Test Bank for Fundamentals of Multinational Finance 5th Edition by Moffett

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Multiple Choice and True/ False Questions !.! Financial "lobali#ation and $isk

1) Which of the following firms are NOT considered to be multinational enterprises MN!s) e"en if the# ha"e operations in more than one countr#$ %) for&profit companies ') non&for&profit organi(ations C) non&go"ernment organi(ations NOs) *) all of the abo"e ma# be considered MN!s %nswer+ * *iff+ 1 Topic+ 1,1 Financial lobali(ation and -is. .ill+ -ecognition 0) '-2C is a term coined in 0331 0 331 to refer to a group of countries at about the same stage of ad"anced economic de"elopment, The '-2C countries are %) 'elgium4 -omania4 2tal#4 and Canada, ') 'ra(il4 -ussia4 2ndia4 and China, C) 'ritain4 -omania4 2srael4 and Colombia, *) 'ra(il4 -ussia4 2tal#4 and Chile, %nswer+ ' *iff+ 1 Topic+ 1,1 Financial lobali(ation and -is. .ill+ -ecognition

1 Cop#right 5 0316 7earson !ducation4 2nc,


!.% The "lobal Financial Marketplace

1) Eurobank Eurobank is %) ban. incorporated in the !uropean 8nion, ') financial intermediar# that simultaneousl# bids for time deposits and ma.es loans in a currenc# other than that of its home currenc#, C) a department of a large commercial !uropean ban. ma.ing loans in !uros, *) %ll of the abo"e are true, %nswer+ ' *iff+ 1 Topic+ 1,0 The lobal Financial Mar.etplace .ill+ -ecognition 0) 92'O- is %) insignificant interest rate for global financial financial mar.ets: operation, ') Madrid and 7aris 2nterban. Offered -ate, C) published b# 'ritish 'an.ers %ssociation %ssociation ''%) once per #ear, *) ad;usted a"erage of estimated borrowing rates in the unsecured interban. mar.et, %nswer+ * *iff+ 1 Topic+ 1,0 The lobal Financial Mar.etplace .ill+ -ecognition <) %ccording to the authors4 which of the following groups or securities are at the heart to the global capital mar.ets$ %) debt securities issued b# go"ernments ') ban. loans and corporate bons C) e=uit# securities *) deri"ati"e securities %nswer+ % *iff+ 1 Topic+ 1,0 The lobal Financial Mar.etplace .ill+ -ecognition >) ???????? are the largest mar.ets in the world, %) 8nited tates e=uit# mar.ets ') !uropean debt mar.ets C) lobal currenc# mar.ets *) Chinese e@port mar.ets %nswer+ C *iff+ 1 Topic+ 1,0 The lobal Financial Mar.etplace .ill+ -ecognition



6) *omestic currencies of one countr# on deposit in a second countr# are called %) e@port deposits, ') eurocurrencies, C) import deposits, *) forocurrencies, %nswer+ ' *iff+ 1 Topic+ 1,0 The lobal Financial Mar.etplace .ill+ -ecognition A) !urocurrenc# deposits are an efficient and con"enient mone# mar.et de"ice for holding e@cess corporate li=uidit#, li=uidit#, %nswer+ T-8! *iff+ 1 Topic+ 1,0 The lobal Financial Mar.etplace .ill+ -ecognition B) The !urocurrenc# loan mar.et is characteri(ed b# narrow interest rate spreads between deposit and loan rates, This is due in part to which of the following factors$ %) The !urocurrenc# mar.et is a wholesale mar.et, ') 9oan amounts are "er# large4 often in e@cess of 6334333, C) !urocurrenc# borrowers are t#picall# large4 low&ris. corporations or go"ernment entities, *) %ll of the abo"e are legitimate reasons for the narrow spread in the !urocurrenc# mar.et, %nswer+ * *iff+ 1 Topic+ 1,0 The lobal Financial Mar.etplace .ill+ Conceptual



