1
, Chapter 1 Globalization and the Multinational Firm
1) What major dimension sets apart international finance from domestic finance?
A) Foreign exchange and political risks
B) Market imperfections
C) Expanded opportunity set
D) all of the
options Answer:
D
Topic: What's Special about "International" Finance? Accessibility: Keyboard Navigation
2) An example of a political risk is
A) expropriation of assets.
B) adverse change in tax rules.
C) the opposition party being elected.
D) both the expropriation of assets and adverse changes in tax rules
are correct. Answer: D
Topic: What's Special about "International" Finance? Accessibility: Keyboard Navigation
3) Production of goods and services has become globalized to a large extent as a result 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. Answer: C
Topic: What's Special about "International" Finance? Accessibility: Keyboard Navigation
4) Recently, financial markets have become highly integrated. This development
A) allows investors to diversify their portfolios internationally.
B) allows minority investors to buy and sell stocks.
2
,C) has increased the cost of capital for firms.
3
, D) none of the
options Answer: A
Topic: What's Special about "International" Finance? Accessibility: Keyboard Navigation
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. Answer: B
Topic: What's Special about "International" Finance? Accessibility: Keyboard Navigation
6) Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate is
$1.25 = €1.00. One year later the exchange rate is the same, but the Italian government has expropriated
your firm's
assets paying only €80,000 in compensation. This is an example of
A) exchange rate risk.
B) political risk.
C) market imperfections.
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
Answer: B
Topic: What's Special about "International" Finance?
7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2. One year later,
the stock rises to £60. You are happy with your 20 percent return on the stock, but when you sell the
stock and exchange your
£60 for dollars, you only get $45 since the pound has fallen to £1 = $0.75. This loss of value is an example
of
A) exchange rate risk.
B) political risk.
C) market imperfections.
D) weakness in the
dollar. Answer: A
4
, Chapter 1 Globalization and the Multinational Firm
1) What major dimension sets apart international finance from domestic finance?
A) Foreign exchange and political risks
B) Market imperfections
C) Expanded opportunity set
D) all of the
options Answer:
D
Topic: What's Special about "International" Finance? Accessibility: Keyboard Navigation
2) An example of a political risk is
A) expropriation of assets.
B) adverse change in tax rules.
C) the opposition party being elected.
D) both the expropriation of assets and adverse changes in tax rules
are correct. Answer: D
Topic: What's Special about "International" Finance? Accessibility: Keyboard Navigation
3) Production of goods and services has become globalized to a large extent as a result 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. Answer: C
Topic: What's Special about "International" Finance? Accessibility: Keyboard Navigation
4) Recently, financial markets have become highly integrated. This development
A) allows investors to diversify their portfolios internationally.
B) allows minority investors to buy and sell stocks.
2
,C) has increased the cost of capital for firms.
3
, D) none of the
options Answer: A
Topic: What's Special about "International" Finance? Accessibility: Keyboard Navigation
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. Answer: B
Topic: What's Special about "International" Finance? Accessibility: Keyboard Navigation
6) Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate is
$1.25 = €1.00. One year later the exchange rate is the same, but the Italian government has expropriated
your firm's
assets paying only €80,000 in compensation. This is an example of
A) exchange rate risk.
B) political risk.
C) market imperfections.
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
Answer: B
Topic: What's Special about "International" Finance?
7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2. One year later,
the stock rises to £60. You are happy with your 20 percent return on the stock, but when you sell the
stock and exchange your
£60 for dollars, you only get $45 since the pound has fallen to £1 = $0.75. This loss of value is an example
of
A) exchange rate risk.
B) political risk.
C) market imperfections.
D) weakness in the
dollar. Answer: A
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