国际财务管理第7版教师手册习题答案

Chapter01GlobalizationandtheMultinationalFirmAnswerKey

MultipleChoiceQuestions

1.Whatmajordimensionsetsapartinternationalfinancefromdomesticfinance?

A.Foreignexchangeandpoliticalrisks

B.Marketimperfections

C.Expandedopportunityset

D.Alloftheabove

Topic:What'sSpecialabout""International"Finance?

2.Anexampleofapoliticalriskis

A.expropriationofassets.

B.adversechangeintaxrules.

C.theoppositionpartybeingelected.

D.bothanswersaandbarecorrect.

Topic:What'sSpecialabout"International"Finance?

3.Productionofgoodsandserviceshasbecomeglobalizedtoalargeextentasaresultof

A.naturalresourcesbeingdepletedinonecountryafteranother.

B.skilledlaborbeinghighlymobile.

C.multinationalcorporations'effortstosourceinputsandlocateproductionanywherewhere

costsarelowerandprofitshigher.

D.commontastesworlduvideforthesamegoodsandservices.

Topic:What'sSpecialabout"International"Finance?

4.Recently,financialmarketshavebecomehighlyintegrated.Thisdevelopment

A.allowsinvestorstodiversifytheirportfoliosinternationally.

B.allowsminorityinvestorstobuyandsellstocks.

C.hasincreasedthecostofcapitalforfirms.

D.answersaandcarebothcorrect.

Topic:What'sSpecialabout""International"Finance?

5.Japanhasexperiencedlargetradesurpluses.Japaneseinvestorshaverespondedtothisby

A.liquidatingtheirpositionsinstockstobuydollardenominatedbonds.

B.investingheavilyinUS.andotherforeignfinancialmarkets.

C.lobbyingtheU.S.governmenttodepreciateitscurrency.

D.lobbyingtheJapanesegovernmenttoallowtheyentoappreciate.

Topic:What'sSpecialabout"International''Finance?

6.Supposeyourfirminvests$100,000inaprojectinItaly.Atthetimetheexchangerateis$1.25

=€1.00.Oneyearlatertheexchangerateisthesame,buttieItaliangovernmenthas

expropriatedyourfirm'sassetspayingonly€80,000incompensation.Thisisanexampleof

A.exchangeraterisk.

B.politicalrisk.

C.marketimperfections.

D.noneoftheabove,since$100,000=€80,000xS1.25/€1.00

Topic:What'sSpecialaboutInternationa/"Finance?

7.Supposeyoustartwith$100andbuystockfor£50whentheexchangerateis£1=$2.One

yearlater,thestockrisesto£60.Youarehappywithyour20percentreturnonthestock,but

whenyousellthestockandexchangeyour£60fordollars,youonlyget$45sincethepound

hasfallento£1=SO.75.Thislossofvalueisanexampleof

A.exchangeraterisk.

B.politicalrisk.

C.marketimperfections.

D.weaknessinthedollar.

Topic:What'sSpecialaboutinternational"Finance?

8.SupposethatGreatBritainisamajorexportmarketforyourfirm,aU.S.-basedMNC.Ifthe

BritishpoundotepreciatesagainsttheU.S.dollar,

A.yourfirmwillbeable:ochargemoreindollartermswhilekeepingpoundpricesstable.

B.yourfirmmaybepricedoutoftheU.K.market,totheextentthatyourdollarcostsstay

constantandyourpoundpriceswillrise.

C.toprotectU.K.marketshare,yourfirmmayhavetocutthedollarpriceofyourgoodsto

keepthepoundpricethesame.

D.bothbandcarecorrect

Topic:Mal'sSpecialabout"International"Finance?

9.SupposeMexicoisamajorexportmarketforyourU.S.-basedcompanyandtheMexicanpeso

appreciatesdrasticallyagainsttheU.S.dollar.Thismeans

A.yourcompany'sproductscanbepricedoutoftheMexicanmarket,asthepesopriceof

Americanimportswillrisefollowingthepeso'sfall.

