Chap 01 10e Eun
1) What major attribute(s) set(s) apart international finance from domestic finance?
A) Foreign exchange and political risks
B) Market imperfections
C) Expanded opportunity set
D) all of the options
2) An example(s) of political risk is
A) expropriation of assets, only.
B) adverse change in tax rules, only.
C) the opposition party being elected, only.
D) both the expropriation of assets and adverse changes in tax rules are correct.
3) Production of goods and services has become globalized to a large extent because of
A) natural resources being depleted in one country after another.
B) skilled labor being highly mobile.
C) multinational corporations' efforts to source inputs and locate production anywhere where
costs are lower and profits higher.
D) common tastes worldwide for the same goods and services.
4) Recently, financial markets have become highly integrated. This development
A) allows investors to diversify their portfolios internationally.
B) prevents minority investors to buy and sell stocks.
C) has increased the cost of capital for firms.
D) none of the options
5) Japan has experienced large trade surpluses. Japanese investors have responded to this by
A) liquidating their positions in stocks to buy dollar-denominated bonds.
B) investing heavily in U.S. and other foreign financial markets.
C) lobbying the U.S. government to depreciate its currency.
D) lobbying the Japanese government to allow the yen to appreciate.
6) The goal of the multinational corporation (MNC) is generally to
A) maximize shareholder wealth.
B) maximize the size of the firm.
C) maximize the number of countries in which it operates.
D) maximize the salary of the CEO.
7) The agency problem in an MNC refers to
A) conflicts of interest between shareholders and managers.
B) conflicts between the host and home country governments.
C) conflicts between the parent company and its subsidiaries.
D) conflicts between the firm and its customers.
,8) The primary advantage of the corporate form of organization is
A) limited liability for shareholders.
B) avoidance of double taxation.
C) simplified regulatory requirements.
D) unlimited life for the CEO.
9) Which of the following is NOT a reason why firms become multinational?
A) To seek new markets
B) To seek raw materials
C) To seek new technology
D) To reduce competition through collusion
10) Which of the following is NOT a type of political risk facing an MNC?
A) Expropriation of assets
B) Adverse changes in tax rules
C) Currency devaluation
D) Adverse change in interest rates
11) The difference between international trade and international finance is that
A) international trade deals with goods and services; international finance deals with capital
flows.
B) international trade deals with capital flows; international finance deals with goods and
services.
C) both deal only with capital flows.
D) both deal only with goods and services.
12) The globalization of financial markets has led to
A) greater diversification opportunities for investors.
B) lower capital mobility.
C) higher transaction costs.
D) reduced competition among firms.
13) An MNC may benefit from international diversification because
A) returns on assets in different countries are not perfectly correlated.
B) returns on assets in different countries are perfectly correlated.
C) diversification always reduces expected returns.
D) diversification always increases risk.
14) The foreign exchange market is
A) the market where currencies are bought and sold.
B) the market where goods are exchanged.
C) the market where stocks are traded.
D) the market where bonds are issued.
,15) Which of the following is NOT an example of a market imperfection that can motivate FDI?
A) Trade barriers
B) Labor market rigidities
C) Government regulations
D) Efficient global capital markets
16) The Bretton Woods system was established to
A) promote international monetary cooperation and stability.
B) promote international trade barriers.
C) promote the gold standard.
D) promote a single global currency.
17) Which of the following is NOT a major trend in international finance?
A) Deregulation of financial markets
B) Integration of financial markets
C) Innovation of financial instruments
D) Increasing restrictions on cross-border capital flows
18) Multinational corporations may reduce their cost of capital by
A) raising funds in international markets.
B) restricting themselves to domestic markets.
C) avoiding international diversification.
D) limiting their operations to one country.
19) Which of the following is a reason why MNCs may have an advantage over purely domestic
firms?
A) Access to international capital markets
B) Limited access to global markets
C) Higher political risk only
D) Less competitive pressures
20) The rise of the Eurocurrency market is an example of
A) financial market globalization.
B) increasing trade barriers.
C) reduced capital mobility.
D) increased political risk.
21) The principal-agent problem is more complex in an MNC because
A) of the geographical and cultural distance between parent and subsidiaries.
B) of the simplicity of the organizational structure.
C) shareholders have perfect information.
D) managers and shareholders always have aligned interests.
, 22) Which of the following is an example of a market imperfection that motivates international
diversification?
A) Information asymmetry across national markets
B) Perfectly integrated capital markets
C) Uniform tax rates across countries
D) Identical consumption patterns worldwide
23) The primary role of the World Bank is to
A) provide long-term loans for economic development.
B) manage the global trading system.
C) set exchange rates between currencies.
D) issue the world's reserve currency.
24) The primary role of the International Monetary Fund (IMF) is to
A) promote exchange rate stability and provide short-term balance-of-payments support.
B) finance long-term development projects.
C) regulate global trade.
D) issue a single world currency.
25) Which of the following is NOT a characteristic of the current international monetary system?
A) Floating exchange rates
B) Limited capital mobility
C) Independent monetary policy
D) Free capital flows
26) The 'impossible trinity' or 'trilemma' in international finance refers to the inability to
simultaneously have
A) a fixed exchange rate, free capital movement, and independent monetary policy.
B) a floating exchange rate, restricted capital flow, and dependent monetary policy.
C) a fixed exchange rate, restricted capital flow, and independent monetary policy.
D) a floating exchange rate, free capital movement, and independent monetary policy.
27) Which of the following is an example of a real asset?
A) Equipment
B) Common stock
C) Bond
D) Bank deposit
28) Which of the following is an example of a financial asset?
