Question 1

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 2

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 3

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 4

________ 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 5

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 6

The primary goal of both domestic and international portfolio managers is

Accepted Answer

A) to maximize return for a given level of risk, or minimize risk for a given level of return. 
B) minimize the number of unique securities held in their portfolio. 
C) maximize their WACC. 
D) all of the above 
A) to maximize return for a given level of risk, or minimize risk for a given level of return. 
B) minimize the number of unique securities held in their portfolio. 
C) maximize their WACC. 
D) all of the above

Question 7

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 8

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 9

Capital market imperfections leading to financial market segmentation include

Accepted Answer

A) asymmetric information between domestic and foreign-based investors. 
B) high securities transaction costs. 
C) foreign exchange risks. 
D) all of the above 
A) asymmetric information between domestic and foreign-based investors. 
B) high securities transaction costs. 
C) foreign exchange risks. 
D) all of the above

Question 10

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

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

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 13

What are the components of the weighted average cost of capital (WACC)and how do they differ for an MNE compared to a purely domestic firm?

Accepted Answer

The WACC considers the proportion or wei

Question 14

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 15

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 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

Reasons that firms may find themselves with relatively high costs of capital include:

Accepted Answer

A) The firms reside in emerging countries with undeveloped capital markets. 
B) The firms are too small to easily gain access to their own national securities market. 
C) The firms are family owned and they choose not to access public markets and lose control of the firm. 
D) all of the above 
A) The firms reside in emerging countries with undeveloped capital markets. 
B) The firms are too small to easily gain access to their own national securities market. 
C) The firms are family owned and they choose not to access public markets and lose control of the firm. 
D) all of the above

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

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 20

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

Exam 14: The Global Cost and Availability of Capital

The after-tax cost of debt is found by

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

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

________ 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.

Systematic risk

The primary goal of both domestic and international portfolio managers is

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.

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

Capital market imperfections leading to financial market segmentation include

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

Capital market imperfections leading to financial market segmentation include

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

What are the components of the weighted average cost of capital (WACC)and how do they differ for an MNE compared to a purely domestic firm?

A firm whose equity has a beta of 1.0

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.

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.

Reasons that firms may find themselves with relatively high costs of capital include:

The optimal capital budget

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

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

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

Current Multinational Financial Challenges: the Credit Crisis of 2007-2009

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives

Interest Rate and Currency Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Operating Exposure

Translation Exposure

Sourcing Equity Globally

Sourcing Debt Globally

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Political Risk

Multinational Capital Budgeting

Multinational Tax Management

Working Capital Management

International Trade Finance

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