InternationalrFinancialrManagementrTestrBank
,InternationalrFinancialrManagementrTestrBank
ch1
Student:r
TherfirstrtworcolumnsrgiverthermaximumrdailyramountsrofrbeerrandrwhiskeyrthatrSouthernrIrelandrandrNorthern
rIrelandrcanrproducerwhenrtheyrcompletelyrspecializerinronerorrotherrproduct.rTherlastrtworcolumnsrgivereachrc
ountry'srconsumptionrwithoutrtrade.
1. IsrNorthernrIrelandrbetterroffrwhenritrtradesrwithrSouthernrIreland?rTr
ue False
2. NowrsupposerthatrSouthernrworkersrreceiverarraisertor€2rperrday.rWillrtraderberpossibleratrtherexchangerrater
yourfoundrinrtherlastrquestion?
True False
3. NowrsupposerthatrSouthernrworkersrarerpaidr€1rperrdayrbutrtherNorthernrworkersrreceiverarraisertor£2rperrd
ay.rWillrtraderberpossibleratrtherexchangerrateryourfoundrinrtherquestionrbeforertherlastrquestion?
True False
4. Whatrmajorrdimensionrsetsrapartrinternationalrfinancerfromrdomesticrfinance?
A. Foreignrexchangerandrpoliticalrrisks
B. Marketrimperfections
C. Expandedropportunityrset
D. Allrofrtherabove
5. Anrexamplerofrarpoliticalrriskris
A. expropriationrofrassets.
B. adverserchangerinrtaxrrules.
C. theroppositionrpartyrbeingrelected.
D. bothranswersra)randrb)rarercorrect.
6. Productionrofrgoodsrandrservicesrhasrbecomerglobalizedrtorarlargerextentrasrarresultrof
A. naturalrresourcesrbeingrdepletedrinronercountryrafterranother.
B. skilledrlaborrbeingrhighlyrmobile.
C. multinationalrcorporations'reffortsrtorsourcerinputsrandrlocaterproductionranywhererwherercostsrarerlo
werrandrprofitsrhigher.
D. commonrtastesrworldwiderforrthersamergoodsrandrservices.
7. Recently,rfinancialrmarketsrhaverbecomerhighlyrintegrated.rThisrdevelopment
A. allowsrinvestorsrtordiversifyrtheirrportfoliosrinternationally.
B. allowsrminorityrinvestorsrtorbuyrandrsellrstocks.
C. hasrincreasedrthercostrofrcapitalrforrfirms.
D. answersra)randrc)rarerbothrcorrect.
,InternationalrFinancialrManagementrTestrBank
8. Japanrhasrexperiencedrlargertradersurpluses.rJapaneserinvestorsrhaverrespondedrtorthisrby
A. liquidatingrtheirrpositionsrinrstocksrtorbuyrdollarrdenominatedrbonds.
B. investingrheavilyrinrU.S.randrotherrforeignrfinancialrmarkets.
C. lobbyingrtherU.S.rgovernmentrtordepreciateritsrcurrency.
D. lobbyingrtherJapanesergovernmentrtorallowrther yenrtorappreciate.
9. Supposeryourrfirmrinvestsr$100,000rinrarprojectrinrItaly.rAtrthertimertherexchangerraterisr$1.25r=r€1.00.rOner
yearrlaterrtherexchangerraterisrthersame,rbutrtherItalianrgovernmentrhasrexpropriatedryourrfirm's
assetsrpayingronlyr€80,000rinrcompensation.rThisrisranrexamplerof
A. exchangerraterrisk.
B. politicalrrisk.
C. marketrimperfections.
D. nonerofrtherabove,rsincer$100,000r=r€80,000r×r$1.25/€1.00
10. Supposeryourstartrwithr$100randrbuyrstockrforr£50rwhenrtherexchangerraterisr£1r=r$2.rOneryearrlater,rtherstockr
risesrtor£60.rYourarerhappyrwithryourr20rpercentrreturnronrtherstock,rbutrwhenryoursellrtherstockrandrexchanger
yourr£60rforrdollars,ryouronlyrgetr$45rsincertherpoundrhasrfallenrtor£1r=r$0.75.rThisrlossrofrvaluerisranrexampler
of
A. exchangerraterrisk.
B. politicalrrisk.
C. marketrimperfections.
D. weaknessrinrtherdollar.
11. SupposerthatrGreatrBritainrisrarmajorrexportrmarketrforryourrfirm,rarU.S.-
basedrMNC.rIfrtherBritishrpoundrdepreciatesragainstrtherU.S.rdollar,
A. yourrfirmrwillrberablertorchargermorerinrdollarrtermsrwhilerkeepingrpoundrpricesrstable.
B. yourrfirmrmayrberpricedroutrofrtherU.K.rmarket,rtortherextentrthatryourrdollarrcostsrstayrconstantrandryourr
poundrpricesrwillrrise.
