国际财务管理试题

CHAPTER 1
1. If a country unexpectedly imposes restrictions on imports, this trade barrier is an example of:
A) Exchange Rate Risk
B) Political Risk
C) Market Imperfections
D) Expanded Opportunity Set.

2. A domestic firm that produces and sells its products in one country
A) Is protected from foreign exchange risk
B) Could face foreign exchange risk
C) Could face no political risk
D) Is an example of a market imperfection.

3. The European Central Bank is located in
A) Düsseldorf, Germany
B) Frankfurt, Germany
C) London, England
D) Paris, France.

4. The North American Free Trade Agreement (NAFTA)
A) Has resulted in massive unemployment in the U.S. as jobs went to Mexico
B) Calls for the introduction of a regional currency by 2015, similar to the euro
C) Is an agreement among the United States, Canada, and Mexico, that calls for the phasing out of
tariffs and import quotas over a 15-year period
D) Calls for the privatization of all industries over a 15-year period.

5. A U.S. investor who is interested in the shares of Nokia Corporation of Finland
A) Should probably stick with U.S. companies
B) Will have an easier time than ever investigating the company, due to the ready flow of information
over the Internet and the globalization of capital markets
C) Must travel to Finland in person to buy the shares
D) Can buy the shares but cannot bring them to the U.S. legally.

CHAPTER 2
1. Gresham’s Law states that:
A) Exchange Rates between currencies must equal the ratio of the price of gold in the two countries
B) Good money drives bad money out of circulation
C) Bad money drives good money out of circulation
D) The Price-Specie Flow mechanism will automatically adjust exchange rates to their correct level.

2. The key arguments in favor of flexible exchange rates rest on
A) Easier external adjustments
B) National Policy autonomy
C) a) and b) are correct
D) None of the above.

3. Suppose that the pound is pegged to gold at ?20 per ounce and the dollar is pegged to gold at $$35
per ounce. This implies an exchange rate of $$1.75 per pound. If the current market exchange rate is
$$1.80 per pound, how would you take advantage of this situation?
A) Start with $$350. Buy 10 ounces of gold with dollars at $$35 per ounce. Convert the gold to ?200 at
?20 per ounce. Exchange the ?200 for dollars at the current rate of $$1.80 per pound to get $$360
B) Start with ?350. Buy 17.5 ounces of gold at ?20 per ounce. Convert the gold to dollars at $$35 per
ounce. Exchange the dollars for pounds at the current market exchange rate is $$1.80 per pound
C) Both of the above are correct
D) None of the above are correct

4. One advantage of monetary union
A) Loss of national monetary and exchange rate political independence
B) Transition of asymmetric macro-economic shocks
C) Reduced transactions costs and the elimination of exchange-rate uncertainty
D) Enhanced control of interest rates in the member countries

5. The dominant world currency since the end of World War I has been
A) The U.S. dollar
B) The Canadian dollar
C) The British pound
D) The euro

CHAPTER 3
1. In a pure flexible exchange rate regime, a country’s central banks will not need to maintain official reserves. Under this
regime:
A)
–BCA = BKA
B)
BCA = – BRA = 0
C)
BKA = –BRA
D)
None of them

2. In balance-of- payments accounting, a country’s international transactions can be grouped in three main categories:
A) The current account, the capital account and the federal reserves account
B) The government spending account, the capital account and the official reserves account
C) The current account, the capital account and the official reserves account
D) The current account, the capital account and the statistic discrepancy

3. If the United States imports more than it exports, one can expect:
A) The U.S. dollar would be likely to appreciate against other currencies
B) The supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus
C) The U.S. dollar would be under pressure to depreciate against other currencies
D) b) and c) are correct.

4. Suppose that your U.S. firm imports bicycles from Mercian Bicycles in Derby, England.
A) The transaction will give rise to a debit in the U.S. balance-of-payments
B) The transaction will give rise to a credit in the U.S. balance-of-payments
C) Since the value of the bicycles will equal the value of the dollars sent abroad, this will give rise to a neither a debit nor a
credit in the U.S. balance-of-payments
D) It depends

5. The world’s largest debtor nation and creditor nation, respectively are:
A) Japan and the U.S
B) The U.S. and Japan
C) The U.S. and Canada
D) Great Britain and Mexico
II PROBLEM
Some items of the U.S. balance of payments for 2000 (in $$ billion) are as follows:
Exports:
Merchandise 774.86 (Credit)
Services 290.88 (Credit)
Factor income 352.90 (Credit)
Imports: 1809.18 (Debit)
Services 217.07 (Debit)
Factor income 367.68 (Debit)
Unilateral Transfer 54.15(Debit)
Balance on Capital Account: 444.26(Credit)
Statistic Discrepancy 0.13(Debit)

Please compute the items of Exports, Import of Merchandise, Balance on Current Account, and its Official
Reserve Account.

