Question 1

Which of the following is generally unnecessary in measuring the cost of debt?

Accepted Answer

A) a forecast of future interest rates 
B) the proportions of the various classes of debt a firm proposes to use 
C) the corporate income tax rate 
D) All of the above are necessary for measuring the cost of debt. 
A) a forecast of future interest rates 
B) the proportions of the various classes of debt a firm proposes to use 
C) the corporate income tax rate 
D) All of the above are necessary for measuring the cost of debt.

Question 2

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 3

The CAPM has now become very widely accepted in global business as the preferred method of calculating the cost of equity for a firm.As a result of this,there is now little debate over what numerical values should be used in its application.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

In some respects,internationally diversified portfolios are different from a domestic portfolio because:

Accepted Answer

A) investors may also acquire foreign exchange risk. 
B) international portfolio diversification increases expected return but does not decrease risk. 
C) investors must leave the country to acquire foreign securities. 
D) all of the above 
A) investors may also acquire foreign exchange risk. 
B) international portfolio diversification increases expected return but does not decrease risk. 
C) investors must leave the country to acquire foreign securities. 
D) all of the above

Question 7

Portfolio diversification can eliminate 100% of risk.

Accepted Answer

A) True 
 B)False

Question 8

The geometric mean will,in all but a few extreme circumstances,yield a larger return than the arithmetic mean return.

Accepted Answer

A) True 
 B)False

Question 9

Empirical studies indicate that WACC for an MNE is higher than for their domestic competitors.Reasons cited for this increased cost include all of the following EXCEPT:

Accepted Answer

A) agency costs 
B) foreign exchange risk 
C) political risk 
D) All of the above are cited as reasons for an MNE's increased WACC. 
A) agency costs 
B) foreign exchange risk 
C) political risk 
D) All of the above are cited as reasons for an MNE's increased WACC.

Question 10

Empirical studies indicate that MNEs have higher costs of capital than purely domestic firms.This could be due to higher levels of:

Accepted Answer

A) political risk. 
B) exchange rate risk. 
C) agency costs. 
D) all of the above 
A) political risk. 
B) exchange rate risk. 
C) agency costs. 
D) all of the above

Question 11

The after-tax cost of debt is found by:

Accepted Answer

A) dividing the before-tax cost of debt by (1 - the corporate tax rate). 
B) subtracting (1 - the corporate tax rate)from the before-tax cost of debt. 
C) multiplying the before-tax cost of debt by (1 - the corporate tax rate). 
D) subtracting the corporate tax rate from the before-tax cost of debt. 
A) dividing the before-tax cost of debt by (1 - the corporate tax rate). 
B) subtracting (1 - the corporate tax rate)from the before-tax cost of debt. 
C) multiplying the before-tax cost of debt by (1 - the corporate tax rate). 
D) subtracting the corporate tax rate from the before-tax cost of debt.

Question 12

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 13

Which of the following is NOT a contributing factor to the segmentation of capital markets?

Accepted Answer

A) lack of transparency 
B) asymmetric availability of information 
C) insider trading 
D) All of the above are contributing factors. 
A) lack of transparency 
B) asymmetric availability of information 
C) insider trading 
D) All of the above are contributing factors.

Question 14

Unsystematic risk:

Accepted Answer

A) is the remaining risk in a well-diversified portfolio. 
B) is measured with beta. 
C) can be diversified away. 
D) all of the above 
A) is the remaining risk in a well-diversified portfolio. 
B) is measured with beta. 
C) can be diversified away. 
D) all of the above

Question 15

The WACC is usually used as the risk-adjusted required rate of return for new projects that are of the same average risk as the firm's existing projects.

Accepted Answer

A) True 
 B)False

Question 16

Capital market segmentation is a financial market imperfection caused mainly by:

Accepted Answer

A) government constraints. 
B) institutional practices. 
C) investor perceptions. 
D) all of the above 
A) government constraints. 
B) institutional practices. 
C) investor perceptions. 
D) all of the above

Question 17

If a firm lies within a country with ________ or ________ domestic capital markets,it can achieve lower global cost and greater availability of capital with a properly designed and implemented strategy to participate in international capital markets.

