FINA 4500 Exam 1 Questions with 100%
Correct Answers
What is the study of international finance
1. Making investment and financing decisions in a global market
2. Cash flows associated with these decisions
3. Risks associated with these cash flows
4. The international financial markets
Foreign exchange risk
The risk that foreign currency profits may evaporate in dollar terms due to unanticipated
unfavorable exchange rate movements
multinational corporation (MNC)
A firm that has incorporated on one country and has production and sales operations in
other countries
Political risk
Sovereign governments have the right to regulate the movement of goods, capital, and
people across their borders. These laws sometimes change in unexpected ways.
Market imperfections
1. Legal restrictions on the movement of goods, people and money
2. Transaction costs
3. Shipping costs
Expanded opportunity set
, It doesn't make sense to play in only one corner of the sandbox: consumption, production,
financing, and investment
True for corporations as well as individual investors
Source of MNC's cash flows
1. International trade
2. Licensing
3. Franchising
4. Joint venture
5. Acquisition of existing operation
6. Establishing new foreign subsidiaries
Imperfect market theory
factors of production are somewhat immobile providing incentive to seek out foreign
opportunities
Home country does not provide the necessary resources (land, labor, capital and
technology)
Product cycle theory
Start with a unique product controlled by one firm in one country
The firm employs the product domestically
The firm expands overseas
Comparative advantage theory
Correct Answers
What is the study of international finance
1. Making investment and financing decisions in a global market
2. Cash flows associated with these decisions
3. Risks associated with these cash flows
4. The international financial markets
Foreign exchange risk
The risk that foreign currency profits may evaporate in dollar terms due to unanticipated
unfavorable exchange rate movements
multinational corporation (MNC)
A firm that has incorporated on one country and has production and sales operations in
other countries
Political risk
Sovereign governments have the right to regulate the movement of goods, capital, and
people across their borders. These laws sometimes change in unexpected ways.
Market imperfections
1. Legal restrictions on the movement of goods, people and money
2. Transaction costs
3. Shipping costs
Expanded opportunity set
, It doesn't make sense to play in only one corner of the sandbox: consumption, production,
financing, and investment
True for corporations as well as individual investors
Source of MNC's cash flows
1. International trade
2. Licensing
3. Franchising
4. Joint venture
5. Acquisition of existing operation
6. Establishing new foreign subsidiaries
Imperfect market theory
factors of production are somewhat immobile providing incentive to seek out foreign
opportunities
Home country does not provide the necessary resources (land, labor, capital and
technology)
Product cycle theory
Start with a unique product controlled by one firm in one country
The firm employs the product domestically
The firm expands overseas
Comparative advantage theory
