and produce finished goods with
labor and capital equipment from a third country.
D)
All of these
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
33.
Factors that can cause international business transactions to differ from domestic deals include
all EXCEPT
A)
exchange rate risk, legal systems, and country risk.
B)
legal systems, cultural factors, and economic systems.
C)
Time value of money,expected returns procedures, and size of market.
D)
economic systems, cultural factors, and country risk
34.
Which of the following statements about the goal of a firm is true?
A)
Stockholder value maximization is the accepted goal for firms in India.
B)
Firms in Germany focus on maximizing corporate wealth.
C)
The goal of a Japanese business manager is to increase the wealth and growth of the
keiretsu.
D)
All of these
Ans:
D
35.
Which of the following statements about the goal of a firm is true?
A)
Corporate wealth maximization is the accepted goal for firms in India.
B)
Firms in Australia focus on maximizing corporate wealth.
C)
The goal of a Japanese business manager is to increase the wealth and growth of the
keiretsu.
D)
Private-sector firms in China focus on providing full employment in the economy.
Ans:
C
Fundamentals of Corporate Finance 3e Test Bank
36.
Economic benefits provided by the foreign exchange markets include
A)
a mechanism to transfer purchasing power from individuals who deal in one currency to
people who deal in a different currency.
B)
a way for corporations to pass the risk associated with foreign exchange price
fluctuations to professional risk-takers.
C)
a channel for importers and exporters to acquire credit for international business
transactions.
D)
All of these
Ans:
D
37.
In 2010, the three largest foreign exchange markets based on daily volume are
A)
London, New York, and Tokyo.
B)
New York, Tokyo, and Zurich.
C)
London, Tokyo, and Zurich.
D)
London, New York, and Singapore.
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
38.
The major participants in the foreign exchange markets are
A)
multinational commercial banks, large investment banking firms, and domestic firms.
B)
multinational commercial banks, local banks and domestic firms.
C)
multinational commercial banks, large investment banking firms, and small currency
boutiques.
D)
None of these
39.
A)
Equilibrium occurs at the price at which the quantity of the currency demanded exactly
equals the quantity supplied.
B)
When pounds become less expensive in relation to dollars, British products become less
expensive for Americans to buy.
C)
According to a British buyer, the lower the dollar price of pounds, the greater the
number of pounds that must be given up to obtain dollars to buy foreign goods.
D)
All of these
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
40.
If the foreign exchange rate is the price in foreign currency for a dollar, then the exchange rate
quote is called
A)
an American quote.
B)
an indirect quote.
C)
a direct quote.
D)
a cross quote.
41.
A European quote is the same as
A)
an American quote.
B)
an indirect quote.
C)
a bidding quote.
D)
a cross quote.
Ans:
B
AICPA: Industry/Global Perspective
42.
Which of the following is an indirect quote from an American perspective?
A)
£0.5125/$
B)
$0.006900/¥
C)
$1.5637/€
D)
¥115.23/€
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
43.
The bid quote represents the rate at which
A)
the dealer will buy foreign currency from you.
B)
the dealer will sell foreign currency to you.
C)
the dealer will buy domestic currency from you.
D)
the dealer will sell domestic currency to the exchange.
Ans:
A
44.
The ask quote represents the rate at which
A)
the dealer will buy foreign currency from you.
B)
the dealer will sell foreign currency to you.
C)
the dealer will buy domestic currency from the exchange.
D)
the dealer will sell domestic currency to you.
Ans:
B
45.
The difference between the forward rate and the spot rate is called the
A)
cross exchange rate.
B)
forward premium or forward discount.
C)
indirect quote.
D)
direct quote.
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
46.
Venkat Ram purchased a pair of dress shoes in Italy for €131.25. If the spot exchange rate is
$1.5621/€, what is the dollar cost of the shoes? (Round your final answer to two decimal
places.)
A)
$205.03
B)
$84.02
C)
€131.25
D)
€84.02
Ans:
A
Spot rate = $1.5621/€
47.
Starling, Corp. purchased some components from a Mexican manufacturer. They have to pay
110 million Mexican Pesos for the goods today. The spot rate today is MP10.3540/$. What is
the dollar cost of this payable? (Round your final answer to the nearest dollar.)
A)
$110,000,000
B)
$10,623,913
C)
$11,110,235
D)
$1,138,940,000
Ans:
B
Dollar cost of payables = MP 110,000,000 / MP 10.3540/$ = $10,623,913.46 or $10,623,913
Fundamentals of Corporate Finance 3e Test Bank
48.
Tantrix, Inc. purchased its inventory from an Indian manufacturer at a cost of Rs.5,325,000.
The dollar cost of this payable is $125,634.07 at today’s spot rate. What is the spot rate today?
A)
$4.2385/Rs.
B)
$42.3850/Rs.
C)
Rs.42.3850/$
D)
Rs.4.2385/$
49.
Suppose a Tata Nano car is priced at Rs.100,000 in New Delhi and $3,129 in New York. In
which place is the car more expensive if the spot rate is $0.0242/Rs.?
A)
In New Delhi
B)
In New York
C)
It is same in both places.
D)
It cannot be determined.
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Industry/Global Perspective
50.
If the spot rate is quoted as $0.009369/¥, what is the exchange rate in terms of yen per dollar?
(Round your final answer to the four decimal places.)
A)
¥0.009369/$
B)
¥0.936900/$
C)
¥106.7350/$
D)
¥16.7350/$
51.
Given that the spot rate is $1.5136/€ and the 90–day forward quote is $1.4974/€, we can say
that
A)
the U.S. dollar is at a forward premium against the Euro.
B)
the U.S. dollar is at a forward discount against the Euro.
C)
the Euro is at a forward premium against the U.S. dollar.
D)
the dollar is at neither a premium nor a discount against the Euro.
forward premium against the Euro.
Fundamentals of Corporate Finance 3e Test Bank
52.
Given that the spot rate is ¥106.74/$ and the 180-day forward quote is ¥100.37/$, we can say
that
A)
the U.S. dollar is at a forward premium against the Yen.
B)
the Yen is at a forward premium against the U.S. dollar.
C)
the Yen is at a forward discount against the U.S. dollar.
D)
the U.S. dollar is at neither a premium nor a discount against the Yen.
53.
Celio, Inc. sold equipment to a French firm and will receive €1,249,425 in 30 days. If the
company entered a forward contract to sell the euros at the 30-day forward rate of $1.5512/€,
what is the dollar revenue received? (Round your final answer to the nearest dollar.)
A)
$1,249,425
B)
$805,457
C)
$1,938,108
D)
$1,312,224
Ans:
C