FINA 4500 Exam 1 Questions with Verified
Correct Answers
Which of the following accurately describes the transition from NAFTA to USMCA?
NAFTA phased out trade barriers between Canada, Mexico, and the U.S. starting in 1994; in
November 2018 the three countries signed the USMCA as a new accord, whihc still required
ratification in all three countries.
Emergence of globalized financial markets
Deregulation of foreign exchange and capital markets such as currency futures and options,
multicurrency bonds, international mutual funds, country funds, EFTs, and foreign stock index
futures and options.
Emergence of the euro as a global currency
More than 300 million Europeans across 20 countries now use the common currency daily.
Europe's Sovereign-Debt Crisis of 2010
Greece's budget deficit was revealed at 12.7% of GDP versus a 3.7% forecast, and its
government bonds were downgraded to junk.
Trade Liberalization and Economic Integration
GATT reduced many barriers to trade; its successor, the WTO, has the power to enforce
international trade rules.
Privatization
State-owned enterprises are listed on organized stock exchanges, as with China's A-shares for
citizens and B-/H-shares for foreigners.
Global Financial Crisis of 2008-2009
Excessive borrowing and risk-taking were amplified and transmitted globally through the
securitization of mortgage-based securities.
Corporate scandals at companies like Enron, WorldCom, and Parmalat illustrate what Chapter
1 calls the "agency problem." Which statement best defines it?
, Managers may pursue their own private interests at the expense of shareholders when they are
not closely monitored.
A multinational firm's host-country government unexpectedly changes its tax rules in a way
that damages the firm's local subsidiary, with no effective recourse available to the firm. This
is the clearest example of:
Political risk
Which sequence of events accurately describes the Mexican peso crisis?
On December 20, 1994, Mexico announced a 14% devaluation of the peso against the dollar,
selling accelerated, and by early January 1995, the Peso had fallen roughly 40% against the
dollar, forcing the government to let it float.
A country's spot market exchange rate has remained within a 2% margin for the past 8
months, without a formal, preannounced peg. Which IMF exchange rate arrangement
classification best fits this description?
Stabilized arrangement
The "incompatible trinity" (or impossible trinity) discussed in connection with the Asian
currency crisis argues that a country cannot simultaneously maintain which three conditions?
A fixed exchange rate, free international flows of capital, and independent monetary policy.
The fundamental goal of shareholder wealth maximization is widely accepted in Anglo-Saxon
countries but not as widely embraced elsewhere. Which example does Chapter 1 use to
illustrate an alternative view?
In Japan, managers have typically sought to maximize the value of the keiretsu, a family of firms
to which the individual firm belongs, rather than a single firm's shareholders alone.
Chapter 1 argues that firms (and individual investors) can benefit from an "expanded
opportunity set" when they venture into global markets. What is the primary mechanism
behind this benefit?
Greater economies of scale when tangible and intangible assets are deployed on a global rather
than purely domestic basis.
Chapter 2 identifies three factors to the collapse of Argentina's currency board arrangement.
Which of the following is one of them?
Contagion from the financial crises in Brazil and Russia
Correct Answers
Which of the following accurately describes the transition from NAFTA to USMCA?
NAFTA phased out trade barriers between Canada, Mexico, and the U.S. starting in 1994; in
November 2018 the three countries signed the USMCA as a new accord, whihc still required
ratification in all three countries.
Emergence of globalized financial markets
Deregulation of foreign exchange and capital markets such as currency futures and options,
multicurrency bonds, international mutual funds, country funds, EFTs, and foreign stock index
futures and options.
Emergence of the euro as a global currency
More than 300 million Europeans across 20 countries now use the common currency daily.
Europe's Sovereign-Debt Crisis of 2010
Greece's budget deficit was revealed at 12.7% of GDP versus a 3.7% forecast, and its
government bonds were downgraded to junk.
Trade Liberalization and Economic Integration
GATT reduced many barriers to trade; its successor, the WTO, has the power to enforce
international trade rules.
Privatization
State-owned enterprises are listed on organized stock exchanges, as with China's A-shares for
citizens and B-/H-shares for foreigners.
Global Financial Crisis of 2008-2009
Excessive borrowing and risk-taking were amplified and transmitted globally through the
securitization of mortgage-based securities.
Corporate scandals at companies like Enron, WorldCom, and Parmalat illustrate what Chapter
1 calls the "agency problem." Which statement best defines it?
, Managers may pursue their own private interests at the expense of shareholders when they are
not closely monitored.
A multinational firm's host-country government unexpectedly changes its tax rules in a way
that damages the firm's local subsidiary, with no effective recourse available to the firm. This
is the clearest example of:
Political risk
Which sequence of events accurately describes the Mexican peso crisis?
On December 20, 1994, Mexico announced a 14% devaluation of the peso against the dollar,
selling accelerated, and by early January 1995, the Peso had fallen roughly 40% against the
dollar, forcing the government to let it float.
A country's spot market exchange rate has remained within a 2% margin for the past 8
months, without a formal, preannounced peg. Which IMF exchange rate arrangement
classification best fits this description?
Stabilized arrangement
The "incompatible trinity" (or impossible trinity) discussed in connection with the Asian
currency crisis argues that a country cannot simultaneously maintain which three conditions?
A fixed exchange rate, free international flows of capital, and independent monetary policy.
The fundamental goal of shareholder wealth maximization is widely accepted in Anglo-Saxon
countries but not as widely embraced elsewhere. Which example does Chapter 1 use to
illustrate an alternative view?
In Japan, managers have typically sought to maximize the value of the keiretsu, a family of firms
to which the individual firm belongs, rather than a single firm's shareholders alone.
Chapter 1 argues that firms (and individual investors) can benefit from an "expanded
opportunity set" when they venture into global markets. What is the primary mechanism
behind this benefit?
Greater economies of scale when tangible and intangible assets are deployed on a global rather
than purely domestic basis.
Chapter 2 identifies three factors to the collapse of Argentina's currency board arrangement.
Which of the following is one of them?
Contagion from the financial crises in Brazil and Russia
