The choice of when and how to source capital globally is usually aided early on by the
advice of:
A) an investment banker.
B) your stock broker.
C) a commercial banker.
D) an underwriter.
If the current exchange rate is 113 Japanese yen per U.S. dollar, the price of a Big Mac
hamburger in the United States is $3.41, and the price of a Big Mac hamburger in Japan
is 280 yen, then other things equal, the Big Mac hamburger in Japan is:
A) correctly priced.
B) under priced.
C) over priced.
D) There is not enough information to determine if the price is appropriate or not.
________ risk is a function of the variability of expected returns of the firm’s stock
relative to the market index and the measure of correlation between the expected returns
of the firm and the market.
A) Systematic
B) Unsystematic
C) Total
D) Diversifiable
TABLE 15.1
Use the information to answer following question(s).
BayArea Designs Inc., located in Northern California, has two international
subsidiaries, one located in the Ukraine, the other in Korea. Consider the information
below to answer the next several questions.
Refer to Table 15.1. What is the minimum effective tax rate that BayArea can achieve
on its foreign-sourced income?
A) 26%
B) 35%
C) 40%
D) 0%
TABLE 15.1
Use the information to answer following question(s).
BayArea Designs Inc., located in Northern California, has two international
subsidiaries, one located in the Ukraine, the other in Korea. Consider the information
below to answer the next several questions.
Refer to Table 15.1. The additional U.S. taxes due on the repatriation of income from
the Ukraine to the United States, alone, assuming a 50% payout rate, is:
A) excess foreign tax credits of $110,000.
B) additional U.S. taxes due of $97,000.
C) additional U.S. taxes due of $36,500.
D) excess foreign tax credits of $18,500.
For purposes of international capital budgeting, which of the following statements is
NOT true?
A) Managers must evaluate political risk because political events can drastically reduce
the value or availability of expected cash flows.
B) Parent cash flows must be distinguished from project cash flows. Each of these two
types of flows contributes to a different view of value.
C) An array of nonfinancial payments can generate cash flows from subsidiaries to the
parent, including payment of license fees and payments for imports from the parent.
D) All of the above are true statements.
Given a current spot rate of 8.10 Norwegian krone per U.S. dollar, expected inflation
rates of 3% in Norway and 6% per annum in the U.S., use the formula for relative
purchasing power parity to estimate the one-year spot rate of krone per dollar.
A) 7.87 krone per dollar
B) 8.10 krone per dollar
C) 8.34 krone per dollar
D) There is not enough information to answer this question.
Each ADR represents ________ of the shares of the underlying foreign stock.
A) a multiple
B) 100
C) 1
D) ADRs have nothing to do with foreign stocks.
The subcategory that typically dominates the current account is:
A) goods (merchandise) trade.
B) services trade.
C) income trade.
D) transfer accounts.
Which of the following statements about the balance of payments is NOT true?
A) The BOP is the summary statement of all international transactions between one
country and all other countries.
B) The BOP is a flow statement, summarizing all international transactions that occur
across the geographic borders over a period of time, typically a year.
C) Although the BOP must always balance in theory, in practice there are substantial
imbalances as a result of statistical errors and misreporting of current account and
financial account flows.
D) All of the above are true.
Which of the following statements is NOT true?
A) The Gold Standard Era was characterized by growing openness in trade, but limited
capital mobility.
B) The time period between world wars 1 and 2 (the inter war years) witnessed
significant reductions in trade barriers and a rapid acceleration in international trade.
C) The Bretton Woods Era (post WWII) realized the increasing benefits of open
economies. Furthermore, trade was increasingly dominated by capital.
D) Since March 1973, exchange rates have become much more volatile and less
predictable than previous periods.
Capital market imperfections leading to financial market segmentation include:
A) political risks.
B) corporate governance differences.
C) regulatory barriers.
D) all of the above
The weighted average cost of capital (WACC) is:
A) the required rate of return for all of a firm’s capital investment projects.
B) the required rate of return for a firm’s average risk projects.
C) not applicable for use by MNE.
D) equal to 13%.
A multinational firm that proceeds to raise capital outside of its domestic market is
ultimately in search of an issuance – the IPO or SPO. But often issuances must be
preceded by listings, in which the shares are traded on an exchange and, therefore, in a
specific country market. The listing serves the following purposes EXCEPT:
A) gaining name recognition.
B) reducing the compliance costs.
C) gaining visibility.
D) preparing the market for an issuance.
Your U.S firm has an accounts payable denominated in UK pounds due in 6 months. To
protect yourself against unexpected changes in the dollar/pound exchange rate you
should:
A) buy a pound put option.
B) sell a pound put option.
C) buy a pound call option.
D) sell a pound call option.
If the goal were to increase the value of a country’s currency – to fight an depreciation
of the domestic currency in exchange for foreign currency – the central bank would:
A) buy its own currency in exchange for foreign currency.