C. torprotectrU.K.rmarketrshare,ryourrfirmrmayrhavertorcutrtherdollarrpricerofryourrgoodsrtorkeeprtherpoun
drpricerthersame.
D. bothrb)randrc)rarercorrect
12. SupposerMexicorisrarmajorrexportrmarketrforryourrU.S.-
basedrcompanyrandrtherMexicanrpesorappreciatesrdrasticallyragainstrtherU.S.rdollar.rThisrmeans
Aryourrcompany'srproductsrcanrberpricedroutrofrtherMexicanrmarket,rasrtherpesorpricerofrAmerican
.r importsrwillrriserfollowingrtherpeso'srfall.
B.r yourrfirmrwillrberablertorchargermorerinrdollarrtermsrwhilerkeepingrpesorpricesrstable.
C.ryourrdomesticrcompetitorsrwillrenjoyrarperiodrofrfacingrlessenedrpricercompetitionrfromrMexicanrimport
s.
D.r bothrb)randrc)rarercorrect
13. SupposerMexicorisrarmajorrexportrmarketrforryourrU.S.-
basedrcompanyrandrtherMexicanrpesordepreciatesrdrasticallyragainstrtherU.S.rdollar,rasritrdidrinrDe
cemberr1994.rThisrmeans
Aryourrcompany'srproductsrcanrberpricedroutrofrtherMexicanrmarket,rasrtherpesorpricerofrAmerican
.r importsrwillrriserfollowingrtherpeso'srfall.
B.r yourrfirmrwillrberablertorchargermorerinrdollarrtermsrwhilerkeepingrpesorpricesrstable.
C.ryourrdomesticrcompetitorsrwillrenjoyrarperiodrofrfacingrlittlerpricercompetitionrfromrMexicanrimports.
D.r bothrb)randrc)rarercorrect
14. SupposerthatryourarerarU.S.rproducerrofrarcommodityrgoodrcompetingrwithrforeignrproducers.rYourrinp
utsrofrproductionrarerpricedrinrdollarsrandryoursellryourroutputrinrdollars.rIfrtherU.S.rcurrencyrdepreciate
sragainstrthercurrenciesrofrourrtradingrpartners,
A. yourrcompetitiverpositionrisrlikelyrimproved.
B. yourrcompetitiverpositionrisrlikelyrworsened.
C. yourrcompetitiverpositionrisrunchanged.
, InternationalrFinancialrManagementrTestrBank
15. Undoubtedly,rwerarernowrlivingrinrarworldrwhererallrthermajorreconomicrfunctions—
consumption,rproduction,randrinvestment
A. arerstillrinherentlyrlocal.
B. arerstillrregionalrinrnature.
C. arerslowlyrbecomingrglobalized.
D. arerhighlyrglobalized.
16. Mostrgovernmentsratrleastrtryrtormakeritrdifficultrforrpeoplertorcrossrtheirrbordersrillegally.rThisrbarrierrtortherfr
eermovementrofrlaborrisranrexamplerof
A. informationrasymmetry.
B. excessivertransactionsrcosts.
C. racialrdiscrimination.
D. armarketrimperfection.
17. Althoughrtherworldreconomyrisrmuchrmorerintegratedrtodayrthanrwasrthercaser10rorr20ryearsrago,rarvariet
yrofrbarriersrstillrhamperrfreermovementsrofrpeople,rgoods,rservices,randrcapitalracrossrnationalrboundari
es.rTheserbarriersrinclude
A. legalrrestrictions.
B. excessivertransportationrcosts.
C. informationrasymmetry.
D. allrofrtherabove
18. TherJapaneserautomobilercompanyrHondardecidedrtorestablishrproductionrfacilitiesrinrOhio,rmainlyrto
A. circumventrtraderbarriers.
B. reducertransportationrcosts.
C. reducertransactionsrcosts.
D. bothra)randrb)
19. Whenrindividualrinvestorsrbecomerawarerofroverseasrinvestmentropportunitiesrandrarerwillingrtordiv
ersifyrtheirrportfoliosrinternationally,
A. theyrtraderonermarketrimperfection,rinformationrasymmetry,rforranother,rexchangerraterrisk.
B. theyrbenefitrfromranrexpandedropportunityrset.
C. theyrshouldrnotrbotherrtorreadrorrtorunderstandrtherprospectus,rsincerit'srprobablyrwrittenrinrarforeignrlang
uage.