B.yourfirmwillbeable:ochargemoreindollartermswhilekeepingpesopricesstable.

C.yourdomesticcompetitorswillenjoyaperiodoffacinglessenedpricecompetitionfrom

Mexicanimports.

D.bothbandcarecorrect

Topic:What'sSpecialabout"International"Finance?

10.SupposeMexicoisamajorexportmarketforyourU.S.-basedcompanyandtheMexicanpeso

depreciatesdrasticallyagainsttheU.S.dollar,asitdidinDecember1994.Thismeansthat

A.yourcompany'sproductscanbepricedoutoftheMexicanmarket,asthepesopriceof

Americanimportswillrisefollowingthepeso'sfall.

B.yourfirmwillbeable:ochargemoreindollartermswhilekeepingpesopricesstable.

C.yourdomesticcompetitorswillenjoyaperiodoffacinglittlepricecompetitionfromMexican

imports.

D.bothbandcarecorrect

Topic:What'sSpecialabout"InternationarFinance?

11.SupposethatyouareaU.S.producerofacommoditygoodcompetingwithforeignproducers.

Yourinputsofproductionarepricedindollarsandyousellyouroutputindollars.IftheU.S.

currencydepreciatesagainstthecurrenciesofourtradingpartners,

A.yourcompetitiveposiiionislikelyimproved.

B.yourcompetitiveposi:ionislikelyworsened.

C.yourcompetitiveposi:ionisunchanged.

Topic:What'sSpecialabout""International"Finance?

12.Undoubtedly,wearenowlivinginaworldwhereallthemajoreconomicfunctions一

consumption,productionandinvestment

A.arestillinherentlylocal.

B.arestillregionalinnature.

C.areslowlybecomingglobalized.

D.arehighlyglobalized.

Topic:What'sSpecialaboutinternational"Finance?

13.Mostgovernmentsatleasttrytomakeitdifficultforpeopletocrosstheirbordersillegally.This

barriertothefreemovementoflaborisanexampleof

A.informationasymmetry.

B.excessivetransactionscosts.

C.racialdiscrimination.

D.amarketimperfectior.

Topic:What'sSpecialabout7nternat/ona/"Finance?

14.Althoughtheworldeconomyismuchmoreintegratedtodaythanwasthecase10or20years

ago,avarietyofbarriersstillhamperfreemovementsofpeople,goods,services,andcapital

acrossnationalboundaries.Thesebarriersinclude

A.legalrestrictions.

B.excessivetransportationcosts.

C.informationasymmetry.

D.alloftheabove

Topic:What'sSpecialabout"International"Finance?

15.TheJapaneseautomobilecompanyHondadecidedtoestablishproductionfacilitiesinOhio,

mainlyto

A.circumventtradebarriers.

B.reducetransportationcosts.

C.reducetransactionscosts.

D.bothaandb

Topic:What'sSpecialabout"International"Finance?

16.Whenindividualinvestorsbecomeawareofoverseasinvestmentopportunitiesandarewilling

todiversifytheirportfoliosinternationally,

A.theytradeonemarketimperfection,informationasymmetry,foranother,exchangerate

risk.

B.theybenefitfromanexpandedopportunityset.

C.theyshouldnotbothertoreadortounderstandtheprospectus,sinceitsprobablywrittenin

aforeignlanguage.

D.theyshouldinvestonyindollarsoreuros.

Topic:What'sSpecialabout"International"Finance?

17.TheNestleCorporation,awell-knownSwissMNC,usedtoissuetwodifferentclassesof

commonstock,bearersharesandregisteredshares,andforeignerswereallowedtohold

only

A.registeredshares.

B.bearershares.

C.votingshares.

D.convertibleshares.

Topic:What'sSpecialaboutInternationa/"Finance?

18.Deregulatedfinancialmarketsandheightenedcompetitioninfinancialservicesprovidedan

environmentforfinancialinnovationsthatresultedintheintroductionofvariousinstruments.

