1 Which of the following are international financial …iimts.com/faculty/wp-content/uploads/2013/01/... ·  · 2013-01-13D intra-firm price. 7 Which of the following statements

1 Which of the following are international financial considerations faced by both small and large

MNEs?

A Interest rates.

B Tax systems.

C Currency systems.

D All of the above.

2 Which of the following is not true about a polycentric solution to international financial

management?

A It centralizes decision making.

B It reduces the authority of the home office.

C It treats the MNE as a holding company.

D Decisions are made on the spot by those most informed about market considerations.

3 One of the advantages of the ethnocentric solution to international financial management is

that:

A management is able to coordinate overall operations carefully.

B international subsidiaries tend to be more flexible.

C decisions are made on the spot by those most informed about market conditions..

D international subsidiaries tend to be more motivated.

4 Which of the following is a way in which an MNE might improve its financial position?

A Borrowing from a local bank.

B Borrowing from a foreign bank.

C Borrowing from a profitable subsidiary.

D All of the above.

5 Strategies in which funds are moved from one MNE operation to another are called:

A arm's length techniques.

B subsidiary flows.

C funds positioning techniques.

D fronting techniques.

6 The headquarter of Company X sends a memo to all subsidiaries establishing the intra-firm

price at which a product will be sold. This price is called:

A transfer price.

B internal ticketing.

C insider transfer price.

D intra-firm price.

7 Which of the following statements is true?

A A transfer price is always lower than the market price.

B A transfer price is never the same as the market price.

C A transfer price is always higher than the market price.

D None of the above.

8 All of the following are examples of tax heavens except for:

A Bermuda.

B Hungary.

C Switzerland.

D Guyana.

9 In cases of high risk of expropriation by host governments, which of the following funds

positioning techniques would be most adequate?

A A fronting loan.

B The use of transfer pricing.

C The use of tax havens.

D All of the above.

10 Which of the following is a good reason to use clearing accounts?

A Subsidiaries that are owed money receive quicker payment.

B Headquarters can better monitor the finances of each subsidiary.

C It ensures an efficient financial relationship across subsidiaries.

D All of the above.

11 In the case of a US company with a Chilean subsidiary, if the Chilean peso declines by 10%

against the dollar:

A the value of the Chilean subsidiary's US$ account at the local bank would also decline

when translated into pesos.

B the value of the Chilean subsidiary's peso account at the local bank would increase when

translated into dollars.

C the value of the Chilean subsidiary's peso account at the local bank would also decline

when translated into dollars.

D None of the above.

12 In the case of a US company with a Chilean subsidiary, if the Chilean peso declines by 10%

against the dollar:

A the balance sheet of the Chilean subsidiary, in pesos, will also decrease.

B the company-wide balance sheet will increase.

C the company-wide balance sheet will decrease.

D None of the above.

13 Which of the following statements is true?

A If the value of the local currency strengthens, the sale of inventory will generate larger

dollar profits.

B If the value of the local currency weakens, the sale of inventory will generate larger

dollar profits.

C If the value of the local currency strengthens, the sale of inventory will generate lower

dollar profits.

D None of the above.

14 Which of the following are international sources of credit for the MNE?

A Euromarket.

B Foreign market.

C Domestic market.

D All of the above.

15 The debt-equity ratio across all countries is:

A 0.6 to 1

B 2.75 to 1

C 1.75 to 1

D None of the above.

Answer of Mcq

1-d 2-a 3-a 4-d 5-c 6-a 7-d 8-d 9-a 10-d 11-c 12-c 13-a

14-d 15-d

1 Under a floating exchange rate regime domestic inflation would:

A have no impact on the exchange rate but an effect on International cost competitiveness

in the next adjustment

B have some impact on the exchange rate but no effect on international cost

competitiveness immediately

C have an impact on the exchange rate but no effect on businesses' international cost

competitiveness due to depreciation

D have a great impact on the exchange rate but an equal effect on businesses' international

