FIN 340 Midterm UPDATED Exam
Questions and CORRECT Answers
Multinational enterprises (MNEs) are firms, both for profit companies and not-for-profit
organizations, that have operations in more than one country, and conduct their business through
foreign subsidiaries, branches, or joint ventures with host country firms. - CORRECT
ANSWER - True
The theory that suggests specialization by country can increase worldwide production is: -
CORRECT ANSWER - The theory of comparative advantage
Comparative advantage shifts over time as less developed countries become more developed and
realize their latent opportunities. - CORRECT ANSWER - True
The reference rate of interest in the eurocurrency market is the: - CORRECT ANSWER -
London Interbank Offered Rate (LIBOR)
Domestic firms do not have foreign exchange risk. - CORRECT ANSWER - False
The phase of the globalization process characterized by imports from foreign suppliers and
exports to foreign buyers is called the: - CORRECT ANSWER - International trade phase
The twin agency problems limiting financial globalization are caused by these two groups acting
in their own self-interests rather than the interests of the firm. - CORRECT ANSWER -
corporate insiders and rulers of sovereign states
Typically, a firm in its domestic stage of globalization has all financial transactions in its
domestic currency. - CORRECT ANSWER - True
Typically, a "greenfield" investment abroad is considered an investment having a greater foreign
presence than a joint venture with a foreign firm. - CORRECT ANSWER - True
,According to the terminology associated with changes in currency values, which of the following
choices is the case when a currency's value relative to other currencies is changed by a
government? - CORRECT ANSWER - Devaluation and revaluation
Based on the premise that, other things equal, countries would prefer a fixed exchange rate:
Variable rates provide stability in international prices for the conduct of trade. - CORRECT
ANSWER - False
The authors discuss the concept of the "Impossible Trinity" or the inability to achieve
simultaneously the goals of exchange rate stability, full financial integration, and monetary
independence. If a country chooses to have a pure float exchange rate regime, which two of the
three goals is a country most able to achieve? - CORRECT ANSWER - full financial
integration and monetary independence
China today is a clear example of a nation that has chosen the following policies EXCEPT: -
CORRECT ANSWER - full financial integration in an attempt to stimulate its domestic
economy.
Which of the following is NOT a required convergence criteria to become a full member of the
European Economic and Monetary Union (EMU)? - CORRECT ANSWER - National
birthrates must be at 2.0 or lower per person.
Which of the following is a way in which the euro affects markets? - CORRECT
ANSWER - A)
Consumers and business enjoy price transparency and increased price-based competition.
B)
All of these
C)
Countries within the Euro zone enjoy cheaper transaction costs.
D)
Currency risks and costs related to exchange rate uncertainty are reduced.
, The countries that use the euro as their currency have: - CORRECT ANSWER - agreed to
use a single currency (exchange rate stability), allow the free movement of capital in and out of
their economies (financial integration), but give up individual control of their own money supply
(monetary independence).
Which of the following is NOT an argument against dollarization? - CORRECT
ANSWER - Dollarization removes currency volatility against the dollar.
Which of the following international transactions would NOT be counted as a balance of
payments (BOP) transaction? - CORRECT ANSWER - An American tourist purchases
cheese in Milwaukee, Wisconsin.
The balance of payments as applied to a course in international finance may be defined as: -
CORRECT ANSWER - the measurement of all international economic transactions
between the residents of a country and foreign residents.
An American tourist purchases a leather jacket while in Italy. Which of the following statements
is true? - CORRECT ANSWER - A)
This transaction would be properly accounted for in the Current Account of the U.S. BOP.
B)
The leather purchase is considered an import of a good, and thus, considered part of the balance
of trade as well.
C)
All of these statements are true.
D)
The leather purchase would be considered an import for the U.S. BOP.
Which of the following is NOT a part of the Current Account of BOP? - CORRECT
ANSWER - net portfolio investment
Questions and CORRECT Answers
Multinational enterprises (MNEs) are firms, both for profit companies and not-for-profit
organizations, that have operations in more than one country, and conduct their business through
foreign subsidiaries, branches, or joint ventures with host country firms. - CORRECT
ANSWER - True
The theory that suggests specialization by country can increase worldwide production is: -
CORRECT ANSWER - The theory of comparative advantage
Comparative advantage shifts over time as less developed countries become more developed and
realize their latent opportunities. - CORRECT ANSWER - True
The reference rate of interest in the eurocurrency market is the: - CORRECT ANSWER -
London Interbank Offered Rate (LIBOR)
Domestic firms do not have foreign exchange risk. - CORRECT ANSWER - False
The phase of the globalization process characterized by imports from foreign suppliers and
exports to foreign buyers is called the: - CORRECT ANSWER - International trade phase
The twin agency problems limiting financial globalization are caused by these two groups acting
in their own self-interests rather than the interests of the firm. - CORRECT ANSWER -
corporate insiders and rulers of sovereign states
Typically, a firm in its domestic stage of globalization has all financial transactions in its
domestic currency. - CORRECT ANSWER - True
Typically, a "greenfield" investment abroad is considered an investment having a greater foreign
presence than a joint venture with a foreign firm. - CORRECT ANSWER - True
,According to the terminology associated with changes in currency values, which of the following
choices is the case when a currency's value relative to other currencies is changed by a
government? - CORRECT ANSWER - Devaluation and revaluation
Based on the premise that, other things equal, countries would prefer a fixed exchange rate:
Variable rates provide stability in international prices for the conduct of trade. - CORRECT
ANSWER - False
The authors discuss the concept of the "Impossible Trinity" or the inability to achieve
simultaneously the goals of exchange rate stability, full financial integration, and monetary
independence. If a country chooses to have a pure float exchange rate regime, which two of the
three goals is a country most able to achieve? - CORRECT ANSWER - full financial
integration and monetary independence
China today is a clear example of a nation that has chosen the following policies EXCEPT: -
CORRECT ANSWER - full financial integration in an attempt to stimulate its domestic
economy.
Which of the following is NOT a required convergence criteria to become a full member of the
European Economic and Monetary Union (EMU)? - CORRECT ANSWER - National
birthrates must be at 2.0 or lower per person.
Which of the following is a way in which the euro affects markets? - CORRECT
ANSWER - A)
Consumers and business enjoy price transparency and increased price-based competition.
B)
All of these
C)
Countries within the Euro zone enjoy cheaper transaction costs.
D)
Currency risks and costs related to exchange rate uncertainty are reduced.
, The countries that use the euro as their currency have: - CORRECT ANSWER - agreed to
use a single currency (exchange rate stability), allow the free movement of capital in and out of
their economies (financial integration), but give up individual control of their own money supply
(monetary independence).
Which of the following is NOT an argument against dollarization? - CORRECT
ANSWER - Dollarization removes currency volatility against the dollar.
Which of the following international transactions would NOT be counted as a balance of
payments (BOP) transaction? - CORRECT ANSWER - An American tourist purchases
cheese in Milwaukee, Wisconsin.
The balance of payments as applied to a course in international finance may be defined as: -
CORRECT ANSWER - the measurement of all international economic transactions
between the residents of a country and foreign residents.
An American tourist purchases a leather jacket while in Italy. Which of the following statements
is true? - CORRECT ANSWER - A)
This transaction would be properly accounted for in the Current Account of the U.S. BOP.
B)
The leather purchase is considered an import of a good, and thus, considered part of the balance
of trade as well.
C)
All of these statements are true.
D)
The leather purchase would be considered an import for the U.S. BOP.
Which of the following is NOT a part of the Current Account of BOP? - CORRECT
ANSWER - net portfolio investment
