FIN 4110 Exam 1 Clemson University
UPDATED Actual Questions and
CORRECT Answers
3 Functions of Money - CORRECT ANSWER✔✔- 1. Medium of exchange
2. Unit of account
3. Store of value
Multinational Corporation - CORRECT ANSWER✔✔- a company with production and
distribution facilities in more than 1 country
Reasons to globalize - CORRECT ANSWER✔✔- find new markets; lower costs; utilize
different resources/materials
Raw Material Seekers - CORRECT ANSWER✔✔- the earliest multinationals; exploit
markets in other countries
Market Seekers - CORRECT ANSWER✔✔- produce and sell in foreign markets (ex. IBM,
McDonald's, Nestle)
Cost Minimizers - CORRECT ANSWER✔✔- seek lower cost production abroad in order to
remain cost competitive
2 Types of Cost Minimization - CORRECT ANSWER✔✔- 1. Offshoring: production by
foreign affiliate
2. Outsourcing: production by foreign 3rd party
Costs of Globalization - CORRECT ANSWER✔✔- 1. lost manufacturing jobs in U.S.
2. major plant closings
3. high paying union jobs replaced with low paying service jobs
, 3 Requirements for Arbitrage - CORRECT ANSWER✔✔- 1. no risk
2. can't use any personal money
3. instantaneous return
Market Efficiency - CORRECT ANSWER✔✔- prices reflect all relevant information
Capital Asset Pricing - CORRECT ANSWER✔✔- equates risk and return; investors expect
compensation for systematic risk
2 Types of Risk - CORRECT ANSWER✔✔- 1. Systematic: undiversifiable (risk premium)
2. Unsystematic: diversifiable (no risk premium)
Exchange Rate - CORRECT ANSWER✔✔- price of one unit of currency expressed as a
certain price in local currency
Factors that impact exchange rates - CORRECT ANSWER✔✔- 1. Interest Rates
2. Inflation
3. Political Uncertainty
4. GDP Growth
Asset Market Model - CORRECT ANSWER✔✔- the exchange rate between 2 currencies
represents the price that just balances the relative supplies and demands for assets
denominated in the 2 currencies
2 Characteristics of Money - CORRECT ANSWER✔✔- 1. Store of Value
2. Store of Liquidity
Central Bank - CORRECT ANSWER✔✔- nation's official monetary authority; has the sole
power to create money
UPDATED Actual Questions and
CORRECT Answers
3 Functions of Money - CORRECT ANSWER✔✔- 1. Medium of exchange
2. Unit of account
3. Store of value
Multinational Corporation - CORRECT ANSWER✔✔- a company with production and
distribution facilities in more than 1 country
Reasons to globalize - CORRECT ANSWER✔✔- find new markets; lower costs; utilize
different resources/materials
Raw Material Seekers - CORRECT ANSWER✔✔- the earliest multinationals; exploit
markets in other countries
Market Seekers - CORRECT ANSWER✔✔- produce and sell in foreign markets (ex. IBM,
McDonald's, Nestle)
Cost Minimizers - CORRECT ANSWER✔✔- seek lower cost production abroad in order to
remain cost competitive
2 Types of Cost Minimization - CORRECT ANSWER✔✔- 1. Offshoring: production by
foreign affiliate
2. Outsourcing: production by foreign 3rd party
Costs of Globalization - CORRECT ANSWER✔✔- 1. lost manufacturing jobs in U.S.
2. major plant closings
3. high paying union jobs replaced with low paying service jobs
, 3 Requirements for Arbitrage - CORRECT ANSWER✔✔- 1. no risk
2. can't use any personal money
3. instantaneous return
Market Efficiency - CORRECT ANSWER✔✔- prices reflect all relevant information
Capital Asset Pricing - CORRECT ANSWER✔✔- equates risk and return; investors expect
compensation for systematic risk
2 Types of Risk - CORRECT ANSWER✔✔- 1. Systematic: undiversifiable (risk premium)
2. Unsystematic: diversifiable (no risk premium)
Exchange Rate - CORRECT ANSWER✔✔- price of one unit of currency expressed as a
certain price in local currency
Factors that impact exchange rates - CORRECT ANSWER✔✔- 1. Interest Rates
2. Inflation
3. Political Uncertainty
4. GDP Growth
Asset Market Model - CORRECT ANSWER✔✔- the exchange rate between 2 currencies
represents the price that just balances the relative supplies and demands for assets
denominated in the 2 currencies
2 Characteristics of Money - CORRECT ANSWER✔✔- 1. Store of Value
2. Store of Liquidity
Central Bank - CORRECT ANSWER✔✔- nation's official monetary authority; has the sole
power to create money