cost competitiveness due to depreciation

2 Monetary discipline has its advocates among:

A floating rates

B fixed rates

C mobile adjustments

D immobile adjustment

3 A country that commits itself to a currency board is:

A controlling inflation

B advocating open transactions

C permitting fixed rate exchanges

D holding reserves in gold

4 The Asian "meltdown" crisis of 1997 began when:

A the Singapore government floated worthless debentures

B the South Korean government floated its won

C the Indonesian government floated inflated bonds

D the Thai government abandoned defense of the baht

5 The goal of IMF (International Monetary Fund) programs is largely to:

A promote deflationary spirals against inflationary pressures

B finance booming economies to avoid recessions

C bring down inflation rates, stabilizing the economy

D bail out debtor nations from foreign creditors

6 The collapse of the fixed rate exchange regime in the US was caused by:

A presidential mismanagement between 1965-1968, 2002-2005

B unfair Japanese and German pressures on the federal reserve by 1971-1973

C growing deficits and tax cuts to meet US export imbalances

D running "short term" loans against "long term" borrowing

7 Which of these is not a "shock" to exchange rate stability since 1973:

A the oil crises of 1973, 1979 created by OPEC

B the 1992 partial collapse of the European Monetary System

C the 1991 defaulting of Brazil and Yugoslavia on their debts

D the rapid US dollar fall in 1985, 1987, 1993-1995

8 When the Mexican peso faced a severe devaluation owing to economic mismanagement and

rising foreign debt, the U.S. government stepped in to stabilize the peso with the help of:

A the UN and UNESCO

B the EU and EUROBANK

C the IMF and BIS

D the WHO and ELO

9 During the Asian "Boom" of the early 1990s this country's cartels known as chaebol aimed at

becoming leaders in autos and semiconductors:

A Japan

B China

D South Korea

C Taiwan

10 One of the criticisms leveled at the IMF initiating rescue efforts for troubled domestic

economies involves enabling weak governments a way out of their management messes. This is

known to economists as:

A moral hazard

B monetary hazard

C loan hazard

D debt hazard

Answer of Mcq

1-c 2-b 3-c 4-d 5-c 6-a 7-c 8-c 9-c 10-a

1 Which of the following is a legitimate reason for international investment?

A Dividends from a foreign subsidiary are tax exempt in the United States.

B Most governments do not tax foreign corporations.

C There are possible benefits from international diversification.

D International investments have less political risk than domestic investments.

2. Interest-rate parity refers to the concept that, where market imperfections are few,

A the same goods must sell for the same price across countries.

B interest rates across countries will eventually be the same.

C there is an offsetting relationship between interest rate differentials and differentials in

the forward spot exchange market.

D there is an offsetting relationship provided by costs and revenues in similar market

environments.

3. The forward market is especially well-suited to offer hedging protection against

A translation risk exposure.

B transactions risk exposure.

C political risk exposure.

D taxation.

4. Suppose that the Japanese yen is selling at a forward discount in the forward-exchange market.

This implies that most likely

A this currency has low exchange-rate risk.

B this currency is gaining strength in relation to the dollar.

C interest rates are higher in Japan than in the United States.

D interest rates are declining in Japan.

5. Following FASB Statement No. 52, gains or losses from currency translation are shown:

A on the income statement as currency gains (or losses).

B on the balance sheet as an adjustment to owners' equity.

C on the balance sheet as an adjustment to cash.

D nowhere because gains or losses from currency changes need not be shown..

6. All of the following are hedges against exchange-rate risk EXCEPT

A balancing monetary assets and liabilities.

B use of spot market.

C foreign-currency swaps.

D adjustment of funds commitments between countries.

7. A multinational can centralize cash management and attempt to reduce exchange rate risk

exposure through the use of

A a reinvoicing center.

B a bill of lading.

C a time draft.

D countertrade.

8. Forfaiting most closely resembles

A export factoring.

B countertrade.

C netting.

D reinvoicing.

9. The euro is the name for

A a currency deposited outside its country of origin.

B a bond sold internationally outside of the country in whose currency the bond is

denominated.

C a common European currency.

D a type of sandwich.

10. Assume that a Big Mac hamburger is selling for £1.99 in the United Kingdom, the same

hamburger is selling for $2.71 in the United States, and the actual exchange rate (to buy $1.00

with British pounds) is 0.63. According to , the British pound is the US dollar.

A purchasing-power parity; undervalued

B interest-rate parity; undervalued

C purchasing-power parity; overvalued

D interest-rate parity; overvalued

Answer of Mcq

1-c 2-c 3-b 4-c 5-b 6-b 7-a 8-a 9-c 10-c

1 Foreign exchange is:

A The act of trading different nations’ monies.

B The holdings of foreign currency.

C The act of importing foreign goods and services.

D Both (a) and (b) are correct.

2 If the price of British pounds in terms of U.S. dollars is $1.80 per pound, then the price of U.S.

dollars in terms of British pounds is:

A 1.80£ per dollar.

B 0.555£ per dollar.

C 0.90£ per dollar.

D 3.60£ per dollar.

3 Suppose the exchange rate between the Japanese yen and the U.S. dollar is 100 yen per dollar.

A Japanese stereo with a price of 60,000 yen will cost:

A $1,667

B $600

C $6,000

D $100

4 Suppose that a Korean television set that costs 600 won in Korea costs $400 in the United

States. These prices suggest that the exchange rate between the won and the dollar is:

A 1.5 won per dollar

B 0.75 won per dollar

C $1.50 per won

D $3 per won

5 The __________ exchange rate is the price for “immediate” currency exchange.

A Current

B Forward

C Future

D Spot

6 The __________ exchange rate is the price set now for an exchange that will take place

sometime in the future.

A Current

B Forward

C Future spot

D Spot

7 The foreign exchange market is:

A A single gathering place where traders shout buy and sell orders at each other.

B Located in New York.

C A grouping, by electronic means, of banks and traders who work at banks that conduct

foreign exchange trades.

D Located in London.

8 __________ foreign exchange trading involves currency exchanges done between individuals

and banks.

A Interbank

B Consumer

C Intra-bank

D Retail

9 The U.S. dollar is called a __________ because it is often used as an intermediary to

accomplish trading between two other currencies.

A Vehicle currency

B Main currency

C Common currency

D Primary currency

10 Suppose that the exchange value of the British pound is $2 per pound while the exchange

value of the Swiss franc is 50 cents per franc. From this we can conclude that the exchange rate

between the pound and the franc is:

A 1 franc per pound

B 2 francs per pound

C 3 francs per pound

D 4 francs per pound

11 Which of the following is NOT a function of the interbank operations of the foreign exchange

market?

A Provides a bank with a continuous stream of information on conditions in the foreign

exchange market.

B Provides a bank the means to readjust its own position quickly and at low cost.

C Permits a bank to take on a position in a foreign currency quickly.

D Provides a bank with technological resources for use in foreign exchange trading.

12 Under the managed float system of exchange rates, a fall in the market price of a currency is

called:

A Devaluation.

B Depreciation.

C Appreciation.

D Both (a) and (b).

13 Interbank trading is conducted directly between __________ or through the use of

__________ that provide anonymity until the trade is complete and reduce search costs.

A Traders; brokers

B Brokers; traders

C Individual consumers; the government

D Individual consumers; brokers

14 A country’s demand for foreign currency is derived from:

A International transactions entering the debit column of its balance of payments accounts.

B International transactions entering the surplus column of its balance of payments

accounts.

C The country’s demand for currency to finance exports and capital inflows.

D The country’s demand for currency to finance its government’s compensating

transactions.

15 U.S. exports of goods and services will create a __________ foreign currency and a

__________ U.S. dollars.

A Demand for; supply of

B Supply of; demand for

C Shortage of; demand for

D Supply of; shortage of

Answer of Mcq

1-D 2-B 3-B 4-A 5-D 6-B 7-C 8-D 9-A 10-D 11-D 12-B 13-A

14-A 15-B

1 Which of the following is an example of foreign exchange?

A Exchange of cash issued by a foreign central bank.

B Exchange of claims denominated in another currency.

C Exchange of bank deposits.

D All of the above.

2 US firms often find that borrowing from foreign markets:

A is disadvantageous because the exchange rate risk increases the cost of borrowing.

B is about the same as borrowing domestically.

C is more expensive.

D is less expensive.

3 If Euros are quoted at price $1.2055 in Citibank in New York, this means that:

A every other bank is quoting the same price.

B this is the price used by the Central Bank.

C most banks will probably be in that range.

D large banks will quote their own rate while small banks will follow the lead of Citibank.

4 Which of the following are usual suppliers of Euros?

A European direct investors.

B US exporters.

C US foreign investors remitting profits.

D All of the above.

5 The vast majority of large-scale foreign exchange transactions in the US are:

A done through Morgan-Chase and Deutsche Bank of America.

B done through foreign exchange brokers.

C done through the Chicago Mercantile Exchange

D done through Interbank.

6 If a company contracts today for some future date of actual currency exchange, they will be

making use of a:

A forward rate.

B stock rate.

C variable rate.

D futures rate.