B) follow a expansive monetary policy.
C) drive real rates of interest down.
D) sell its own currency in exchange for foreign currency.
With shareholder wealth maximization as the manager’s goal, capital may be termed:
A) impatient.
B) patient.
C) borrowed.
D) bought.
Which of the following is NOT a factor offsetting the tax advantage of debt as a source
of financing?
A) increased agency costs
B) increased probability of financial distress (bankruptcy) due to fixed interest
payments
C) alternative tax shields to those supplied by interest payments
D) All of the above offset the tax advantage of debt as a source of financing.
If an identical product can be sold in two different markets, and no restrictions exist on
the sale or transportation of product between markets, the product’s price should be the
same in both markets. This is known as:
A) relative purchasing power parity.
B) interest rate parity.
C) the law of one price.
D) equilibrium.
The person or company to whom the draft or bill of exchange is addressed is the:
A) drawee.
B) drawer.
C) maker.
D) originator.
An agreement to swap the currencies of a debt service obligation would be termed a/an:
A) currency swap.
B) forward swap.
C) interest rate swap.
D) none of the above
Argentina’s economic performance in the 1990s while their peso was pegged to the U.S.
dollar can be characterized as ________ rates of inflation and ________ rates of
unemployment.
A) high; high
B) low; low
C) low; high
D) high; low
The speed at which inventory moves through a manufacturing process is known as:
A) supply chain management.
B) working capital management.
C) inventory velocity.
D) warp speed.
Which of the following is NOT an example of political risk?
A) Expropriation of cash flows by a foreign government.
B) The U.S. government restricts trade with a foreign country where your firm has
investments.
C) The foreign government nationalizes all foreign-owned assets.
D) All of the above are examples of political risk.
A foreign subsidiary’s ________ currency is the currency used in the firm’s day-to-day
operations.
A) local
B) integrated
C) notational dollar
D) functional
Not all firms have the same optimal capital structure. Factors that might influence a
firm’s capital structure include:
A) the industry in which it operates.
B) the volatility of its sales and operating income.
C) the collateral value of its assets.
D) all of the above
What is the total value of taxes paid in the following example if the value added tax is
10%? A farmer raises wheat that he sells for $1.50 to the grain company. The grain
company sells to the processor for $2.00 per bushel. The processor turns the wheat into
a breakfast cereal and wholesales it for $3.00 per bushel. The retailer sells the cereal for
$4.00 per bushel.
A) $0.15
B) $0.20
C) $0.30
D) $0.40
A straight bill of lading is most likely to be used under which of the following
circumstances?
A) when the merchandise has not been paid for in advance
B) when the transaction is being financed by a bank
C) when the shipment is to an affiliate
D) none of the above
Prior to July 2, 1997, the Thai government:
A) allowed the Thai Bhat to float against major currencies.
B) fixed the Bhat’s value against the Korean won only.
C) fixed the Bhat’s value against major currencies especially the U.S. dollar.
D) none of the above
TropiKana Inc., a U.S firm, has just borrowed euro 1,000,000 to make improvements to
an Italian fruit plantation and processing plant. If the interest rate is 5.50% per year and
the Euro appreciates against the dollar from $1.40/€ at the time the loan was made to
$1.45/€ at the end of the first year, how much interest and principle will TropiKana pay
at the end of the first year if they repay the entire loan plus interest (rounded)?
A) $1,529,750
B) €1,529,750
C) $1,055,000
D) $1,477,000
Covered interest arbitrage moves the market ________ equilibrium because ________.
A) toward; purchasing a currency on the spot market and selling in the forward market
narrows the differential between the two
B) toward; investors are now more willing to invest in risky securities
C) away from; purchasing a currency on the spot market and selling in the forward
market increases the differential between the two
D) away from; demand for the stronger currency forces up interest rates on the weaker
security
Which of the following is NOT true about forfeiting?
A) The exporter is responsible for the quality of delivered goods.
B) Exporter receives an unconditional cash payment at the time of the transaction.
C) The exporter sells bank-guaranteed promissory notes at its face value.
D) The political and commercial risk is carried by the guaranteeing bank.
The deliberation of the of the process demonstrated in the European-Japanese system of
corporate governance has sometimes been termed:
A) socialism.
B) impatient capital.
C) patient capital.
D) communism.
A/An ________ letter of credit is an obligation only of the issuing bank whereas other
banks honor a/an ________ letter of credit.
A) irrevocable; unconfirmed
B) revocable; confirmed
C) confirmed; irrevocable
D) unconfirmed; confirmed
Which of the following changes does NOT create business opportunities for select firms
to both enhance and defend their competitive positions in global markets?
A) Changes in technology
B) Changes in regulation
C) Changes in capital markets
D) Changes in management