!.& The Theor of Comparati'e (d'anta)e

1) The theor# that suggests speciali(ation b# countr# can increase worldwide production is %) the theor# of comparati"e ad"antage, ') the theor# of foreign direct in"estment, C) the international Fisher effect, *) the theor# of wor.ing capital management, %nswer+ % *iff+ 1 Topic+ 1,< Comparati"e %d"antage .ill+ -ecognition 0) The source of a nation:s comparati"e ad"antage %) is created from the mi@ture of its own labor s.ills4 access to capital4 and technolog#, ') is determined b# its militar# capabilit#, capabilit#, C) remains constant o"er time, *) is an outdated concept for the 01st centur# because of the process of o f globali(ation, %nswer+ % *iff+ 1 Topic+ 1,< Comparati"e %d"antage .ill+ -ecognition <) Of the following4 which would NOT be considered con sidered a wa# that go"ernment interferes with comparati"e ad"antage$ %) tariffs ') managerial s.ills C) =uotas *) other non&tariff restrictions restrictions %nswer+ ' *iff+ 1 Topic+ 1,< Comparati"e %d"antage .ill+ -ecognition >) Comparati"e ad"antage shifts o"er time as less de"eloped countries become more de"eloped and reali(e their latent opportunities, %nswer+ T-8! *iff+ 0 Topic+ 1,< Comparati"e %d"antage .ill+ Conceptual 6) %lthough the world is a long wa# from the classical trade model4 the general principle of comparati"e ad"antage is still "alid, %nswer+ T-8! *iff+ 1 Topic+ 1,< Comparati"e %d"antage .ill+ %nal#tical 4 Cop#right 5 0316 7earson !ducation4 2nc,


A) ome of the factors contributing to the emergence of 2ndia:s low&cost and highl# efficient software industr# are %) combination of 2ndian o"ernment agricultural subsidies and the o"ercapacit# and the low cost of the international telecommunication networ.s, ') large number of well&educated4 !nglish&spea.ing technical e@perts willing to wor. for MN!s in 8% and Western !urope, C) low&cost4 educated and trained laborD solid infrastructure and liberali(ed foreign direct in"estments regime in the ser"ice sector, *) None of the abo"e %nswer+ C *iff+ 0 Topic+ 1,< Comparati"e %d"antage .ill+ Conceptual T(B*E !.! +se the information in the table to answer the followin) ,uestions.

B) -efer to Table 1,1, % production production unit in %ustria has a/an ???????? o"er a production unit in -ussia in ????????, %) absolute disad"antageD digital cameras ') absolute disad"antageD snowboards C) absolute ad"antageD both cameras and snowboards *) none of the abo"e %nswer+ C *iff+ 0 Topic+ 1,< Comparati"e %d"antage .ill+ Conceptual E) -efer to Table 1,1, %ustria has a larger relati"e ad"antage o"er -ussia in the production of ???????? at a ratio of ????????, %) snowboardsD 6 to > ') camerasD E to < C) snowboardsD E to < *) camerasD < to E %nswer+ ' *iff+ 0 Topic+ 1,< Comparati"e %d"antage .ill+ Conceptual



) -efer to Table 1,1, %ssume no trade between -ussia and %ustria, 2f each countr# put 06G of their production units into each product4 the total number of snowboards and digital cameras produced b# the two countries combined are ???????? and ????????, ???????? , %) 164333 snowboardsD <4333 digital cameras ') A4333 snowboardsD >4333 digital cameras C) 04B63 digital camerasD A4B63 snowboards *) 164333 digital camerasD 14333 snowboards %nswer+ C *iff+ 0 Topic+ 1,< Comparati"e %d"antage .ill+ %nal#tical 13) -efer to Table Table 1,1, 2f trade ta.es place at -ussia:s domestic price4 ???????? snowboards will be re=uired to obtain 1 digital camera, %) > ') 0 and 0/< C) 1,06 *) 3,06 %nswer+ % *iff+ 0 Topic+ 1,< Comparati"e %d"antage .ill+ %nal#tical 11) -efer to Table Table 1,1, 2f each countr# speciali(es in their production with %ustria %ustria producing onl# digital cameras and -ussia producing onl# snowboards4 at a trading rate of three snowboards per digital camera4 how man# cameras and snowboards will be a"ailable to be consumed in %ustria if the# trade <4333 cameras to -ussia$ %) 4333 snowboards and 64333 digital cameras ') <4333 snowboards and <4333 digital cameras C) <4333 snowboards and 4333 digital cameras *) There is not enough information to answer this =uestion, %nswer+ % *iff+ 0 Topic+ 1,< Comparati"e %d"antage .ill+ %nal#tical



