Question 1

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 2

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 3

International diversification benefits may induce investors to demand foreign securities.

Accepted Answer

A) True 
 B)False

Question 4

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 5

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 6

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 7

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 8

Because of the international diversification of cash flows, the risk of bankruptcy for MNEs is significantly lower than that for purely domestic firms.

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

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 11

Which of the following statements is NOT true regarding MNEs when compared to purely domestic firms?

Accepted Answer

A)  MNEs tend to rely more on short and intermediate term debt. 
B)  MNEs have greater foreign exchange risk. 
C)  MNEs have greater costs of asymmetric information. 
D)  MNEs have higher agency costs. 
A)  MNEs tend to rely more on short and intermediate term debt. 
B)  MNEs have greater foreign exchange risk. 
C)  MNEs have greater costs of asymmetric information. 
D)  MNEs have higher agency costs.

Question 12

Theoretically, most MNEs should be in a position to support higher ________ than their domestic counterparts because their cash flows are diversified internationally.

Accepted Answer

A)  equity ratios 
B)  debt ratios 
C)  temperatures 
D)  none of the above 
A)  equity ratios 
B)  debt ratios 
C)  temperatures 
D)  none of the above

Question 13

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 14

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 15

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 16

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 17

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 18

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 19

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 20

A fully diversified domestic portfolio has a beta of:

Accepted Answer

A)  0.0. 
B)  1.0. 
C)  -1.0. 
D)  There is not enough information to answer this question. 
A)  0.0. 
B)  1.0. 
C)  -1.0. 
D)  There is not enough information to answer this question.

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

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

International diversification benefits may induce investors to demand foreign securities.

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

Unsystematic risk:

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.

Because of the international diversification of cash flows, the risk of bankruptcy for MNEs is significantly lower than that for purely domestic firms.

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

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

Which of the following statements is NOT true regarding MNEs when compared to purely domestic firms?

Theoretically, most MNEs should be in a position to support higher ________ than their domestic counterparts because their cash flows are diversified internationally.

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

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.

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

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

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:

Beta may be defined as:

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

A fully diversified domestic portfolio has a beta of:

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

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

International diversification benefits may induce investors to demand foreign securities.

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

Unsystematic risk:

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.

Because of the international diversification of cash flows, the risk of bankruptcy for MNEs is significantly lower than that for purely domestic firms.

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

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

Which of the following statements is NOT true regarding MNEs when compared to purely domestic firms?

Theoretically, most MNEs should be in a position to support higher ________ than their domestic counterparts because their cash flows are diversified internationally.

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

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.

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

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

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:

Beta may be defined as:

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

A fully diversified domestic portfolio has a beta of:

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

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

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