D. theyrshouldrinvestronlyrinrdollarsrorreuros.
20. TherNestlérCorporation,rarwell-
knownrSwissrMNC,rusedrtorissuertwordifferentrclassesrofrcommonrstock,rbearerrsharesrandrregisteredrshares,r
andrforeignersrwererallowedrtorholdronly
A. registeredrshares.
B. bearerrshares.
C. votingrshares.
D. convertiblershares.
21. Deregulatedrfinancialrmarketsrandrheightenedrcompetitionrinrfinancialrservicesrprovidedranrenvironmentrfor
rfinancialrinnovationsrthatrresultedrinrtherintroductionrofrvariousrinstruments.rExamplesrofrtheserinnovativeri
nstrumentsrinclude
A. currencyrfuturesrandroptions,rforeignrstockrindexrfuturesrandroptions.
B. multicurrencyrbonds.
C. internationalrmutualrfunds,rcountryrfunds,rexchangertradedrfunds.
D. allrofrtherabove
22. Nestlé,rarwell-knownrSwissrcorporation,
A. hasrbeenrarparagonrofrvirtuerinritsroppositionrtorallrformsrofrpoliticalrrisk.
Bratronertimerplacedrrestrictionsronrforeignrownershiprofritsrstock.rWhenritrrelaxedrtheserrestrictions,rthe
.r totalrmarketrvaluerofrtherfirmrfell.
Catronertimerplacedrrestrictionsronrforeignrownershiprofritsrstock.rWhenritrrelaxedrtheserrestrictions,
.r thererwasrarmajorrtransferrofrwealthrfromrforeignrshareholdersrtorSwissrshareholders.
,InternationalrFinancialrManagementrTestrBank
ch1
Student:r
TherfirstrtworcolumnsrgiverthermaximumrdailyramountsrofrbeerrandrwhiskeyrthatrSouthernrIrelandrandrNorthern
rIrelandrcanrproducerwhenrtheyrcompletelyrspecializerinronerorrotherrproduct.rTherlastrtworcolumnsrgivereachrc
ountry'srconsumptionrwithoutrtrade.
1. IsrNorthernrIrelandrbetterroffrwhenritrtradesrwithrSouthernrIreland?rTr
ue False
2. NowrsupposerthatrSouthernrworkersrreceiverarraisertor€2rperrday.rWillrtraderberpossibleratrtherexchangerrater
yourfoundrinrtherlastrquestion?
True False
3. NowrsupposerthatrSouthernrworkersrarerpaidr€1rperrdayrbutrtherNorthernrworkersrreceiverarraisertor£2rperrd
ay.rWillrtraderberpossibleratrtherexchangerrateryourfoundrinrtherquestionrbeforertherlastrquestion?
True False
4. Whatrmajorrdimensionrsetsrapartrinternationalrfinancerfromrdomesticrfinance?
A. Foreignrexchangerandrpoliticalrrisks
B. Marketrimperfections
C. Expandedropportunityrset
D. Allrofrtherabove
5. Anrexamplerofrarpoliticalrriskris
A. expropriationrofrassets.
B. adverserchangerinrtaxrrules.
C. theroppositionrpartyrbeingrelected.
D. bothranswersra)randrb)rarercorrect.
6. Productionrofrgoodsrandrservicesrhasrbecomerglobalizedrtorarlargerextentrasrarresultrof
A. naturalrresourcesrbeingrdepletedrinronercountryrafterranother.
B. skilledrlaborrbeingrhighlyrmobile.
C. multinationalrcorporations'reffortsrtorsourcerinputsrandrlocaterproductionranywhererwherercostsrarerlo
werrandrprofitsrhigher.
