Correct : B. excludes all aspects relevant to a particular firm or project.
2. The checklist approach:
Correct : C. requires ratings and weights to be assigned to all factors relevant in assessing country risk.
3. Insurance purchased to cover the risk of expropriation __________, and will typically
cover __________.
Correct : D. will be dependent on the firm's risk; only a portion of the firm's total exposure.
4. If a foreign country follows the "Purchase Homemade Products" philosophy, the least effective strategy would be for a UK firm to:
Correct : C. develop a subsidiary (under the US name) that manufactures and sells products in that country.
5. A firm may incorporate a country risk rating into the capital budgeting analysis by:
Correct : B. adjusting the discount rate upward as the country risk rating decreases (implying increased risk).
6. ______________ is(are) not a form of political risk.
Correct : A. Exchange rate movements
7. When quantifying country risk:
Correct : B. weights should be assigned to the political and financial factors according to their perceived importance.
8. An argument for MNCs to have a debt-intensive capital structure is:
Correct : A. they are well diversified.
9. The capital asset pricing theory is based on the premise that:
Correct : B. only systematic variability in cash flows is relevant.
10. One argument for why subsidiaries should be wholly-owned by the parent is that:
Correct : B. the potential conflict of interests between the MNC's majority shareholders and minority shareholders is avoided.
11. Other things being equal, countries with relatively _______ populations and _______ inflation are more likely to have a low cost of capital.
Correct : C. old; low
12. According to the text:
Correct : C. the cost of debt for countries change over time, and these changes are positively correlat
13. Which of the following is not a factor that favorably affects an MNC's cost of capital, according to your text?
Correct : A. exchange rate risk.
14. MNC Corporation has a beta of 2.0. The risk-free rate of interest is 5%, and the return on the stock market overall is expected to be 13%. What is the required rate of return on MNC stock?
Correct : A. 21%.
15. In general, MNCs probably prefer to use ____________ foreign debt when their foreign subsidiaries are subject to potentially ___________ local currencies.
Correct : B. more; weak
16. To the extent that individual economies are ______ each other, net cash flows from a portfolio of subsidiaries should exhibit ______ variability, which may reduce the probability of bankruptcy.
Correct : C. dependent on; more
17. The lower a project's beta, the _______ is the project's _________ risk.
Correct : A. lower; systematic
18. The profitability index is:
Correct : C. Gross present volume/Initial outlay.
19. Which of the following is a correct method of adjusting for inflation when calculating net present value?
Correct : B. Estimate the cash flows in real terms and use a real discount rate.
20. The relationship between the money rate of return, m, the real rate of return, h, and the inflation rate, i, is expressed in which of the following formulae?
Correct : D. 1 + h = (1 + m) / (1 + i)
21. Which of the following is true? A. Risk is the probability of an outturn being less than anticipated. B. An objective probability is one which can be established mathematically or from historical data. C. The discount rate may be raised or lowered to allow for the risk of a project, the extent of the risk premium being based on indisputable theory.
Correct : A. B
22. Which of the following statements about sensitivity analysis is false?
Correct : D. Sensitivity analysis permits the decision maker to change all the variables simultaneously and thereby examine a project in various different circumstance
23. Which of the following does not obey the mean-variance rule?
Correct : D. Project X will be preferred to project Y if the variance of X is higher than Y and the expected return is lower than Y.
24. The impact of blocked funds on the net present value of a foreign project will be greater if interest rates are _______ in the host country and there are _______ investment opportunities in the host country.
Correct : B. very low; limited
25. Assume that Baps Corporation is considering the establishment of a subsidiary in Norway. The initial investment required by the parent is $5,000,000. If the project is undertaken, Baps would terminate the project after four years. Baps' cost of capital is 13%, and the project is of the same risk as Baps' existing projects. All cash flows generated from the project will be remitted to the parent at the end of each year. Listed below are the estimated cash flows the Norwegian subsidiary will generate over the project's lifetime in Norwegian kroner (NOK): Year 1 NOK 10,000,000 Year 2 NOK 15,000,000 Year 3 NOK 17,000,000 Year 4 NOK 20,000,000 The current exchange rate of the Norwegian kroner is $.135. Baps' exchange rate forecast for the Norwegian kroner over the project's lifetime is listed below: Year 1 $.13 Year 2 $.14 Year 3 $.12 Year 4 $.15 Baps is also uncertain regarding the cost of capital. Recently, Norway has been involved in some political turmoil. What is the net p
Correct : D. $645,147.