10) -efer to Table 1,1, 2f each countr# speciali(es in their production with %ustria producing onl# digital cameras and -ussia producing onl# snowboards4 at a trading rate of three snowboards per digital camera4 how man# cameras and snowboards will be a"ailable to be consumed in -ussia if the# trade 4333 snowboards to %ustria$ %) 4333 snowboards and 64333 digital cameras ') <4333 snowboards and 4333 digital cameras C) <4333 snowboards and <4333 digital cameras *) There is not enough information to answer this =uestion, %nswer+ C *iff+ 0 Topic+ 1,< Comparati"e %d"antage .ill+ %nal#tical !. 0hat is 1ifferent about "lobal "lobal Financial Mana)ement2

1) Which of these factors ma# differ for management of a domestic firm "s an international firm$ %) culture ') corporate go"ernance C) political ris. *) %ll of the abo"e abo "e ma# differ, differ, %nswer+ * *iff+ 1 Topic+ 1,> lobal Financial Management .ill+ -ecognition 0) Which of these issues must be addressed b# domestic financial managers b ut ma# be ignored b# international financial managers$ %) capital budgeting decisions ') capital structure decisions C) wor.ing capital management decisions *) %ll of the abo"e must also be addressed b# international financial managers, %nswer+ * *iff+ 1 Topic+ 1,> lobal Financial Management .ill+ -ecognition <) 8 automoti"e firm manufacturing in !astern !urope is an e@ample of ???????? strategic moti"e to become a MN!, %) mar.et and production efficienc# see.ers ') large domestic corporation tr#ing to gain access to o"erseas cu tting edge technolog# and managerial e@pertise C) political safet# and raw material see.ers *) 8 automoti"e firms do not in"est outside of 8 %nswer+ % *iff+ 1 Topic+ 1,> lobal Financial Management .ill+ -ecognition 7 Cop#right 5 0316 7earson !ducation4 2nc,


!.5 Market 3mperfections: ( $ationale for the E4istence of the Multinational Firm

1) MN!s loo. to e@ploit ???????? in national mar.ets for products4 factors of production4 and/or financial assets, %) imperfections ') perfect capital mar.ets C) corrupt go"ernments *) none of the abo"e %nswer+ % *iff+ 1 Topic+ 1,6 Mar.et 2mperfections .ill+ -ecognition 0) 9arge international firms ma# be better able to e@ploit such competiti"e factors as ???????? than are their domestic competitors, %) economies of scale ') technological e@pertise C) product differentiation differentiation *) all of the abo"e %nswer+ * *iff+ 1 Topic+ 1,6 Mar.et 2mperfections .ill+ -ecognition <) Once established abroad4 large MN!s internal information networ.s t#picall# fail to help implement mar.et opportunities compared to their purel# domestic counterparts, %nswer+ F%9! *iff+ 1 Topic+ 1,6 Mar.et 2mperfections .ill+ Conceptual