D. commonrtastesrworldwiderforrthersamergoodsrandrservices.
7. Recently,rfinancialrmarketsrhaverbecomerhighlyrintegrated.rThisrdevelopment
A. allowsrinvestorsrtordiversifyrtheirrportfoliosrinternationally.
B. allowsrminorityrinvestorsrtorbuyrandrsellrstocks.
C. hasrincreasedrthercostrofrcapitalrforrfirms.
D. answersra)randrc)rarerbothrcorrect.
,InternationalrFinancialrManagementrTestrBank
8. Japanrhasrexperiencedrlargertradersurpluses.rJapaneserinvestorsrhaverrespondedrtorthisrby
A. liquidatingrtheirrpositionsrinrstocksrtorbuyrdollarrdenominatedrbonds.
B. investingrheavilyrinrU.S.randrotherrforeignrfinancialrmarkets.
C. lobbyingrtherU.S.rgovernmentrtordepreciateritsrcurrency.
D. lobbyingrtherJapanesergovernmentrtorallowrther yenrtorappreciate.
9. Supposeryourrfirmrinvestsr$100,000rinrarprojectrinrItaly.rAtrthertimertherexchangerraterisr$1.25r=r€1.00.rOner
yearrlaterrtherexchangerraterisrthersame,rbutrtherItalianrgovernmentrhasrexpropriatedryourrfirm's
assetsrpayingronlyr€80,000rinrcompensation.rThisrisranrexamplerof
A. exchangerraterrisk.
B. politicalrrisk.
C. marketrimperfections.
D. nonerofrtherabove,rsincer$100,000r=r€80,000r×r$1.25/€1.00
10. Supposeryourstartrwithr$100randrbuyrstockrforr£50rwhenrtherexchangerraterisr£1r=r$2.rOneryearrlater,rtherstockr
risesrtor£60.rYourarerhappyrwithryourr20rpercentrreturnronrtherstock,rbutrwhenryoursellrtherstockrandrexchanger
yourr£60rforrdollars,ryouronlyrgetr$45rsincertherpoundrhasrfallenrtor£1r=r$0.75.rThisrlossrofrvaluerisranrexampler
of
A. exchangerraterrisk.
B. politicalrrisk.
C. marketrimperfections.
D. weaknessrinrtherdollar.
11. SupposerthatrGreatrBritainrisrarmajorrexportrmarketrforryourrfirm,rarU.S.-
basedrMNC.rIfrtherBritishrpoundrdepreciatesragainstrtherU.S.rdollar,
A. yourrfirmrwillrberablertorchargermorerinrdollarrtermsrwhilerkeepingrpoundrpricesrstable.
B. yourrfirmrmayrberpricedroutrofrtherU.K.rmarket,rtortherextentrthatryourrdollarrcostsrstayrconstantrandryourr
poundrpricesrwillrrise.
C. torprotectrU.K.rmarketrshare,ryourrfirmrmayrhavertorcutrtherdollarrpricerofryourrgoodsrtorkeeprtherpoun
drpricerthersame.
D. bothrb)randrc)rarercorrect
12. SupposerMexicorisrarmajorrexportrmarketrforryourrU.S.-
basedrcompanyrandrtherMexicanrpesorappreciatesrdrasticallyragainstrtherU.S.rdollar.rThisrmeans
Aryourrcompany'srproductsrcanrberpricedroutrofrtherMexicanrmarket,rasrtherpesorpricerofrAmerican
.r importsrwillrriserfollowingrtherpeso'srfall.
B.r yourrfirmrwillrberablertorchargermorerinrdollarrtermsrwhilerkeepingrpesorpricesrstable.
C.ryourrdomesticrcompetitorsrwillrenjoyrarperiodrofrfacingrlessenedrpricercompetitionrfromrMexicanrimport
s.
D.r bothrb)randrc)rarercorrect
13. SupposerMexicorisrarmajorrexportrmarketrforryourrU.S.-
basedrcompanyrandrtherMexicanrpesordepreciatesrdrasticallyragainstrtherU.S.rdollar,rasritrdidrinrDe
cemberr1994.rThisrmeans
Aryourrcompany'srproductsrcanrberpricedroutrofrtherMexicanrmarket,rasrtherpesorpricerofrAmerican
.r importsrwillrriserfollowingrtherpeso'srfall.
B.r yourrfirmrwillrberablertorchargermorerinrdollarrtermsrwhilerkeepingrpesorpricesrstable.