26. When a foreign subsidiary is not wholly owned by the parent and a foreign project is partially financed with retained earnings of the parent and of the subsidiary, then:
Correct : C. the foreign project should enhance the value of both the parent and the subsidiary.
27. An international project's NPV is _________ related to the size of the initial investment and
_________ related to the project's required rate of return.
Correct : D. negatively; negatively
28. If an MNC sells a product in a foreign country and imports partially manufactured components needed for production to that country from the U.S., then the local economy's inflation will have:
Correct : A. a more pronounced impact on revenues than on costs.
29. Which of the following would probably not cause the stock price of a foreign target to decrease?
Correct : C. Investors anticipate that the target will be acquir
30. Other things being equal, a foreign subsidiary in China would more likely be divested by the
U.S. parent if new information caused the parent to suddenly anticipate that:
Correct : A. the Chinese yuan would depreciate in the future.
31. When quantifying country risk:
Correct : B. weights should be assigned to the political and financial factors according to their perceived importance.
32. The most preferred form of securities for funding by firms in the U.S. is
Correct : A. debt
33. Which one of the following new issues of stock has the greatest probability of lowering its cost of equity capital?
Correct : C. Apple stock on the London exchange
34. When computing the weighted average cost of capital, the weighting should be proportional
based on the ______ rather than the _____ value of the firm.
Correct : D. market, book
35. The rate of return on its existing assets that a firm must earn to maintain the current value of
the firm's stock is called the:
Correct : C. weighted average cost of capital.
36. Which one of the following is a correct statement regarding a firm's weighted average cost of capital (WACC)?
Correct : D. The WACC can be used as the required return for all new projects with similar risk to that of the existing firm.
37. Capital structure weights are based on the:
Correct : A. market values of a firm's debt and equity.
38. Which one of the following represents the best estimate for a firm's pre-tax cost of debt?
Correct : A. the current yield-to-maturity on the firm's existing debt
39. A project may be regarded as high risk project when
Correct : A. It has smaller variance of outcome but a high initial investment
40. Following is (are) the method(s) for adjustment of risks
Correct : C. Both (A) and (B)
41. With limited finance and a number of project proposals at hand, select that package of projects which has
Correct : A. The maximum net present value
42. Which of the following is a legitimate reason for international investment?
Correct : C. There are possible benefits from international diversification.
43. Theory which considers change in exchange rate with fluctuations in inflation rates is
classified as
Correct : B. purchasing power parity
44. If purchasing power parity were to hold even in the short run, then:
Correct : D. real exchange rates should be stable over time.
45. Given a home country and a foreign country, purchasing power parity suggests that:
Correct : C. the home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate
46. Interest Rate Parity (IRP) implies that:
Correct : B. The difference in interest rates in different currencies for securities of similar risk and maturity should be consistent with the forward rate discount or premium for the foreign currency
47. In equilibrium position, spread between foreign and domestic rate of interest must be equal
to spread of
Correct : B. forward and spot exchange rates
48. Rule which states that similar set of goods and services produced in various countries
should have equal price is classified as
Correct : D. law of one price
49. Example of derivative securities includes
Correct : D. all of above
50. Authority which intervenes directly or indirectly in foreign exchange markets by altering
interest rates is considered as
Correct : A. central government
51. The forward market is especially well-suited to offer hedging protection against
Correct : B. transactions risk exposure.
52. Suppose that the Japanese yen is selling at a forward discount in the forward-exchange market. This implies that most likely
Correct : C. interest rates are higher in Japan than in the United States.