Examplesoftheseinnovativeinstrumentsinclude

A.currencyfuturesandoptions,foreignstockindexfuturesandoptions.

B.multicurrencybonds.

C.internationalmutualfunds,countryfunds,exchangetradedfunds.

D.alloftheabove

Topic:What'sSpecialabout"International"Finance?

19.Nestle,awell-knownSwisscorporation,

A.hasbeenaparagonofvirtueinitsoppositiontoallformsofpoliticalrisk.

B.atonetimeplacedrestrictionsonforeignownershipofitsstock.Whenitrelaxedthese

restrictions,thetotalmarketvalueofthefirmfell.

C.atonetimeplacedrestrictionsonforeignownershipofitsstock.Whenitrelaxedthese

restrictions,therewasamajortransferofwealthfromforeignshareholderstoSwiss

shareholders.

D.noneoftheabove

Topic:Mal'sSpecialabout"International"Finance?

20.Thegoalofshareholderwealthmaximization

A.isnotappropriatefornon-U.S.businessfirms.

B.meansthatallbusinessdecisionsandinvestmentsthatafirmmakesaredoneforthe

purposeofmakingtheownersofthefirmbetterofffinancially.

C.isasub-objectivethefirmshouldattempttoachieveaftertheobjectiveofcustomer

satisfactionismet.

D.isinconflictwiththeprivatizationprocesstakingplaceinthird-worldcountries.

Topic:GoalsforInternationalFinancialManagement

21.Ascapitalmarketsarebecomingmoreintegrated,thegoalofshareholderwealth

maximization

A.hasbeenalteredtoincludeothergoalsaswell.

B.haslostouttoothercoals,evenintheU.S.

C.hasbeengivenincreasingimportancebymanagersinEurope.

D.hasbeenshowntobeadeterrenttoraisingfundsabroad.

Topic:GoalsforInternationalFinancialManagement

22.CorporatescandalsatfirmssuchasEnron,WorldComand:heItalianfirmParmalat

A.showthatmanagersmightbetemptedtopursuetheirownprivateinterestsattheexpense

ofshareholders.

B.showthatItalianshareholdersarebetteratmonitoringmanagerialbehaviorthanU.S.

shareholders.

C.showthatwhite-collarcriminalshardlyevergetpunished.

D.showthatsocialismisabetterwaytogothancapitalism

Topic:GoalsforInternationalFinancialManagement

23.WhilethecorporategovernanceproblemisnotconfinedtotheUnitedStates,

A.itcanbeamuchmoreseriousprobleminmanyotherpartsoftheworld,wherelegal

protectionofsharehodersisweakornonexistent.

B.ithasreacheditshighpointintheUnitedStates.

C.theU.S.legalsystem,withlawsuitsusedonlyasalastresort,ensuredthatanyconflictsof

interestwillsoonbeethingofthepast.

D.noneoftheabove

Topic:GoalsforInternationalFinancialManagement

24.Theownersofabusinessarethe

A.taxpayers.

B.workers.

C.suppliers.

D.shareholders.

Topic:GoatsforInternationalFinancialManagement

25.Themassiveprivatizationthatiscurrentlytakingplaceinformerlysocialistcountries,willlikely

A.eventuallyenhancethestandardoflivingtothesecountries'citizens.

B.dependonprivateinvestment.

C.increasetheopportunitysetfacingthesecountries'citizens.

D.alloftheabove

Topic:GoalsforInternationalFinancialManagement

26.Afirmwithconcentratedownership

A.maygiverisetoconflctsofinterestbetweendominantshareholdersandsmalloutside

shareholders.

B.mayenjoymoreaccountingtransparencythanfirmswithdiffuseownershipstructures.

C.isapartnership,neveracorporation.

D.tendstoexistoverseasbutnotintheU.S.

