Question 1

In theory MNE should be able to support higher debt ratios and have lower associated costs.

Accepted Answer

A) True 
 B)False

Question 2

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 3

In the firm's WACC estimate, cost of debt is

Accepted Answer

A)  calculated using CAPM. 
B)  weighted average of the principles of different debt components. 
C)  adjusted with the effective tax rate because interest payments are deductible item. 
D)  equivalent only to the interest on firm's market debt securities. 
A)  calculated using CAPM. 
B)  weighted average of the principles of different debt components. 
C)  adjusted with the effective tax rate because interest payments are deductible item. 
D)  equivalent only to the interest on firm's market debt securities.

Question 4

Market imperfections do not necessarily imply that national securities markets are inefficient.

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

Question 6

Segmented national capital markets are limiting firm's competitive advantage in sourcing capital because

Accepted Answer

A)  there is liquid demand for all securities. 
B)  the yield on the debt securities are lower than in other mature capital markets. 
C)  FX risk is eliminated with different industry segmentation. 
D)  the cost and availability of capital can be constrained by excessive regulatory controls and perceived political risk. 
A)  there is liquid demand for all securities. 
B)  the yield on the debt securities are lower than in other mature capital markets. 
C)  FX risk is eliminated with different industry segmentation. 
D)  the cost and availability of capital can be constrained by excessive regulatory controls and perceived political risk.

Question 7

In general the geometric mean will be ________ the arithmetic mean for a series of returns.

Accepted Answer

A)  less than 
B)  greater than 
C)  equal to 
D)  greater than or equal to 
A)  less than 
B)  greater than 
C)  equal to 
D)  greater than or equal to

Question 8

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 9

Systematic risk

Accepted Answer

A)  is the standard deviation of a securities returns. 
B)  is measured with beta. 
C)  is measured with standard deviation. 
D)  none of the above. 
A)  is the standard deviation of a securities returns. 
B)  is measured with beta. 
C)  is measured with standard deviation. 
D)  none of the above.

Question 10

Your authors identify three firm and market characteristics that, in part, determine differences in a firm's cost of capital in a purely domestic market versus a global capital market. What are these three market characteristics and how do they help differentiate a firm's cost of capital?

Accepted Answer

The three characteristics are 1) firm-sp

Question 11

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 12

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 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

Which of the following is NOT a key variable in the weighted average cost of capital (WACC) equation?

Accepted Answer

A)  the before-tax cost of debt 
B)  the risk-adjusted cost of equity 
C)  the beta of the market portfolio 
D)  the total market value of the firm's securities 
A)  the before-tax cost of debt 
B)  the risk-adjusted cost of equity 
C)  the beta of the market portfolio 
D)  the total market value of the firm's securities

Question 15

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 16

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 17

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 18

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

Question 19

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 20

Empirical studies have shown that MNE's

Accepted Answer

A)  mangers tend to limit firm's capital budget to what can be financed with free cash flows. 
B)  have lower debt/capital ratio than domestic counterparts. 
C)  are exposed to higher level of political risk, FX risk and higher agency costs. 
D)  all of the above 
A)  mangers tend to limit firm's capital budget to what can be financed with free cash flows. 
B)  have lower debt/capital ratio than domestic counterparts. 
C)  are exposed to higher level of political risk, FX risk and higher agency costs. 
D)  all of the above

In theory MNE should be able to support higher debt ratios and have lower associated costs.

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

In the firm's WACC estimate, cost of debt is

Market imperfections do not necessarily imply that national securities markets are inefficient.

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

Segmented national capital markets are limiting firm's competitive advantage in sourcing capital because

In general the geometric mean will be ________ the arithmetic mean for a series of returns.

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

Systematic risk

Your authors identify three firm and market characteristics that, in part, determine differences in a firm's cost of capital in a purely domestic market versus a global capital market. What are these three market characteristics and how do they help differentiate a firm's cost of capital?

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

The after-tax cost of debt is found by

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

Which of the following is NOT a key variable in the weighted average cost of capital (WACC) equation?

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 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.

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

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.

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

Empirical studies have shown that MNE's

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 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 12: The Global Cost and Availability of Capital

In theory MNE should be able to support higher debt ratios and have lower associated costs.

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

In the firm's WACC estimate, cost of debt is

Market imperfections do not necessarily imply that national securities markets are inefficient.

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

Segmented national capital markets are limiting firm's competitive advantage in sourcing capital because

In general the geometric mean will be ________ the arithmetic mean for a series of returns.

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

Systematic risk

Your authors identify three firm and market characteristics that, in part, determine differences in a firm's cost of capital in a purely domestic market versus a global capital market. What are these three market characteristics and how do they help differentiate a firm's cost of capital?

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

The after-tax cost of debt is found by

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

Which of the following is NOT a key variable in the weighted average cost of capital (WACC) equation?

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 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.

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

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.

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

Empirical studies have shown that MNE's

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 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.