Question 1

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 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

Capital market segmentation is a financial market imperfection caused mainly by government constraints,institutional practices,and investor perceptions.

Accepted Answer

A) True 
 B)False

Question 4

Internationally diversified portfolios often have a lower rate of return and almost always have a higher level of portfolio risk than their domestic counterparts.

Accepted Answer

A) True 
 B)False

Question 5

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 6

A MNEs marginal cost of capital is constant for considerable ranges in its capital budget,but this statement cannot be made for most domestic firms.

Accepted Answer

A) True 
 B)False

Question 7

The difference between the expected (or required)return for the market portfolio and the risk-free rate of return is referred to as:

Accepted Answer

A) beta. 
B) the geometric mean. 
C) the market risk premium. 
D) the arithmetic mean. 
A) beta. 
B) the geometric mean. 
C) the market risk premium. 
D) the arithmetic mean.

Question 8

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 9

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 10

Despite the theoretical elegance of this hypothesis,empirical studies have come to the opposite conclusion.Despite the favorable effect of international diversification of cash flows,bankruptcy risk was only about the same for MNEs as for domestic firms.However,MNEs faced higher costs for each of the following EXCEPT:

Accepted Answer

A) agency costs 
B) political risk 
C) asymmetric information 
D) In fact,each of these costs were higher for the MNE than for the domestic firm. 
A) agency costs 
B) political risk 
C) asymmetric information 
D) In fact,each of these costs were higher for the MNE than for the domestic firm.

Question 11

________ risk is measured with beta.

Accepted Answer

A) Systematic 
B) Unsystematic 
C) International 
D) Domestic 
A) Systematic 
B) Unsystematic 
C) International 
D) Domestic

Question 12

The authors refer to companies that have access to a ________ as MNEs,and firms without such access are identified as ________.

Accepted Answer

A) global cost and availability of capital;domestic firms. 
B) large domestic capital market;geographically challenged. 
C) world financial markets;antiquated. 
D) none of the above 
A) global cost and availability of capital;domestic firms. 
B) large domestic capital market;geographically challenged. 
C) world financial markets;antiquated. 
D) none of the above

Question 13

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 14

Instruction 13.1:
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.How many euros will the U.S.investor acquire with his initial $500,000 investment?

Accepted Answer

A) €650,000 
B) €370,370 
C) €500,000 
D) €384,615 
A) €650,000 
B) €370,370 
C) €500,000 
D) €384,615

Question 15

Other things equal,a firm that must obtain its long-term debt and equity in a highly illiquid domestic securities market will probably have a:

Accepted Answer

A) relatively low cost of capital. 
B) relatively high cost of capital. 
C) relatively average cost of capital. 
D) cost of capital that we cannot estimate from this question. 
A) relatively low cost of capital. 
B) relatively high cost of capital. 
C) relatively average cost of capital. 
D) cost of capital that we cannot estimate from this question.

Question 16

Empirical research has found that systematic risk for MNEs is greater than that for their domestic counterparts.This could be due to:

Accepted Answer

A) the fact that the increase in the correlation of returns between the market and the firm is less than the increase in the standard deviation of returns of the firm. 
B) the fact that the decrease in the correlation of returns between the market and the firm is greater than the increase in the standard deviation of returns of the firm. 
C) the reduction in the correlation of returns between the firm and the market is less than the increase in the variability of returns caused by factors such as asymmetric information,foreign exchange risk,and the like. 
D) None of the above;systematic risk is less for MNEs than for their domestic counterparts. 
A) the fact that the increase in the correlation of returns between the market and the firm is less than the increase in the standard deviation of returns of the firm. 
B) the fact that the decrease in the correlation of returns between the market and the firm is greater than the increase in the standard deviation of returns of the firm. 
C) the reduction in the correlation of returns between the firm and the market is less than the increase in the variability of returns caused by factors such as asymmetric information,foreign exchange risk,and the like. 
D) None of the above;systematic risk is less for MNEs than for their domestic counterparts.

