Question 1

Relatively high costs of capital are more likely to occur in:

Accepted Answer

A)  highly illiquid domestic securities markets. 
B)  highly liquid domestic securities markets. 
C)  unsegmented domestic securities markets. 
D)  none of the above 
A)  highly illiquid domestic securities markets. 
B)  highly liquid domestic securities markets. 
C)  unsegmented domestic securities markets. 
D)  none of the above

Question 2

A global portfolio is an index of all the securities in the world, whereas a world portfolio represents those securities actually available to an investor.

Accepted Answer

A) True 
 B)False

Question 3

There are potential benefits and risks from raising capital on global markets. Discuss the pros and cons in terms of risk of raising capital on global markets.

Accepted Answer

A portfolio of international stocks repr

Question 4

Which of the following is NOT a portfolio diversification technique used by portfolio managers?

Accepted Answer

A)  diversify by type of security 
B)  diversify by the size of capitalization of the securities held 
C)  diversify by country 
D)  All of the above are diversification techniques. 
A)  diversify by type of security 
B)  diversify by the size of capitalization of the securities held 
C)  diversify by country 
D)  All of the above are diversification techniques.

Question 5

If the addition of a foreign security to the portfolio of the investor aids in the reduction of risk for a given level of return, then the security adds value to the portfolio.

Accepted Answer

A) True 
 B)False

Question 6

One of the elegant beauties of international equity markets is that over the last 100 or so years, the average market risk premium is almost identical across major industrial countries.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is NOT true?

Accepted Answer

A)  International diversification benefits induce investors to demand foreign securities. 
B)  An international security adds value to a portfolio if it reduces risk without reducing return. 
C)  Investors will demand a security that adds value. 
D)  All of the above are true. 
A)  International diversification benefits induce investors to demand foreign securities. 
B)  An international security adds value to a portfolio if it reduces risk without reducing return. 
C)  Investors will demand a security that adds value. 
D)  All of the above are true.

Question 8

International CAPM (ICAPM) assumes that there is a global market in which the firm's equity trades, and estimates of the firm's beta, and the market risk premium, must then reflect this global portfolio.

Accepted Answer

A) True 
 B)False

Question 9

Use of the International CAPM (ICAPM) assures that the WACC will be lower than if a purely domestic market portfolio had been used in the estimation of the cost of equity.

Accepted Answer

A) True 
 B)False

Question 10

The primary goal of both domestic and international portfolio managers is:

Accepted Answer

A)  to maximize return for a given level of risk, or to minimize risk for a given level of return. 
B)  to minimize the number of unique securities held in their portfolio. 
C)  to maximize their WACC. 
D)  all of the above 
A)  to maximize return for a given level of risk, or to minimize risk for a given level of return. 
B)  to minimize the number of unique securities held in their portfolio. 
C)  to maximize their WACC. 
D)  all of the above

Question 11

Other things equal, an increase in the firm's tax rate will increase the WACC for a firm that has both debt and equity financing.

Accepted Answer

A) True 
 B)False

Question 12

The optimal capital budget:

Accepted Answer

A)  occurs where the marginal cost of capital equals the marginal rate of return of the opportunity set of projects. 
B)  is typically larger for purely domestic firms than for MNEs. 
C)  is an illusion found only in international finance textbooks. 
D)  none of the above 
A)  occurs where the marginal cost of capital equals the marginal rate of return of the opportunity set of projects. 
B)  is typically larger for purely domestic firms than for MNEs. 
C)  is an illusion found only in international finance textbooks. 
D)  none of the above

Question 13

Market imperfections do not necessarily imply that national securities markets are inefficient. Develop an argument as to why this is possible.

Accepted Answer

A national securities market can be effi

Question 14

Since the 1980s and 1990s, segmentation in global financial markets has been reduced. As a result of this, the correlation among securities markets has increased, thereby reducing, but not eliminating, the benefits of international portfolio diversification.

Accepted Answer

A) True 
 B)False

Question 15

Use the information to answer the following question(s).
In September 2009 a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is $1.35/euro.
-Refer to Instruction 13.1. At the end of the year the investor sells his stock that now has an average price per share of €57. What is the investor's average rate of return after converting the stock back into dollars?

Accepted Answer

A)  -1.35% 
B)  5.0% 
C)  -5.0% 
D)  -7.24% 
A)  -1.35% 
B)  5.0% 
C)  -5.0% 
D)  -7.24%

Question 16

Which of the following statements is NOT true regarding beta?

Accepted Answer

A)  Beta will have a value of less than 1.0 if the firm's returns are less volatile than the market. 
B)  Beta will have a value of greater than 1.0 if the firm's returns are more volatile than the market. 
C)  Beta will have a value of equal to 1.0 if the firm's returns are of equal volatility to the market. 
D)  All of the statements above are true. 
A)  Beta will have a value of less than 1.0 if the firm's returns are less volatile than the market. 
B)  Beta will have a value of greater than 1.0 if the firm's returns are more volatile than the market. 
C)  Beta will have a value of equal to 1.0 if the firm's returns are of equal volatility to the market. 
D)  All of the statements above are true.