Topic:GoalsforInternationalFinancialManagement

27.Theultimateguardiansofshareholderinterestinacorporation,arethe

A.rankandfileworkers.

B.seniormanagement.

C.boardsofdirectors.

D.alloftheabove.

Topic:GoatsforInternationalFinancialManagement

28.IncountrieslikeFranceandGermany,

A.managershaveoftenmadebusinessdecisionswithregardmaximizingmarketsharetothe

exclusionofothergoals.

B.managershaveoftenviewedshareholdersasoneofthe"stakeholders"ofthefirm,others

beingemployees,customers,suppliers,banksandsofolh.

C.managershaveoftenregardedtheprosperityandgrowthoftheircombines,orfamiliesof

relatedfirms,astheircriticalgoal.

D.managershavetraditonallyembracedthemaximizationofshareholderwealthastheonly

worthygoal.

Topic:GoalsforInternationalFinancialManagement

29.Whencorporategovernancebreaksdown

A.shareholdersareunlikelytoreceivefairreturnsontheirinvestments.

B.managersmaybetemptedtoenrichthemselvesatshareholderexpense.

C.theboardofdirectorsisnotdoingitsjob.

D.alloftheabove

Topic:GoalsforInternationalFinancialManagement

30.Privatizationreferstoprecessof

A.havinggovernmentoperatebusinessesforthebettermentofthepublicsector.

B.governmentallowingtheoperationofprivatelyownedbusiness.

C.prohibitinggovernmentoperatedenterprises.

D.acountrydivestingitselfoftheownershipandoperationofabusinessventurebyturningit

overtothefreemarketsystem.

Topic:GlobalizationoftheWorldEconomy

31.Deregulationofworldfinancialmarkets

A.providedanaturalenvironmentforfinancialinnovations,likecurrencyfuturesandoptions.

B.haspromotedcompe:itionamongmarketparticipants.

C.hasencourageddevelopingcountriessuchasChile,Mexico,andKoreatoliberalizeby

allowingforeignerstodirectlyinvestintheirfinancialmarkets.

D.alloftheabove

Topic:GlobalizationoftheWorldEconomy

32.TheemergenceofglobalfinancialmarketsisdueinnosmaIpartto

A.advancesincomputerandtelecommunicationstechnology.

B.enforcementoftheSovietsystemofstateownershipofresourcesofproduction.

C.governmentregulationandprotectionofinfantindustries.

D.noneoftheabove

Topic:EmergenceoftheEuroasaGlobalCurrency

33.Thecommonmonetarypolicyfortheeurozoneisnowformulatedby

A.theBundesbankinGermany.

B.theFederalReserveBank.

C.theWorldBank.

D.theEuropeanCentralBank.

Topic:EmergenceoftheEuroasaGlobalCurrency

34.SincetheendofWorldWarI,thedominantglobalcurrencyhasbeenthe

A.Britishpound.

B.Japaneseyen.

C.Euro.

D.U.S.dollar.

Topic:EmergenceoftheEuroasaGlobalCurrency

35.SincetheendofWorldWarI,theU.S.dollarhasplayedtheroleofthedominantglobal

currency,displacingthe

A.Germanmark.

B.FrenchFranc.

C.JapaneseYen

D.Britishpound.

Topic:EmergenceoftheEuroasaGlobalCurrency

36.Theascendanceofthedollarthedominantglobalcurrencyreflectsseveralkeyfactorssuch

as

A.thesizeoftheU.S.population.

B.thematureandopencapitalmarketsoftheU.S.economy.

C.exchangeratestability.

D.alloftheabove.

Topic:EmergenceoftheEuroasaGlobalCurrency

37.Theeuro

A.isthecommoncurrencyofEurope.

B.isdivisibleinto100cents,justliketheU.S.dollar.

C.mayeventuallyhaveatransactiondomainlargerthantheU.S.dollar.

D.alloftheabove.