A) Common stock
B) Machinery
C) Building
D) Land
1) What major attribute(s) set(s) apart international finance from domestic finance?
A) Foreign exchange and political risks
B) Market imperfections
C) Expanded opportunity set
D) all of the options
2) An example(s) of political risk is
A) expropriation of assets, only.
B) adverse change in tax rules, only.
C) the opposition party being elected, only.
D) both the expropriation of assets and adverse changes in tax rules are correct.
3) Production of goods and services has become globalized to a large extent because of
A) natural resources being depleted in one country after another.
B) skilled labor being highly mobile.
C) multinational corporations' efforts to source inputs and locate production anywhere where
costs are lower and profits higher.
D) common tastes worldwide for the same goods and services.
4) Recently, financial markets have become highly integrated. This development
A) allows investors to diversify their portfolios internationally.
B) prevents minority investors to buy and sell stocks.
C) has increased the cost of capital for firms.
D) none of the options
5) Japan has experienced large trade surpluses. Japanese investors have responded to this by
A) liquidating their positions in stocks to buy dollar-denominated bonds.
B) investing heavily in U.S. and other foreign financial markets.
C) lobbying the U.S. government to depreciate its currency.
D) lobbying the Japanese government to allow the yen to appreciate.
6) The goal of the multinational corporation (MNC) is generally to
A) maximize shareholder wealth.
B) maximize the size of the firm.
C) maximize the number of countries in which it operates.
D) maximize the salary of the CEO.
7) The agency problem in an MNC refers to
A) conflicts of interest between shareholders and managers.
B) conflicts between the host and home country governments.
C) conflicts between the parent company and its subsidiaries.
D) conflicts between the firm and its customers.
,8) The primary advantage of the corporate form of organization is
A) limited liability for shareholders.
B) avoidance of double taxation.
C) simplified regulatory requirements.
D) unlimited life for the CEO.
9) Which of the following is NOT a reason why firms become multinational?
A) To seek new markets
B) To seek raw materials
C) To seek new technology
D) To reduce competition through collusion
10) Which of the following is NOT a type of political risk facing an MNC?
A) Expropriation of assets
B) Adverse changes in tax rules
C) Currency devaluation
D) Adverse change in interest rates
11) The difference between international trade and international finance is that
A) international trade deals with goods and services; international finance deals with capital
flows.
B) international trade deals with capital flows; international finance deals with goods and
services.
C) both deal only with capital flows.
D) both deal only with goods and services.
12) The globalization of financial markets has led to
A) greater diversification opportunities for investors.
B) lower capital mobility.
C) higher transaction costs.
D) reduced competition among firms.
13) An MNC may benefit from international diversification because
A) returns on assets in different countries are not perfectly correlated.
B) returns on assets in different countries are perfectly correlated.
C) diversification always reduces expected returns.
D) diversification always increases risk.
14) The foreign exchange market is
A) the market where currencies are bought and sold.
B) the market where goods are exchanged.
C) the market where stocks are traded.
D) the market where bonds are issued.
,15) Which of the following is NOT an example of a market imperfection that can motivate FDI?
A) Trade barriers
B) Labor market rigidities
C) Government regulations
D) Efficient global capital markets
16) The Bretton Woods system was established to
A) promote international monetary cooperation and stability.
B) promote international trade barriers.
C) promote the gold standard.
D) promote a single global currency.
17) Which of the following is NOT a major trend in international finance?
A) Deregulation of financial markets
B) Integration of financial markets
C) Innovation of financial instruments
D) Increasing restrictions on cross-border capital flows
18) Multinational corporations may reduce their cost of capital by
A) raising funds in international markets.
B) restricting themselves to domestic markets.
C) avoiding international diversification.
D) limiting their operations to one country.
19) Which of the following is a reason why MNCs may have an advantage over purely domestic
firms?
A) Access to international capital markets
B) Limited access to global markets
C) Higher political risk only
D) Less competitive pressures
20) The rise of the Eurocurrency market is an example of
A) financial market globalization.
B) increasing trade barriers.
C) reduced capital mobility.
D) increased political risk.
21) The principal-agent problem is more complex in an MNC because
A) of the geographical and cultural distance between parent and subsidiaries.
B) of the simplicity of the organizational structure.
C) shareholders have perfect information.
D) managers and shareholders always have aligned interests.
, 22) Which of the following is an example of a market imperfection that motivates international
diversification?
A) Information asymmetry across national markets
B) Perfectly integrated capital markets
C) Uniform tax rates across countries
D) Identical consumption patterns worldwide
23) The primary role of the World Bank is to
A) provide long-term loans for economic development.
B) manage the global trading system.
C) set exchange rates between currencies.
D) issue the world's reserve currency.
24) The primary role of the International Monetary Fund (IMF) is to
A) promote exchange rate stability and provide short-term balance-of-payments support.
B) finance long-term development projects.
C) regulate global trade.
D) issue a single world currency.
25) Which of the following is NOT a characteristic of the current international monetary system?
A) Floating exchange rates
B) Limited capital mobility
C) Independent monetary policy
D) Free capital flows
26) The 'impossible trinity' or 'trilemma' in international finance refers to the inability to
simultaneously have
A) a fixed exchange rate, free capital movement, and independent monetary policy.
B) a floating exchange rate, restricted capital flow, and dependent monetary policy.
C) a fixed exchange rate, restricted capital flow, and independent monetary policy.
D) a floating exchange rate, free capital movement, and independent monetary policy.
27) Which of the following is an example of a real asset?
A) Equipment
B) Common stock
C) Bond
D) Bank deposit
28) Which of the following is an example of a financial asset?
A) Common stock
B) Machinery
C) Building
D) Land