Question 17

Beta may be defined as:

Accepted Answer

A)  the measure of systematic risk. 
B)  a risk measure of a portfolio. 
C)  the ratio of the variance of the portfolio to the variance of the market. 
D)  all of the above 
A)  the measure of systematic risk. 
B)  a risk measure of a portfolio. 
C)  the ratio of the variance of the portfolio to the variance of the market. 
D)  all of the above

Question 18

An internationally diversified portfolio:

Accepted Answer

A)  should result in a portfolio with a lower beta than a purely domestic portfolio. 
B)  has the same overall risk shape as a purely domestic portfolio. 
C)  is only about 12% as risky as the typical individual stock. 
D)  all of the above 
A)  should result in a portfolio with a lower beta than a purely domestic portfolio. 
B)  has the same overall risk shape as a purely domestic portfolio. 
C)  is only about 12% as risky as the typical individual stock. 
D)  all of the above

Question 19

________ 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.

Accepted Answer

A)  Systematic 
B)  Unsystematic 
C)  Total 
D)  Diversifiable 
A)  Systematic 
B)  Unsystematic 
C)  Total 
D)  Diversifiable

Question 20

The capital asset pricing model (CAPM) is an approach:

Accepted Answer

A)  to determine the price of equity capital. 
B)  used by marketers to determine the price of saleable product. 
C)  that can be applied only to domestic markets. 
D)  none of the above 
A)  to determine the price of equity capital. 
B)  used by marketers to determine the price of saleable product. 
C)  that can be applied only to domestic markets. 
D)  none of the above

Relatively high costs of capital are more likely to occur in:

A global portfolio is an index of all the securities in the world, whereas a world portfolio represents those securities actually available to an investor.

There are potential benefits and risks from raising capital on global markets. Discuss the pros and cons in terms of risk of raising capital on global markets.

Which of the following is NOT a portfolio diversification technique used by portfolio managers?

If the addition of a foreign security to the portfolio of the investor aids in the reduction of risk for a given level of return, then the security adds value to the portfolio.

One of the elegant beauties of international equity markets is that over the last 100 or so years, the average market risk premium is almost identical across major industrial countries.

Which of the following statements is NOT true?

International CAPM (ICAPM) assumes that there is a global market in which the firm's equity trades, and estimates of the firm's beta, and the market risk premium, must then reflect this global portfolio.

Use of the International CAPM (ICAPM) assures that the WACC will be lower than if a purely domestic market portfolio had been used in the estimation of the cost of equity.

The primary goal of both domestic and international portfolio managers is:

Other things equal, an increase in the firm's tax rate will increase the WACC for a firm that has both debt and equity financing.

The optimal capital budget:

Market imperfections do not necessarily imply that national securities markets are inefficient. Develop an argument as to why this is possible.

Since the 1980s and 1990s, segmentation in global financial markets has been reduced. As a result of this, the correlation among securities markets has increased, thereby reducing, but not eliminating, the benefits of international portfolio diversification.

Which of the following statements is NOT true regarding beta?

Beta may be defined as:

An internationally diversified portfolio:

________ 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.

The capital asset pricing model (CAPM) is an approach:

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives: Futures and Options

Interest Risk and Swaps

Foreign Exchange Rate Determination and Intervention

Transaction Exposure

Translation Exposure

Operating Exposure

Funding the Multinational Firm

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

Exam 13: Global Cost and Availability of Capital

Relatively high costs of capital are more likely to occur in:

A global portfolio is an index of all the securities in the world, whereas a world portfolio represents those securities actually available to an investor.

There are potential benefits and risks from raising capital on global markets. Discuss the pros and cons in terms of risk of raising capital on global markets.

Which of the following is NOT a portfolio diversification technique used by portfolio managers?

If the addition of a foreign security to the portfolio of the investor aids in the reduction of risk for a given level of return, then the security adds value to the portfolio.

One of the elegant beauties of international equity markets is that over the last 100 or so years, the average market risk premium is almost identical across major industrial countries.

Which of the following statements is NOT true?

International CAPM (ICAPM) assumes that there is a global market in which the firm's equity trades, and estimates of the firm's beta, and the market risk premium, must then reflect this global portfolio.

Use of the International CAPM (ICAPM) assures that the WACC will be lower than if a purely domestic market portfolio had been used in the estimation of the cost of equity.

The primary goal of both domestic and international portfolio managers is:

Other things equal, an increase in the firm's tax rate will increase the WACC for a firm that has both debt and equity financing.

The optimal capital budget:

Market imperfections do not necessarily imply that national securities markets are inefficient. Develop an argument as to why this is possible.

Since the 1980s and 1990s, segmentation in global financial markets has been reduced. As a result of this, the correlation among securities markets has increased, thereby reducing, but not eliminating, the benefits of international portfolio diversification.

Which of the following statements is NOT true regarding beta?

Beta may be defined as:

An internationally diversified portfolio:

________ 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.

The capital asset pricing model (CAPM) is an approach:

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives: Futures and Options

Interest Risk and Swaps

Foreign Exchange Rate Determination and Intervention

Transaction Exposure

Translation Exposure

Operating Exposure

Funding the Multinational Firm

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters