Test Bank and Solution Manual for Multinational Business Finance, 16th Edition by David K. Eitema

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,18) Eurocurrency markets serve two valuable purposes: 1) Eurocurrency deposits are an efficient
and convenient money market device for holding excess corporate liquidity; and 2) the
Eurocurrency market is a major source of short-term bank loans to finance corporate working
capital needs, including the financing of imports and exports.
Answer: TRUE
Diff: 2
L.O.: 1.1 The Global Financial Marketplace
Skill: Conceptual
AACSB: Application of knowledge

19) The key factor attracting both depositors and borrowers to the Eurocurrency loan market is
the narrow interest rate spread within that market.
Answer: TRUE
Diff: 1
L.O.: 1.1 The Global Financial Marketplace
Skill: Conceptual
AACSB: Application of knowledge

20) The Eurocurrency market continues to thrive because it is a large international money market
relatively free from governmental regulation and interference. Recent events may lead to greater
regulation.
Answer: TRUE
Diff: 1
L.O.: 1.1 The Global Financial Marketplace
Skill: Recognition
AACSB: Application of knowledge

21) The theme dominating global financial markets today is the complexity of risks associated
with financial globalization. List and explain examples of the complexity of risks affecting the
leading and managing of multinational firms in the rapidly moving marketplace.
Answer: The following is a sampling of this complexity of risks: 1) The international
monetary system is under constant scrutiny. The rise of the Chinese renminbi is changing much
of the world's outlook on currency exchange, reserve currencies, and the roles of the dollar and
the euro. 2) Large fiscal deficits, including the current eurozone crisis, plague most of the major
trading countries of the world, complicating fiscal and monetary policies, and ultimately, interest
rates and exchange rates. 3) Many countries experience continuing balance of payments
imbalances, and in some cases, dangerously large deficits and surpluses. 4) Ownership, control,
and governance vary radically across the world. 5) Global capital markets that normally provide
the means to lower a firm's cost of capital, and even more critically, increase the availability of
capital, have in many ways shrunk in size and have become less open and accessible to many of
the world's organizations. 6) Financial globalization has resulted in the ebb and flow of capital in
and out of both industrial and emerging markets, greatly complicating financial management.
Diff: 1
L.O.: 1.1 The Global Financial Marketplace
Skill: Conceptual
AACSB: Application of knowledge


____________5 TEST_BANK_ AND SOLUTION MANUA FOR MULTINATIONAL BUSINESS FINANCE 16TH EDITION BY DAVID K EITEMAN!(@@@@@@@@@@@@@@@___________

, 22) Business involves the interaction of individuals and individual organizations for the
exchange of products, services, and capital through markets. The global capital markets are
critical for the conduct of this exchange. The authors suggest that one way to characterize the
global financial marketplace is through its assets, institutions, and linkages. Explain how each of
the three dimensions characterize the global financial marketplace.
Answer: 1) The financial assets at the heart of the global capital markets are the debt securities
issued by governments. These low-risk or risk-free assets (e.g., U.S. Treasury Bonds) form the
foundation for the creation, trading, and pricing of other financial assets like bank loans,
corporate bonds, and equities (stock). In recent years, a number of additional securities have
been created from existing securities-derivatives, whose value is based on market value changes
of the underlying securities. The health and security of the global financial system relies on the
quality of these assets. 2) The institutions of global finance are the central banks, which create
and control each country's money supply; the commercial banks, which take deposits and extend
loans to businesses, both local and global; and the multitude of other financial institutions
created to trade securities and derivatives. These institutions take many shapes and are subject to
many different regulatory frameworks. The health and security of the global financial system
relies on the stability of these financial institutions. 3) The links between the financial
institutions, the actual fluid or medium for exchange, are the interbank networks using currency.
The ready exchange of currencies in the global marketplace is the first and foremost necessary
element for the conduct of financial trading, and the global currency markets are the largest
markets in the world. The exchange of currencies, and the subsequent exchange of all other
securities globally via currency, is the international interbank network.
Diff: 2
L.O.: 1.1 The Global Financial Marketplace
Skill: Conceptual
AACSB: Application of knowledge

1.2 The Theory of Comparative Advantage

1) The theory that suggests specialization by country can increase worldwide production is:
A) the theory of comparative advantage.
B) the theory of foreign direct investment.
C) the international Fisher effect.
D) the theory of working capital management.
Answer: A
Diff: 1
L.O.: 1.2 The Theory of Comparative Advantage
Skill: Recognition
AACSB: Application of knowledge




____________6 TEST_BANK_ AND SOLUTION MANUA FOR MULTINATIONAL BUSINESS FINANCE 16TH EDITION BY DAVID K EITEMAN!(@@@@@@@@@@@@@@@___________