!. The "lobali#ation 6rocess

1) The phase of the globali(ation process characteri(ed b# imports from foreign suppliers and e@ports to foreign bu#ers is called the %) domestic phase, ') multinational phase, C) international trade phase, *) import&e@port ban.ing phase, %nswer+ C *iff+ 1 Topic+ 1,A The lobali(ation 7rocess .ill+ -ecognition 0) The authors describe the multinational phase of globali(ation for a firm as one characteri(ed b# the %) ownership of assets and enterprises in foreign countries, ') potential for international competitors or suppliers e"en though all accounts are with domestic firms and are denominated in dollars, C) imports from foreign suppliers and e@ports to foreign bu#ers, *) re=uirement that all emplo#ees be multilingual, %nswer+ % *iff+ 1 Topic+ 1,A The lobali(ation 7rocess .ill+ -ecognition <) Of the following4 which was NOT mentioned b# the authors as an increase in the demands of financial management ser"ices due to increased globali(ation b# the firm$ %) e"aluation of the credit =ualit# of foreign bu#ers and sellers ') foreign consumer method of pa#ment preferences C) credit ris. management *) e"aluation of foreign e@change ris. %nswer+ ' *iff+ 0 Topic+ 1,A The lobali(ation 7rocess .ill+ -ecognition >) T#picall# T#picall#44 a firm in its domestic stage of globali(ation has all financial transactions in its domestic currenc#, currenc#, %nswer+ T-8! *iff+ 1 Topic+ 1,A The lobali(ation 7rocess .ill+ Conceptual



6) % firm firm in the 2nternational Trade 7hase of lobali(ation %) ma.es all foreign pa#ments in foreign currenc# units u nits and all foreign receipts in domestic currenc# units, ') recei"es all foreign receipts in foreign currenc# units and ma.es all foreign pa#ments in domestic currenc# units, C) bears direct foreign e@change ris., *) none of the abo"e, %nswer+ C *iff+ 1 Topic+ 1,A The lobali(ation 7rocess .ill+ Conceptual A) The e@posure to foreign e@change ris. .nown as Translation !@posure ma# be defined as %) changes in reported owners: e=uit# in consolidated financial statements caused b# a change in e@change rates, ') the impact of settling outstanding obligations entered into before change in e@change rates but to be settled after change in e@change rates, C) the change in e@pected future cash flows arising from an une@pected change in e@change rates, *) all of the abo"e, %nswer+ % *iff+ 1 Topic+ 1,A The lobali(ation 7rocess .ill+ -ecognition B) The twin agenc# problems limiting financial globali(ation are caused b# these two groups acting in their own self&interests rather than the interests of the firm, %) rulers of so"ereign states and unsa"or# customs officials ') corporate insiders and attorne#s C) corporate insiders and rulers of so"ereign states *) attorne#s and unsa"or# u nsa"or# customs officials %nswer+ C *iff+ 1 Topic+ 1,A The lobali(ation 7rocess .ill+ -ecognition



!ssa# Questions !.! Financial "lobali#ation and $isk

1) There are no =uestions in this section, !.% The "lobal Financial Marketplace

1) The global financial mar.etplace consists of assets4 institutions4 and lin.ages, !@plain how these factors come together to form the mar.etplace we .now toda#, %nswer+ Financial assets4 such as go"ernment securities4 are at the heart of toda#:s global financial mar.etplace, These securities set the standard and establish rate and price benchmar.s for other financial assets sourced b# pri"ate and public firms and NOs, Central ban.s help establish and implement monetar# polic# and regulate the commercial ban.s which ta.e deposits depo sits and ma.e loans, The assets and institutions are lin.ed b# the interban. networ.s operating worldwide that are so necessar# for actual trading to ta.e place, *iff+ < Topic+ 1,0 The lobal Financial Mar.etplace .ill+ Conceptual !.& The Theor of Comparati'e (d'anta)e