Accepted Answer

A) liquid;segmented 
B) liquid;large 
C) illiquid;segmented 
D) large;illiquid 
A) liquid;segmented 
B) liquid;large 
C) illiquid;segmented 
D) large;illiquid

Question 18

According to your authors,diversifying cash flows internationally may help MNEs reduce the variability of cash flows because:

Accepted Answer

A) of a lack of competition among international firms. 
B) of an offset to cash flow variability caused by exchange rate variability. 
C) returns are not perfectly correlated between countries. 
D) none of the above 
A) of a lack of competition among international firms. 
B) of an offset to cash flow variability caused by exchange rate variability. 
C) returns are not perfectly correlated between countries. 
D) none of the above

Question 19

The opportunity set of projects is typically smaller for MNEs than for purely domestic firms because international markets are typically specialized niches.

Accepted Answer

A) True 
 B)False

Question 20

The MNE can ________ its ________ by gaining access to markets that are more liquid and/or less segmented than its own.

Accepted Answer

A) increase;MCC. 
B) decrease;MCC. 
C) maintain;MRR. 
D) none of the above 
A) increase;MCC. 
B) decrease;MCC. 
C) maintain;MRR. 
D) none of the above

Which of the following is generally unnecessary in measuring the cost of debt?

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.

The CAPM has now become very widely accepted in global business as the preferred method of calculating the cost of equity for a firm.As a result of this,there is now little debate over what numerical values should be used in its application.

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

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

In some respects,internationally diversified portfolios are different from a domestic portfolio because:

Portfolio diversification can eliminate 100% of risk.

The geometric mean will,in all but a few extreme circumstances,yield a larger return than the arithmetic mean return.

Empirical studies indicate that WACC for an MNE is higher than for their domestic competitors.Reasons cited for this increased cost include all of the following EXCEPT:

Empirical studies indicate that MNEs have higher costs of capital than purely domestic firms.This could be due to higher levels of:

The after-tax cost of debt is found by:

An internationally diversified portfolio:

Which of the following is NOT a contributing factor to the segmentation of capital markets?

Unsystematic risk:

The WACC is usually used as the risk-adjusted required rate of return for new projects that are of the same average risk as the firm's existing projects.

Capital market segmentation is a financial market imperfection caused mainly by:

If a firm lies within a country with or domestic capital markets,it can achieve lower global cost and greater availability of capital with a properly designed and implemented strategy to participate in international capital markets.

According to your authors,diversifying cash flows internationally may help MNEs reduce the variability of cash flows because:

The opportunity set of projects is typically smaller for MNEs than for purely domestic firms because international markets are typically specialized niches.

The MNE can its by gaining access to markets that are more liquid and/or less segmented than its own.

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

Which of the following is generally unnecessary in measuring the cost of debt?

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.

The CAPM has now become very widely accepted in global business as the preferred method of calculating the cost of equity for a firm.As a result of this,there is now little debate over what numerical values should be used in its application.

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

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

In some respects,internationally diversified portfolios are different from a domestic portfolio because:

Portfolio diversification can eliminate 100% of risk.

The geometric mean will,in all but a few extreme circumstances,yield a larger return than the arithmetic mean return.

Empirical studies indicate that WACC for an MNE is higher than for their domestic competitors.Reasons cited for this increased cost include all of the following EXCEPT:

Empirical studies indicate that MNEs have higher costs of capital than purely domestic firms.This could be due to higher levels of:

The after-tax cost of debt is found by:

An internationally diversified portfolio:

Which of the following is NOT a contributing factor to the segmentation of capital markets?

Unsystematic risk:

The WACC is usually used as the risk-adjusted required rate of return for new projects that are of the same average risk as the firm's existing projects.

Capital market segmentation is a financial market imperfection caused mainly by:

If a firm lies within a country with ________ or ________ domestic capital markets,it can achieve lower global cost and greater availability of capital with a properly designed and implemented strategy to participate in international capital markets.

According to your authors,diversifying cash flows internationally may help MNEs reduce the variability of cash flows because:

The opportunity set of projects is typically smaller for MNEs than for purely domestic firms because international markets are typically specialized niches.

The MNE can ________ its ________ by gaining access to markets that are more liquid and/or less segmented than its own.

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

If a firm lies within a country with or domestic capital markets,it can achieve lower global cost and greater availability of capital with a properly designed and implemented strategy to participate in international capital markets.

The MNE can its by gaining access to markets that are more liquid and/or less segmented than its own.