Topic:EmergenceoftheEuroasaGlobalCurrency

38.SinceitsinceptiontheeurohasbroughtaboutrevolutionarychangesinEuropeanfinance.For

example,

A.byredenominatingcorporatebondsandstocksfromseveraldifferentcurrenciesintoone

commoncurrency,theeurohasprecipitatedtheemergenceofcontinentwidecapital

marketsinEuropethatarecomparabletoU.S.marketsindepthandliquidity.

B.Swissbankaccountsarealldenominatedineuro.

C.theEuropeanbankingsectorhasbecomemuchmoreirriportantasasourceoffinancing

forEuropeanfirms.

D.therehaveactuallynotbeenanyrevolutionarychanges.

Topic:EmergenceoftheEuroasaGlobalCurrency

39.InDavidRicardo'stheoryofcomparativeadvantage,

A.internationaltradeisazero-sumgameinwhichonetradingpartner'sgaincomesatthe

expenseofanother'sloss.

B.liberalizationofinternationaltradewillenhancethewelfareoftheworld'scitizens.

C.isashort-runargument,notalong-runargument.

D.hasbeensupersedecbythenow-orthodoxviewofmercantilism.

Topic:EmergenceoftheEuroasaGlobalCurrency

40.Underthetheoryofcomparativeadvantage,liberalizationofinternationaltradewill

A.enhancethewelfareoftheworld'scitizens.

B.createunemploymentanddisplacementofworkerspermanently.

C.resultinhigherpricesinthelongrunasmonopolistareabletochargehigherpricesafter

eliminatingtheircompetitors.

D.alloftheabove

Topic:EmergenceoftheEuroasaGlobalCurrency

41.Privatizationisoftenseenasacureforbureaucraticinefficiencyandwaste;someeconomists

estimatethatprivatizationimprovesefficiencyandreducesoperatingcostsbyasmuchas

A.5percent.

B.10percent.

C.15percent.

D.20percent.

Topic:EmergenceoftheEuroasaGlobalCurrency

42.TheWorldTradeOrganization,WTO,

A.hasthepowertoenforcetherulesofinternationaltrade.

B.coversagricultureandphysicalgoods,butnotservicesorintellectualpropertyrights.

C.recentlyexpelledChinaforhumanrightsviolations.

D.ruledthatNAFTAistobethemodelforworldtradeintegration.

Topic:EmergenceoftheEuroasaGlobalCurrency

43.Privatization

A.hasspurredatremendousincreaseincross-borderinvestment.

B.hasallowedmanygovernmentstohavethefundstonationalizeimportantindustries.

C.hasguaranteedthatnewownershipwillbelimitedtothelocalcitizens.

D.hasgenerallydecreasedtheefficiencyoftheenterprise.

Topic:EmergenceoftheEuroasaGlobalCurrency

44.Thetheoryofcomparativeadvantage

A.claimsthateconomicwell-beingisenhancedifeachcountry'scitizensproduceonlya

singleproduct.

B.claimsthateconomicwell-beingisenhancedwhenallcountriescomparecommodityprices

afteradjustingforexchangeratedifferencesinordertostandardizethepriceschargedall

countries.

C.claimsthateconomicwell-beingisenhancedifeachcountry'scitizensproducethatwhich

theyhaveacomparativeadvantageinproducingrelativetothecitizensofothercountries,

andthentradeproduction.

D.claimsthatnocountryhasanabsoluteadvantageoveranothercountryintheproductionof

anygoodorservice.

Topic:EmergenceoftheEuroasaGlobalCurrency

45.Amultinationalfirmcanbedefinedasafirmthat

A.investsshort-termcashinflowsinmorethanonecurrency.

B.hassalesaffiliatesinseveralcountries.

C.isincorporatedinmorethanonecountry.

D.incorporatedinonecountrythathasproductionandsalesoperationsinseveralother

countries.

Topic:MultinationalCorporations

46.AMNCmaygainfromitsglobalpresenceby

A.spreadingR&Dexpendituresandadvertisingcostsovertheirglobalsales.