7 Which of the following might affect the cost of a trip to Japan by a resident of Britain?

A The time at which the British resident purchases Yen.

B The depreciation of the Euro.

C The depreciation of the US dollar.

D All of the above.

8 A company that functions to unite sellers and buyers of foreign currency-denominated bank

deposits is called:

A a wholesaler.

B a bank.

C an investor.

D a broker.

9 _____________ contracts are more widely accessible to firms and individuals than

____________ contracts.

A Futures; forward

B Arbitrageur; forward

C Forward; arbitrageur

D Forward; futures

10 If the euro dollar deposit rate is 3% per year and the euro-euro rate is 6% per year, by how

much will the euro be expected to devalue in the coming year?

A 0.3%

B 2.0%

C 3.0%

D 2.9%

Answer of Mcq

1-D 2-D 3-C 4-D 5-D 6-A 7-A 8-D 9-A 10-D

1 Which of the following is one of the world's most important currencies?

A the EU's euro

B Russian ruble

C Mexican peso

D Belgian franc

E Indian rupee

2 Hard currency is

A gold or silver bullion.

B petrodollars.

C money with a fixed exchange rate.

D money that can be readily converted to leading world currencies.

E backed by a gold standard.

3 The state in which an MNC has its headquarters is called the

A home country.

B export country.

C host country.

D source country.

E incorporated country.

4 When governments intervene to manage otherwise free-floating exchange rates, it is known as

A devaluation.

B fixed-float.

C managed float.

D hyperinflation.

E None of these answers is correct.

5 Between World War II and the 1970s, what type of exchange rates existed in the international

economic system?

A fixed

B floating

C floating but managed

D soft

E unregulated

6 Foreign investments in and by a country are referred to as

A the capital account.

B capital flows.

C the current account.

D government transactions.

E venture capital.

7 ________ policy is government decisions about spending and taxation.

A Budgetary

B Monetary

C Fiscal

D Currency

E Economic

8 Currency speculators sold off the currency of ________ and other countries, which created the

1997 Asian financial crisis.

A Indonesia

B China

C India

D New Zealand

E South Korea

9 A ________ is responsible for maintaining the value of a state's currency to the extent that it

can by limiting the amount of money printed and avoiding inflation.

A fiscal policy

B discount rate

C central bank

D currency policy

E monetary policy

10 What is the name of the U.S. central bank?

A First National Bank of America

B Bank of America

C U.S. Central Bank

D U.S. Federal Reserve

E Federal Deposit Insurance Corporation

Answer of Mcq

1-A 2-D 3-A 4-C 5-D 6-B 7-C 8-A 9-C 10-D

1 According to the Treynor-Black model, the weight of a security in the active portfolio depends

on the ratio of __________ to __________.

A) the degree of mispricing; the nonsystematic risk of the security

B) the degree of mispricing; the systematic risk of the security

C) the market sensitivity of the security; the nonsystematic risk of the security

D) the nonsystematic risk of the security; the systematic risk of the security

E) the total return on the security; the nonsystematic risk of the security

2 If a portfolio manager consistently obtains a high Sharpe measure, the manager's forecasting

ability

A) is average.

B) is above average.

C) is below average.

D) does not exist.

E) cannot be determined based on the Sharpe measure.

3 The critical variable in the determination of the success of the active portfolio is

A) alpha/nonsystematic risk.

B) alpha/systematic risk.

C) gamma/nonsystematic risk.

D) gamma/systematic risk.

E) none of the above

4 There appears to be a role for a theory of active portfolio management because

A) some anomalies in realized returns have been persistent enough to suggest that portfolio

managers who identified these anomalies in a timely fashion could have outperformed a passive

strategy over prolonged periods.

B) the "noise" in the realized returns is enough to prevent the rejection of the hypothesis that

some money managers have outperformed a passive strategy by a statistically small, yet

economic, margin.

C) some portfolio managers have produced sequences of abnormal returns that are difficult

to label as lucky outcomes.

D) A and B

E) all of the above

5 An active portfolio manager faces a tradeoff between

I) using the Sharpe measure.

II) holding too much of the risk-free asset.

III) exploiting perceived security mispricings.

IV) using mean-variance analysis.

V) letting a few stocks dominate the portfolio.

A) I and II

B) II and V

C) III and V

D) III and IV

E) II and III

Answer of Mcq

1-A 2-B 3-A 4-E 5-C