INTERNATIONAL FINANCIAL MANAGEMENT
13TH EDITION EXAM REVIEW TESTED
QUESTIONS WITH 100 PERCENT CORRECT
ANSWERS
◉ One explanation for foreign equity ownership restrictions
Answer: is to make it difficult or impossible for foreigners to gain
control of a domestic company.
◉ True or False: Shareholders of U.S. bidders (acquiring firms in
M&A) experience significant positive abnormal returns when firms
expand into new industries and geographic markets.
Answer: True
◉ A classic example for trade barrier-motivated FDI is
Answer: Honda's investment in Ohio.
◉ Labor services in a country might be underpriced relative to
productivity because
Answer: workers are not allowed to freely move across national
boundaries to seek higher wages.
,◉ Synergistic gains
Answer: are obtained when the value of the combined firm is greater
than the stand-alone valuations of the individual (acquiring and
target) firms.
◉ A "greenfield" investment
Answer: is generally less politically sensitive than the acquisition of
an existing foreign firm.
◉ The communist victory in China in 1949 is an example of
Answer: macro risk
◉ Examples of intangible assets include
Answer: brand names, technological, managerial, and marketing
know-how, superior R&D capabilities.
◉ The majority of foreign vertical integration is
Answer: backward
◉ FDI can take the form of
Answer: cross-border M &A., establishing new production facilities
in a foreign country, Greenfield investment.
,◉ When a firm holds assets in many countries,
Answer: shareholders of the firm can indirectly benefit from
international diversification even if they are not directly holding
foreign shares.
◉ Suppose you are a euro-based investor who just sold Microsoft
shares that you had bought six months ago. You had invested
€10,000 to buy Microsoft shares for $120 per share; the exchange
rate was $1.55 per euro. You sold the stock for $135 per share and
converted the dollar proceeds into euro at the exchange rate of $1.50
per euro. Compute the rate of return on your investment in euro
terms.
Answer: 16.25
◉ In the context of investments in securities (stocks and bonds),
portfolio risk diversification refers to
Answer: the fact that the less correlated the securities in a portfolio,
the lower the portfolio risk, the time-honored adage "Don't put all
your eggs in one basket."
investors' ability to reduce portfolio risk by holding securities that
are less than perfectly correlated.
◉ The "Sharpe performance measure" (SHP) is
, Answer: a "risk-adjusted" performance measure, as well as the
excess return (above and beyond the risk-free interest rate) per
standard deviation risk.
◉ Emerald Energy is an oil exploration and production company
that trades on the London Stock Exchange. Assume that when
purchased by an international investor the stock's price and the
exchange rate were £5 and £0.64/$1.00 respectively. At selling time,
one year after the purchase date, they were £6 and £0.60/$1.00.
Calculate the investor's annual percentage rate of return in terms of
the U.S. dollars.
Answer: 28.00 percent
◉ The majority of ADRS
Answer: are from such developed countries as Australia and Japan.
◉ Systematic risk is
Answer: non-diversifiable risk and the risk that remains even after
investors fully diversify their portfolio holdings.
◉ Explanations for Home Bias include
Answer: investors may face country-specific inflation in violation of
PPP, there may be barriers, formal or informal, to investing in foreign
securities, domestic securities may provide investors with certain
13TH EDITION EXAM REVIEW TESTED
QUESTIONS WITH 100 PERCENT CORRECT
ANSWERS
◉ One explanation for foreign equity ownership restrictions
Answer: is to make it difficult or impossible for foreigners to gain
control of a domestic company.
◉ True or False: Shareholders of U.S. bidders (acquiring firms in
M&A) experience significant positive abnormal returns when firms
expand into new industries and geographic markets.
Answer: True
◉ A classic example for trade barrier-motivated FDI is
Answer: Honda's investment in Ohio.
◉ Labor services in a country might be underpriced relative to
productivity because
Answer: workers are not allowed to freely move across national
boundaries to seek higher wages.
,◉ Synergistic gains
Answer: are obtained when the value of the combined firm is greater
than the stand-alone valuations of the individual (acquiring and
target) firms.
◉ A "greenfield" investment
Answer: is generally less politically sensitive than the acquisition of
an existing foreign firm.
◉ The communist victory in China in 1949 is an example of
Answer: macro risk
◉ Examples of intangible assets include
Answer: brand names, technological, managerial, and marketing
know-how, superior R&D capabilities.
◉ The majority of foreign vertical integration is
Answer: backward
◉ FDI can take the form of
Answer: cross-border M &A., establishing new production facilities
in a foreign country, Greenfield investment.
,◉ When a firm holds assets in many countries,
Answer: shareholders of the firm can indirectly benefit from
international diversification even if they are not directly holding
foreign shares.
◉ Suppose you are a euro-based investor who just sold Microsoft
shares that you had bought six months ago. You had invested
€10,000 to buy Microsoft shares for $120 per share; the exchange
rate was $1.55 per euro. You sold the stock for $135 per share and
converted the dollar proceeds into euro at the exchange rate of $1.50
per euro. Compute the rate of return on your investment in euro
terms.
Answer: 16.25
◉ In the context of investments in securities (stocks and bonds),
portfolio risk diversification refers to
Answer: the fact that the less correlated the securities in a portfolio,
the lower the portfolio risk, the time-honored adage "Don't put all
your eggs in one basket."
investors' ability to reduce portfolio risk by holding securities that
are less than perfectly correlated.
◉ The "Sharpe performance measure" (SHP) is
, Answer: a "risk-adjusted" performance measure, as well as the
excess return (above and beyond the risk-free interest rate) per
standard deviation risk.
◉ Emerald Energy is an oil exploration and production company
that trades on the London Stock Exchange. Assume that when
purchased by an international investor the stock's price and the
exchange rate were £5 and £0.64/$1.00 respectively. At selling time,
one year after the purchase date, they were £6 and £0.60/$1.00.
Calculate the investor's annual percentage rate of return in terms of
the U.S. dollars.
Answer: 28.00 percent
◉ The majority of ADRS
Answer: are from such developed countries as Australia and Japan.
◉ Systematic risk is
Answer: non-diversifiable risk and the risk that remains even after
investors fully diversify their portfolio holdings.
◉ Explanations for Home Bias include
Answer: investors may face country-specific inflation in violation of
PPP, there may be barriers, formal or informal, to investing in foreign
securities, domestic securities may provide investors with certain