C.ryourrdomesticrcompetitorsrwillrenjoyrarperiodrofrfacingrlittlerpricercompetitionrfromrMexicanrimports.
D.r bothrb)randrc)rarercorrect
14. SupposerthatryourarerarU.S.rproducerrofrarcommodityrgoodrcompetingrwithrforeignrproducers.rYourrinp
utsrofrproductionrarerpricedrinrdollarsrandryoursellryourroutputrinrdollars.rIfrtherU.S.rcurrencyrdepreciate
sragainstrthercurrenciesrofrourrtradingrpartners,
A. yourrcompetitiverpositionrisrlikelyrimproved.
B. yourrcompetitiverpositionrisrlikelyrworsened.
C. yourrcompetitiverpositionrisrunchanged.
, InternationalrFinancialrManagementrTestrBank
15. Undoubtedly,rwerarernowrlivingrinrarworldrwhererallrthermajorreconomicrfunctions—
consumption,rproduction,randrinvestment
A. arerstillrinherentlyrlocal.
B. arerstillrregionalrinrnature.
C. arerslowlyrbecomingrglobalized.
D. arerhighlyrglobalized.
16. Mostrgovernmentsratrleastrtryrtormakeritrdifficultrforrpeoplertorcrossrtheirrbordersrillegally.rThisrbarrierrtortherfr
eermovementrofrlaborrisranrexamplerof
A. informationrasymmetry.
B. excessivertransactionsrcosts.
C. racialrdiscrimination.
D. armarketrimperfection.
17. Althoughrtherworldreconomyrisrmuchrmorerintegratedrtodayrthanrwasrthercaser10rorr20ryearsrago,rarvariet
yrofrbarriersrstillrhamperrfreermovementsrofrpeople,rgoods,rservices,randrcapitalracrossrnationalrboundari
es.rTheserbarriersrinclude
A. legalrrestrictions.
B. excessivertransportationrcosts.
C. informationrasymmetry.
D. allrofrtherabove
18. TherJapaneserautomobilercompanyrHondardecidedrtorestablishrproductionrfacilitiesrinrOhio,rmainlyrto
A. circumventrtraderbarriers.
B. reducertransportationrcosts.
C. reducertransactionsrcosts.
D. bothra)randrb)
19. Whenrindividualrinvestorsrbecomerawarerofroverseasrinvestmentropportunitiesrandrarerwillingrtordiv
ersifyrtheirrportfoliosrinternationally,
A. theyrtraderonermarketrimperfection,rinformationrasymmetry,rforranother,rexchangerraterrisk.
B. theyrbenefitrfromranrexpandedropportunityrset.
C. theyrshouldrnotrbotherrtorreadrorrtorunderstandrtherprospectus,rsincerit'srprobablyrwrittenrinrarforeignrlang
uage.
D. theyrshouldrinvestronlyrinrdollarsrorreuros.
20. TherNestlérCorporation,rarwell-
knownrSwissrMNC,rusedrtorissuertwordifferentrclassesrofrcommonrstock,rbearerrsharesrandrregisteredrshares,r
andrforeignersrwererallowedrtorholdronly
A. registeredrshares.
B. bearerrshares.
C. votingrshares.
D. convertiblershares.
21. Deregulatedrfinancialrmarketsrandrheightenedrcompetitionrinrfinancialrservicesrprovidedranrenvironmentrfor
rfinancialrinnovationsrthatrresultedrinrtherintroductionrofrvariousrinstruments.rExamplesrofrtheserinnovativeri
nstrumentsrinclude
A. currencyrfuturesrandroptions,rforeignrstockrindexrfuturesrandroptions.
B. multicurrencyrbonds.
C. internationalrmutualrfunds,rcountryrfunds,rexchangertradedrfunds.
D. allrofrtherabove
22. Nestlé,rarwell-knownrSwissrcorporation,
A. hasrbeenrarparagonrofrvirtuerinritsroppositionrtorallrformsrofrpoliticalrrisk.
Bratronertimerplacedrrestrictionsronrforeignrownershiprofritsrstock.rWhenritrrelaxedrtheserrestrictions,rthe
.r totalrmarketrvaluerofrtherfirmrfell.
Catronertimerplacedrrestrictionsronrforeignrownershiprofritsrstock.rWhenritrrelaxedrtheserrestrictions,
.r thererwasrarmajorrtransferrofrwealthrfromrforeignrshareholdersrtorSwissrshareholders.
