Question 1

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  False

Question 2

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 efficient in a domestic context and yet segmented in an international context. According to finance theory, a market is efficient if security prices in that market reflect all available relevant information and adjust quickly to any new relevant information. According to finance theory, a market is efficient if security prices in that market reflect all available relevant information and adjust quickly to any new relevant information.

Question 3

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 A

Question 4

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 5

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 6

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 7

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 8

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 9

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 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

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 12

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 13

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 an average price of €60/share, how many shares of stock will the investor be able to purchase?

Accepted Answer

A)  8333 shares 
B)  6410 shares 
C)  6173 shares 
D)  10,833 shares 
A)  8333 shares 
B)  6410 shares 
C)  6173 shares 
D)  10,833 shares

Question 14

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

Accepted Answer

A)  excessive regulatory control 
B)  perceived political risk 
C)  anticipated foreign exchange risk 
D)  All of the above are contributing factors. 
A)  excessive regulatory control 
B)  perceived political risk 
C)  anticipated foreign exchange risk 
D)  All of the above are contributing factors.

Question 15

Surprisingly, empirical studies find that MNEs have a higher level of systematic risk than their domestic counterparts.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Portfolio diversification can eliminate 100% of risk.

Accepted Answer

A) True 
 B)False

Question 18

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 19

________ risk is measured with beta.

Accepted Answer

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

Question 20

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

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

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

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

Which of the following statements is NOT true?

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

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

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.

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

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

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

Capital market imperfections leading to financial market segmentation include:

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

Surprisingly, empirical studies find that MNEs have a higher level of systematic risk than their domestic counterparts.

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?

Portfolio diversification can eliminate 100% of risk.

The optimal capital budget:

________ risk is measured with beta.

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

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

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

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

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

Which of the following statements is NOT true?

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

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

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.

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

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

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

Capital market imperfections leading to financial market segmentation include:

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

Surprisingly, empirical studies find that MNEs have a higher level of systematic risk than their domestic counterparts.

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?

Portfolio diversification can eliminate 100% of risk.

The optimal capital budget:

________ risk is measured with beta.

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

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