Question 1

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 2

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 3

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 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

________ 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 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

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 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

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 11

Which of the following is NOT a key variable in the equation for the capital asset pricing model?

Accepted Answer

A) the risk-free rate of interest 
B) the expected rate of return on the market portfolio 
C) the marginal tax rate 
D) All are important components of the CAPM. 
A) the risk-free rate of interest 
B) the expected rate of return on the market portfolio 
C) the marginal tax rate 
D) All are important components of the CAPM.

Question 12

Firms acquire debt in either the form of loans from commercial banks, or by selling new common stock.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Other things equal, a firm that must obtain its long-term debt and equity in a highly illiquid domestic securities market will probably have a:

Accepted Answer

A) relatively low cost of capital. 
B) relatively high cost of capital. 
C) relatively average cost of capital. 
D) cost of capital that we cannot estimate from this question. 
A) relatively low cost of capital. 
B) relatively high cost of capital. 
C) relatively average cost of capital. 
D) cost of capital that we cannot estimate from this question.

Question 15

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 16

Since the 1980s and 1990s, segmentation in global financial markets has been reduced. As a result of this, the correlation among securities markets has increased, thereby reducing, but not eliminating, the benefits of international portfolio diversification.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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 19

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 20

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

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.

A firm whose equity has a beta of 1.0:

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.

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

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

________ 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.

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

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:

Capital market imperfections leading to financial market segmentation include:

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

Which of the following is NOT a key variable in the equation for the capital asset pricing model?

Firms acquire debt in either the form of loans from commercial banks, or by selling new common stock.

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

Other things equal, a firm that must obtain its long-term debt and equity in a highly illiquid domestic securities market will probably have a:

Systematic risk:

Since the 1980s and 1990s, segmentation in global financial markets has been reduced. As a result of this, the correlation among securities markets has increased, thereby reducing, but not eliminating, the benefits of international portfolio diversification.

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 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.

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

Current Multinational Challenges and the Global Economy

Corporate Ownership, Goals, and Governance

The International Monetary System

The Balance of Payments

The Continuing Global Financial Crisis

The Foreign Exchange Theory and Markets

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Translation Exposure

Operating Exposure

Raising Equity and Debt Globally

Multinational Tax Management

International Portfolio Theory and Diversification

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Working Capital Management

International Trade Finance

Filters

Exam 13: The Global Cost and Availability 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.

A firm whose equity has a beta of 1.0:

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.

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

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

________ 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.

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

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:

Capital market imperfections leading to financial market segmentation include:

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

Which of the following is NOT a key variable in the equation for the capital asset pricing model?

Firms acquire debt in either the form of loans from commercial banks, or by selling new common stock.

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

Other things equal, a firm that must obtain its long-term debt and equity in a highly illiquid domestic securities market will probably have a:

Systematic risk:

Since the 1980s and 1990s, segmentation in global financial markets has been reduced. As a result of this, the correlation among securities markets has increased, thereby reducing, but not eliminating, the benefits of international portfolio diversification.

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 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.

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

Current Multinational Challenges and the Global Economy

Corporate Ownership, Goals, and Governance

The International Monetary System

The Balance of Payments

The Continuing Global Financial Crisis

The Foreign Exchange Theory and Markets

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Translation Exposure

Operating Exposure

Raising Equity and Debt Globally

Multinational Tax Management

International Portfolio Theory and Diversification

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Working Capital Management

International Trade Finance

Filters