B.poolingglobalpurchasingpoweroversuppliers.

C.utilizingtheirtechnolcgicalandmanagerialknow-howgloballywithminimumadditional

costs.

D.alloftheabovearepotentialgains

Topic:MultinationalCorporations

47.MNCscanusetheirglobalpresenceto

A.takeadvantageofunderpricedlaborservicesavailableincertaindevelopingcountries.

B.gainaccesstospecialR&Dcapabilitiesresidinginadvancedforeigncounties.

C.boostprofitmarginssndcreateshareholdervalue.

D.alloftheabove

Topic:MultinationalCorporations

48.Foreign-ownedmanufacturingcompaniesintheworld'smos/highlydevelopedcountries

A.generallyaremoreproductiveandpaytheirworkersmorethandocomparablelocally-

ownedbusinesses.

B.generallyarelessproductiveandthereforepaytheirworkerslessthandocomparable

locally-ownedbusinesses.

C.tendtospecializeincifferentarticlesofmanufacturethantheyproduceintheirhome

countries.

D.usuallydonotbuildtheirownproductionfacilitiesbutsimplybuyexistingdomestic

manufacturingfirms.

Topic:MultinationalCorporations

49.Apurelydomesticfirmsourcesitsproducts,sellsitsproducts,andraisesitsfunds

domestically

A.canfacestiffcompetiiionfromamultinationalcorporationthatcansourceitsproductsin

onecountry,selltheminseveralcountries,andraiseitsfundsinathirdcountry.

B.canbemorecompetitivethanaMNConitshometurfduetosuperiorknowledgeofthe

localmarket.

C.canstillfaceexchangeraterisk,justlikeaMNC.

D.alloftheabovearetrue

Topic:MultinationalCorporations

50.MNCstandsfor

A.MultinationalCorporation.

B.Multi-NationalizedCorporation.

C.MilitaryNationalCooperation.

Topic:MultinationalCorporations

51.Whichisgrowingatafasterrate,foreigndirectinvestmentbyMNCsorinternationaltrade?

A.FDIbyMNCs

B.Internationaltrade

C.Sincetheyarelinked,theygrowatthesamerate.

D.Noneoftheabove

Topic:MultinationalCorporations

52.AtrueMNC,withoperationsindozensofdifferentcountries

A.musteffectivelymanageforeignexchangerisk.

B.canignoreforeignexchangerisksinceitisdiversified.

C.willpaytaxesinonlytshomecounty.

D.noneoftheabove

Topic:MultinationalCorporations

53.AMNCcan

A.beafactorthatincreasestheopportunitiesofthecitizensoflessdevelopedcountries.

B.beafactorthatincreasestheopportunitysetofdomesticinvestors.

C.increaseeconomicefficiency.

D.alloftheabove

Topic:MultinationalCorporations

54.TodayforaMNCtoproducemerchandiseinonecountryoncapitalequipmentfinancedby

fundsraisedinanumberofdifferentcurrenciesthroughissuingsecuritiestoinvestorsinmany

countriesandthensellingthefinishedproducttocustomersinyetothercountriesis

A.notuncommon.

B.extremelycommon.

C.uncommon.

D.thenorm.

Topic:MultinationalCorporations

55.Acorporationthatcansourceitsproductsinonecountry,selltheminanothercountry,and

raisethefundsinathirdcountry

A.isamultinationalcorporation.

B.isadomesticfirmifalloftheshareholdersarefromthesamecountry.

C.enjoysabuilt-inhedgeagainstexchangeraterisk.

D.enjoysabuilt-inhedgeagainstpoliticalrisk.

Topic:MultinationalCorporations

56.CountryAcanproduce10yardsoftextilesor6poundsoffcodperunitofinput.Computethe

opportunitycostofproducingoneadditionalunitoffoodinsteadoftextiles.

A.1yardoftextilesper1.67poundsoffood

B.1poundoffoodper1.67yardsof