Question 17

Capital market imperfections leading to financial market segmentation include:

Accepted Answer

A) asymmetric information between domestic and foreign-based investors. 
B) high securities transaction costs. 
C) foreign exchange risks. 
D) all of the above 
A) asymmetric information between domestic and foreign-based investors. 
B) high securities transaction costs. 
C) foreign exchange risks. 
D) all of the above

Question 18

What do theory and empirical evidence say about capital structure and the cost of capital for MNEs versus their domestic counterparts?

Accepted Answer

In theory,MNEs should be able to support

Question 19

Which of the following will NOT affect a firm's beta?

Accepted Answer

A) the choice of the market portfolio against which to compare the variability of a firm's returns 
B) the choice of the risk-free security 
C) the choice of the time period used to calculate the firm's beta 
D) None of the above,because each of them affects the calculation of a firm's beta. 
A) the choice of the market portfolio against which to compare the variability of a firm's returns 
B) the choice of the risk-free security 
C) the choice of the time period used to calculate the firm's beta 
D) None of the above,because each of them affects the calculation of a firm's beta.

Question 20

A national securities market is segmented if the required rate of return on securities in that market differs from comparable securities traded in other,unsegmented markets.

Accepted Answer

A) True 
 B)False

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

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.

Capital market segmentation is a financial market imperfection caused mainly by government constraints,institutional practices,and investor perceptions.

Internationally diversified portfolios often have a lower rate of return and almost always have a higher level of portfolio risk than their domestic counterparts.

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.

A MNEs marginal cost of capital is constant for considerable ranges in its capital budget,but this statement cannot be made for most domestic firms.

The difference between the expected (or required)return for the market portfolio and the risk-free rate of return is referred to as:

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

The optimal capital budget:

________ risk is measured with beta.

The authors refer to companies that have access to a as MNEs,and firms without such access are identified as .

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.

Other things equal,a firm that must obtain its long-term debt and equity in a highly illiquid domestic securities market will probably have a:

Empirical research has found that systematic risk for MNEs is greater than that for their domestic counterparts.This could be due to:

Capital market imperfections leading to financial market segmentation include:

What do theory and empirical evidence say about capital structure and the cost of capital for MNEs versus their domestic counterparts?

Which of the following will NOT affect a firm's beta?

A national securities market is segmented if the required rate of return on securities in that market differs from comparable securities traded in other,unsegmented markets.

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

Transaction Exposure

Translation Exposure

Operating Exposure

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

Exam 13: The Global Cost and Availability of Capital

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

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.

Capital market segmentation is a financial market imperfection caused mainly by government constraints,institutional practices,and investor perceptions.

Internationally diversified portfolios often have a lower rate of return and almost always have a higher level of portfolio risk than their domestic counterparts.

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.

A MNEs marginal cost of capital is constant for considerable ranges in its capital budget,but this statement cannot be made for most domestic firms.

The difference between the expected (or required)return for the market portfolio and the risk-free rate of return is referred to as:

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

The optimal capital budget:

________ risk is measured with beta.

The authors refer to companies that have access to a ________ as MNEs,and firms without such access are identified as ________.

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.

Other things equal,a firm that must obtain its long-term debt and equity in a highly illiquid domestic securities market will probably have a:

Empirical research has found that systematic risk for MNEs is greater than that for their domestic counterparts.This could be due to:

Capital market imperfections leading to financial market segmentation include:

What do theory and empirical evidence say about capital structure and the cost of capital for MNEs versus their domestic counterparts?

Which of the following will NOT affect a firm's beta?

A national securities market is segmented if the required rate of return on securities in that market differs from comparable securities traded in other,unsegmented markets.

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

Transaction Exposure

Translation Exposure

Operating Exposure

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

The authors refer to companies that have access to a as MNEs,and firms without such access are identified as .