1) *espite the underl#ing ad"antages of the Theor# of Comparati"e %d"antage4 countries do not appear to speciali(e in producing onl# o nl# those goods and ser"ices that could most efficientl# be produced domesticall#, domesticall#, 7ro"ide at least three reasons wh# go"ernments interfere with comparati"e ad"antage and the techni=ues the# ma# use to enforce their ob;ecti"es, %nswer+ o"ernments interfere for se"eral reasons, The authors suggest se"eral reasons for this including national ob;ecti"es for full emplo#ment4 economic de"elopment4 self&sufficienc#4 self&sufficienc#4 national defense4 and agricultural protection, Common forms of go"ernment interference are tariffs4 tariffs4 =uotas4 and other o ther t#pes of restrictions, 7olitical influence ma# also include the manipulation of international standards of trade that benefit their own countr# more than others, *iff+ < Topic+ 1,< Comparati"e %d"antage .ill+ Conceptual



!. 0hat is 1ifferent about "lobal "lobal Financial Mana)ement2

1) 9ist and e@plain three concepts differentiating differentiating 2nternational from *omestic Financial Management, %nswer+ The authors identif# si@ concepts of increased comple@it# for 2nternational Financial Management, First4 each of the countries coun tries where MN! operates is uni=ue in terms of its culture4 histor# and institutions, This implies the necessit# for the management to be inclusi"e of different business customs and practices, econd4 MN!:s corporate go"ernance has to incorporate foreign countries regulations and different institutional practices and not limit itself to pre"ailing domestic legislation, Third and Forth4 MN!s are e@posed to additional foreign e@change and political ris.s due to e@istence of their foreign subsidiaries, Fifth4 traditional approach to financial theories li.e capital budgeting bud geting and cost of capital has to reflect the increase of comple@ities arising from the international finance s#stem, %nd si@th4 the nature of the financial instruments utili(ed b# the MN!s has to be ad;usted according to the different ris.s of international operations, *iff+ < Topic+ 1,> lobal Financial Management .ill+ Conceptual !.5 Market 3mperfections: ( $ationale for the E4istence of the Multinational Firm

1) 9ist and e@plain three strategic moti"es wh# firms become multinationals and gi"e an e@ample of each, %nswer+ The authors pro"ide 6 strategic moti"es for firms to to become multinationals+ mar.et see.ers4 raw materials see.ers4 production efficienc# see.ers4 .nowledge see.ers4 and political safet# see.ers, Mar.et see.ers are loo.ing for more consumers for their products such as automobiles or steel, Hnowledge see.ers ma# be loo.ing for an educated wor.force similar to the wa# firms see.ing - and * set up shop in uni"ersit# towns, -aw materials see.ers ma# be after commodities such as oil or copper, 7roduction efficiencies ma# occur in countries li.e Me@ico that ha"e capable wor.ers and lower wages, 7olitical safet# see.ers are loo.ing for countries that will not e@propriate their assets4 so the# ma# sta# awa# from countries that in the post ha"e engaged in such acti"ities, *iff+ < Topic+ 1,6 Mar.et 2mperfections .ill+ Conceptual



!. The "lobali#ation 6rocess

1) !@plain the foreign direct in"estment se=uence or the "ariet# of strategic alternati"es a"ailable to growing domestic firm, %nswer+ The authors summari(e se"eral possible steps of increasing increasing foreign presence through different degrees of foreign in"estment, %s the firm identifies the source of its competiti"e ad"antage4 the first alternati"e is to determine the mode of entr# to international mar.ets, On top of the traditional approach of e@porting domestic do mestic goods4 the firm can consider locali(ing production abroad, 2f the scenario of controlling foreign assets is too ris.# ris.# or re=uires resources that the firm does not ha"e4 one on e plausible alternati"e is to engage in a 9icensing Management Contract, Iowe"er4 the firm can also decide to engage in a Joint Kenture Kenture with a local partner or establish Wholl#&Owned ubsidiar#, ubsidiar#, This later scenario can be in a form of a reenfield 2n"estment or through an %c=uisition of a Foreign !nterprise, *iff+ < Topic+ 1,A The lobali(ation 7rocess .ill+ Conceptual


Test Bank for Fundamentals of Multinational Finance 5th Edition by Moffett

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