Question 1

A firm whose equity has a beta of 1.0:

Accepted Answer

A) has greater systematic risk than the market portfolio. 
B) stands little chance of surviving in the international financial market place. 
C) has less systematic risk than the market portfolio. 
D) None of the above is true. 
A) has greater systematic risk than the market portfolio. 
B) stands little chance of surviving in the international financial market place. 
C) has less systematic risk than the market portfolio. 
D) None of the above is true.

Question 2

Empirical studies indicate that MNEs have a lower debt/capital ratio than domestic counterparts,indicating that MNEs have a lower cost of capital.

Accepted Answer

A) True 
 B)False

Question 3

If a firm's expected returns are more volatile than the expected return for the market portfolio,it will have a beta less than 1.0.

Accepted Answer

A) True 
 B)False

Question 4

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.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 5

When estimating an average corporate after-tax cost of capital,the component cost of equity is multiplied by (1-t)to allow for the tax-deductibility of dividend payments.

Accepted Answer

A) True 
 B)False

Question 6

International diversification benefits may induce investors to demand foreign securities.

Accepted Answer

A) True 
 B)False

Question 7

Systematic risk:

Accepted Answer

A) is the standard deviation of a security's return. 
B) is measured with beta. 
C) is measured with standard deviation. 
D) none of the above 
A) is the standard deviation of a security's return. 
B) is measured with beta. 
C) is measured with standard deviation. 
D) none of the above

Question 8

The beginning share price for a security over a three-year period was $50.Subsequent year-end prices were $62,$58 and $64.The arithmetic average annual rate of return and the geometric average annual rate of return for this stock was:

Accepted Answer

A) 9.30% and 8.58% respectively. 
B) 9.30% and 7.89% respectively. 
C) 9.30% and 7.03% respectively. 
D) 9.30% and 6.37% respectively. 
A) 9.30% and 8.58% respectively. 
B) 9.30% and 7.89% respectively. 
C) 9.30% and 7.03% respectively. 
D) 9.30% and 6.37% respectively.

Question 9

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 10

________ 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 11

Capital market imperfections leading to financial market segmentation include:

Accepted Answer

A) political risks. 
B) corporate governance differences. 
C) regulatory barriers. 
D) all of the above 
A) political risks. 
B) corporate governance differences. 
C) regulatory barriers. 
D) all of the above

Question 12

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 13

If all capital markets are fully integrated,securities of comparable expected return and risk should have the same required rate of return in each national market after adjusting for:

Accepted Answer

A) time of day and language requirements. 
B) political risk and time lags. 
C) foreign exchange risk and political risk. 
D) foreign exchange risk and the spot rate. 
A) time of day and language requirements. 
B) political risk and time lags. 
C) foreign exchange risk and political risk. 
D) foreign exchange risk and the spot rate.

Question 14

If a company fails to accurately predict it's cost of equity,then:

Accepted Answer

A) the firm's wacc will also be inaccurate. 
B) the firm may not be using the proper interest rate to estimate NPV. 
C) the firm may incorrectly accept or reject projects based on decisions made using the cost of capital computed with an incorrect cost of equity. 
D) All of the above are true. 
A) the firm's wacc will also be inaccurate. 
B) the firm may not be using the proper interest rate to estimate NPV. 
C) the firm may incorrectly accept or reject projects based on decisions made using the cost of capital computed with an incorrect cost of equity. 
D) All of the above are true.

Question 15

A U.S.investor makes an investment in Britain and earns 14% on the investment while the British pound appreciates against the U.S.dollar by 8%.What is the investor's total return?

Accepted Answer

A) 22.00% 
B) 23.12% 
C) 6.00% 
D) 4.88% 
A) 22.00% 
B) 23.12% 
C) 6.00% 
D) 4.88%

Question 16

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

Accepted Answer

The following are the most important imp

Question 17

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 18

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 19

In some respects,internationally diversified portfolios are the same in principle as a domestic portfolio because:

Accepted Answer

A) the investor is attempting to combine assets that are perfectly correlated. 
B) investors are trying to reduce systematic risk. 
C) investors are trying to reduce the total risk of the portfolio. 
D) all of the above 
A) the investor is attempting to combine assets that are perfectly correlated. 
B) investors are trying to reduce systematic risk. 
C) investors are trying to reduce the total risk of the portfolio. 
D) all of the above

Question 20

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

A firm whose equity has a beta of 1.0:

Empirical studies indicate that MNEs have a lower debt/capital ratio than domestic counterparts,indicating that MNEs have a lower cost of capital.

If a firm's expected returns are more volatile than the expected return for the market portfolio,it will have a beta less than 1.0.

When estimating an average corporate after-tax cost of capital,the component cost of equity is multiplied by (1-t)to allow for the tax-deductibility of dividend payments.

International diversification benefits may induce investors to demand foreign securities.

Systematic risk:

The beginning share price for a security over a three-year period was $50.Subsequent year-end prices were $62,$58 and $64.The arithmetic average annual rate of return and the geometric average annual rate of return for this stock was:

Beta may be defined as:

________ 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.

Capital market imperfections leading to financial market segmentation include:

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

If all capital markets are fully integrated,securities of comparable expected return and risk should have the same required rate of return in each national market after adjusting for:

If a company fails to accurately predict it's cost of equity,then:

A U.S.investor makes an investment in Britain and earns 14% on the investment while the British pound appreciates against the U.S.dollar by 8%.What is the investor's total return?

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

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.

Which of the following statements is NOT true?

In some respects,internationally diversified portfolios are the same in principle as a domestic portfolio because:

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.

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

A firm whose equity has a beta of 1.0:

Empirical studies indicate that MNEs have a lower debt/capital ratio than domestic counterparts,indicating that MNEs have a lower cost of capital.

If a firm's expected returns are more volatile than the expected return for the market portfolio,it will have a beta less than 1.0.

When estimating an average corporate after-tax cost of capital,the component cost of equity is multiplied by (1-t)to allow for the tax-deductibility of dividend payments.

International diversification benefits may induce investors to demand foreign securities.

Systematic risk:

The beginning share price for a security over a three-year period was $50.Subsequent year-end prices were $62,$58 and $64.The arithmetic average annual rate of return and the geometric average annual rate of return for this stock was:

Beta may be defined as:

________ 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.

Capital market imperfections leading to financial market segmentation include:

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

If all capital markets are fully integrated,securities of comparable expected return and risk should have the same required rate of return in each national market after adjusting for:

If a company fails to accurately predict it's cost of equity,then:

A U.S.investor makes an investment in Britain and earns 14% on the investment while the British pound appreciates against the U.S.dollar by 8%.What is the investor's total return?

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

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.

Which of the following statements is NOT true?

In some respects,internationally diversified portfolios are the same in principle as a domestic portfolio because:

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.

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