International Financial Management Exam
1 Questions with verified answers.
Chapter 1 - Correct Answer Introduction
3 major dimensions that set international finance apart from 'domestic' finance - Correct Answer 1.
Foreign Exchange and Political Risks
2. Market Imperfections
3. Expanded Opportunity Set
Exchange Rate Risk - Correct Answer The risk that a company's profits and value may be affected due to
unanticipated unfavorable exchange rate movements
Political Risk - Correct Answer Sovereign governments have the right to regulate the movement of
goods, capital, and people across their borders.. These laws sometimes change in unexpected ways
Ranges from unexpected changes in tax rules o outright expropriation of assets held by foreigners
Ex.- Bayer (German company) invested in a plant in Taiwan and forced to exit market due to chemical
waste disposal policy
Market Imperfections - Correct Answer A variety of barriers hamper free movements of people, goods,
services, and capital cross national boundaries
Ex.- Legal restrictions, excessive transaction and transportation costs, information asymmetry,
discriminatory taxation
Expanded Opportunity Set - Correct Answer MNC's benefit from an expanded opportunity set in a global
market
Firms can locate production in one country or region of the world to maximize their performance and
raise funds in any market where the cost of capital is the lowest
Ex.- "Made in China"... Cheap labor=>lower production cost=>lower price=> more competitive
Major Trends in the International Market - Correct Answer 1. The emergence of globalized financial
markets
, 2. The emergence of the euro as a global currency
3. Continued trade liberalization and economic integration
4. Large-scale privatization of state-owned enterprises
1. The emergence of globalized financial markets - Correct Answer Factors that help globalize:
Deregulation, advances in computer and telecommunication technology (fast access to info & lower
transaction cost), financial innovations (derivatives)
2. The emergence of the euro as a global currency - Correct Answer Launched in 1999, 19 countries
currently using
3. Continued trade liberalization and economic integration - Correct Answer World Trade Organization
(WTO): Enforce the rules of international trade, lower trade barriers around the world, promote free
trade between developed and developing countries
European Union: Eliminate barriers to free flow of goods, capital, and people
NAFTA: Free trade zone among US, Canada, and Mexico
4. Large-scale privatization of state-owned enterprises - Correct Answer A country divests itself of the
ownership and operation of a business venture by turning it over to the free market system
Benefits: It brings to the national treasury hard-currency foreign reserves, increases the efficiency,
reduces the cost
MNC (Multinational Corporation) - Correct Answer A firm that has incorporated in one country and has
production and sales operations in other countries
Many obtain raw materials from one nation, financial capital from another, produce goods with capital
equipment and labor from another, and sell in multiple countries
MNCs benefit from the economy of scale by: - Correct Answer Spreading R&D expenditures over their
global sales, pooling global purchasing power over suppliers, utilizing their technological and managerial
know-how with minimum additional costs
Chapter 2 - Correct Answer History of International Monetary System
1 Questions with verified answers.
Chapter 1 - Correct Answer Introduction
3 major dimensions that set international finance apart from 'domestic' finance - Correct Answer 1.
Foreign Exchange and Political Risks
2. Market Imperfections
3. Expanded Opportunity Set
Exchange Rate Risk - Correct Answer The risk that a company's profits and value may be affected due to
unanticipated unfavorable exchange rate movements
Political Risk - Correct Answer Sovereign governments have the right to regulate the movement of
goods, capital, and people across their borders.. These laws sometimes change in unexpected ways
Ranges from unexpected changes in tax rules o outright expropriation of assets held by foreigners
Ex.- Bayer (German company) invested in a plant in Taiwan and forced to exit market due to chemical
waste disposal policy
Market Imperfections - Correct Answer A variety of barriers hamper free movements of people, goods,
services, and capital cross national boundaries
Ex.- Legal restrictions, excessive transaction and transportation costs, information asymmetry,
discriminatory taxation
Expanded Opportunity Set - Correct Answer MNC's benefit from an expanded opportunity set in a global
market
Firms can locate production in one country or region of the world to maximize their performance and
raise funds in any market where the cost of capital is the lowest
Ex.- "Made in China"... Cheap labor=>lower production cost=>lower price=> more competitive
Major Trends in the International Market - Correct Answer 1. The emergence of globalized financial
markets
, 2. The emergence of the euro as a global currency
3. Continued trade liberalization and economic integration
4. Large-scale privatization of state-owned enterprises
1. The emergence of globalized financial markets - Correct Answer Factors that help globalize:
Deregulation, advances in computer and telecommunication technology (fast access to info & lower
transaction cost), financial innovations (derivatives)
2. The emergence of the euro as a global currency - Correct Answer Launched in 1999, 19 countries
currently using
3. Continued trade liberalization and economic integration - Correct Answer World Trade Organization
(WTO): Enforce the rules of international trade, lower trade barriers around the world, promote free
trade between developed and developing countries
European Union: Eliminate barriers to free flow of goods, capital, and people
NAFTA: Free trade zone among US, Canada, and Mexico
4. Large-scale privatization of state-owned enterprises - Correct Answer A country divests itself of the
ownership and operation of a business venture by turning it over to the free market system
Benefits: It brings to the national treasury hard-currency foreign reserves, increases the efficiency,
reduces the cost
MNC (Multinational Corporation) - Correct Answer A firm that has incorporated in one country and has
production and sales operations in other countries
Many obtain raw materials from one nation, financial capital from another, produce goods with capital
equipment and labor from another, and sell in multiple countries
MNCs benefit from the economy of scale by: - Correct Answer Spreading R&D expenditures over their
global sales, pooling global purchasing power over suppliers, utilizing their technological and managerial
know-how with minimum additional costs
Chapter 2 - Correct Answer History of International Monetary System