53. Hedging is used by companies to:
Correct : D. Decrease the variability of expected cash flows
54. Which of the following is true of foreign exchange markets?
Correct : C. The futures market is mainly used by speculators while the forward market is mainly used for hedging.
55. Exchange rates
Correct : B. fluctuate to equate the quantity of foreign exchange demanded with the quantity supplied
56. An arbitrageur in foreign exchange is a person who
Correct : C. simultaneously buys large amounts of a currency in one market and sell it in another market
57. A speculator in foreign exchange is a person who
Correct : A. buys foreign currency, hoping to profit by selling it a a higher exchange rate at some later date
58. A floating exchange rate
Correct : D. is allowed to vary according to market forces
59. The current system of international finance is a
Correct : D. managed float exchange rate system
60. A simultaneous purchase and sale of foreign exchange for two different dates is called
Correct : B. currency swap
61. Investment can be defined.
Correct : B. Use of capital on assets to receive returns
62. The concept of Financial management is.
Correct : B. All features of obtaining and using financial resources for company operations
63. What is the primary goal of financial management?
Correct : B. To maximise the owner’s wealth
64. The finance manager is accountable for.
Correct : C. Arrangement of financial resources
65. The market value of a share is responsible for.
Correct : A. The investment market
66. The capital budget is associated with.
Correct : C. Long terms assets
67. CAPM stands for.
Correct : A. Capital asset pricing model.
68. What does financial leverage measure?
Correct : C. The sensibility of EPS with % change in the EBIT level
69. From the below-mentioned items which are financial assets?
Correct : C. Stocks
70. Trade between two countries can be useful if cost ratios of goods are:
Correct : D. Different
71. The term Euro Currency market refers to
Correct : B. The market where the borrowing and lending of currencies take place outside the country of issue
72. Which of the following theories suggests that firms seek to penetrate new markets over time?
Correct : B. Product cycle theory
73. Dumping refers to:
Correct : B. Sale of goods abroad at low a price, below their cost and price in home market
74. International trade and domestic trade differ because of:
Correct : D. All of the above
75. The margin for a currency future should be maintained with the clearing house by
Correct : D. Both the buyer and the seller
76. The following statement with respect to currency option is wrong
Correct : D. Call option will be used by exporters
77. Govt. policy about exports and imports is called:
Correct : A. Commercial policy
78. Which of the following is international trade:
Correct : A. Trade between countries
79. Market in which currencies buy and sell and their prices settle on is called the
Correct : C. Foreign exchange market
80. Purchasing goods from a foreign country is called
Correct : A. Import
81. Goods imported for the purpose of export is known as
Correct : C. Entrepot
82. Agents are appointed by?
Correct : D. Principal
83. Who among these can check the price fluctuations in the market by holding back the
goods when prices fall and releasing the goods when prices rise
Correct : C. Wholesaler
84. These are agents whose function is to bring the buyer and the seller into contact.
Correct : C. Broker
85. Who among the following appoints the agent
Correct : A. Principal
86. Which among the following is not concerned with Chambers of Commerce & Industry
Correct : C. ICICI
87. One example of Small scale Fixed retailers among these is
Correct : B. General stores
88. This retail business acts as a universal supplier of a wide variety of products.
Correct : D. Departmental store
89. What is the Bill receivable account?
Correct : C. Real Account
90. A bill of exchange includes.
Correct : A. An order to pay
91. Which bill is drawn and accepted in the same country?
Correct : C. Inland Bill
92. Who draws a bill of exchange?
Correct : C. Holder
93. What is the person known as who draws a bill of exchange
Correct : A. Drawer
94. What are the three additional days known as that a drawer gives to the drawee for
payment
Correct : C. Days of grace
95. When the drawee signs the bill, it is considered as
Correct : A. Accepted
96. What kind of acceptance is known as when the bill is accepted without any condition?
Correct : D. General acceptance
97. When the bill is noted from the notary public, it is known as?
Correct : A. Noting
98. What is retiring a bill under rebate means?
Correct : A. Making a payment of the bill before the due date
99. The most widely used monetary policy tool among these is.