CHAPTER 4
1. When a corporation has large shareholders in control
A) There is the possibility that the large shareholders control the managers and incentivise them to
expropriate wealth from small outside shareholders
B) There are no agency costs
C) The shareholders are usually obese
D) All of the above may be correct

2. Many companies have provided managers with executive stock options
A) These are a form of incentive contracts
B) These can serve as a mechanism of aligning the interests of shareholders and managers
C) These options can offer managers an incentive to run the company in such as way that enhances
shareholder wealth as well as their own
D) All of the above

3. The greatest advantage of the corporate form of business organization
A) It is an efficient risk sharing mechanism that allows corporations to raise large amounts of capital
B) Is the potential for abuse of power that resides in the chief executives office
C) Is the benefit (to governments) of double taxation
D) None of the above

4. In the United States, shareholders elect
A) The board of directors
B) The President Shareholder
C) The management of the firm
D) None of the above

5. Suppose a U.S. company continually performs poorly and all of its internal governance mechanism
fail to correct the problem.
A) Over time this situation may prompt an outsider (corporate raider) to mount a takeover bid
B) A hostile takeover bid can serve as a drastic governance mechanism of the last resort.
C) The market for corporate control may discipline managers
D) All of the above

Chapter 5
1. Multiple Choice Quiz
(1) Suppose you observe the following exchange rates: ?1 = $$1.25; ?1 = $$2.00. What must the euro-pound
exchange rate be?
A ?1 = ?1.60 B ?1 = ?0.625 C ?2.50 = ?1 D ?1 = ?2.50

(2) In the forward market,
A) Market participants agree to buy or sell foreign currency in the future at prices agreed-upon today.
B) Market participants agree to buy (not sell) foreign currencies in the future at prices agreed- upon today.
C) Market participants pay today for a specific amount of foreign currency to be received in the future.
D) Market participants agree to buy and sell fixed amounts of foreign currency at spot prices that will
prevail in the future.

(3) An exchange rate quoted in American terms
A) Says how many units of foreign currency you get for one U.S. dollar.
B) Says how many U.S. dollars one unit of foreign currency is worth.
C) Is the same as the indirect quotation.
D) Is the inverse of the direct quotation.

(4) Suppose you observe the following exchange rates: ?1 = $$.85; ?1 = $$1.60; and ?2.00 = ?1.00. Starting with
$$1,000,000, how can you make money?
A) Exchange $$1m for ?625,000 at ?1 = $$1.60. Buy ?1,250,000 at ?2 = ?1.00; trade for $$1,062,500 at ?1 =
$$.85.
B) Start with dollars, exchange for euros at ?1 = $$.85; exchange for pounds at ?2.00 = ?1.00; exchange for
dollars at ?1 = $$1.60.
C) Start with euros; exchange for pounds; exchange for dollars; exchange for euros.

(5) Consider a trader who takes a long position in a six-month forward contract on British pounds. The forward
rate is $$1.75 = ?1.00; the contract size is ?62,500. At the maturity of the contract the spot exchange rate is $$1.65
= ?1.00
A) The trader has lost $$625.
B) The trader has lost $$6,250.
C) The trader has made $$6,250.
D) The trader has lost $$66,287.88

2．Calculation and analysis
(1) The current spot exchange rate is $$1.95? and the three-month forward rate is $$1.90?. Based on your
analysis of the exchange rate, you are pretty confident that the spot exchange rate will be $$1.92? in three
months. Assume that you would like to buy or sell ?1,000,000.
a. What actions do you need to take to speculate in the forward market? What is the expected dollar profit
from speculation?
b. What would be your speculative profit in dollar terms if the spot exchange rate actually turns out to be
$$1.86?.

Chapter 6
1. Multiple Choice Quiz
(1) Suppose interest rates in the U.S. are 5% when the spot exchange rate is $$0.75 = ?1 and the interest rate in
France is 8% per year. What must the one- year forward exchange rate be?
A) $$0.7292 = ?1
B) $$0.75 = ?1
C) $$0.81 = ?1
D) $$0.7714 = ?1
E) $$1.2963 = ?1

(2) Purchasing power parity states that:
A) The cost of a haircut in Columbia Missouri should be exactly the same as the cost in Hong Kong.
B) Rates of inflation must be the same everywhere.
C) Spot exchange rates are the best predictor of expected inflation rates.
D) The cost of a Big Mac sandwich should be reflected in the cost of two all-beef patties, special sauce,
lettuce, cheese, pickles, onions and a sesame seed bun.
E) None of the above.

(3) Suppose that the spot exchange rate for Japanese yen is ?122$$ and that the one year forward exchange rate
for Japanese yen is ?130$$. The one-year interest rate is 5% in the U.S. What's the interest rate in Japan?
A) 11.89%
B) 6.56%
C) 3.28%
D) 1.67%
E) None of the above.

(4) Suppose you observe the following exchange rates: S($$?) = 0.85 (i.e. ?1 = $$.85) The one-year forward rate
is F
1
($$?) = 0.935 (i.e. ?1 = $$.935) The risk-free interest rate in the U.S. is 5% and in Germany it is 2%. How
can a dollar- based investor make money?
A) Borrow dollars in the U.S., exchange for euros, invest in Germany, enter into a on-year forward
contract; in one year, translate the euros back into dollars at the forward rate.
B) Borrow euros, translate into dollars at the spot, invest in the U.S. at 5% for one year. At the end of the
year, translate part of your dollar investment back into euros at the forward rate to repay your euro debt.
C) There is no profitable arbitrage opportunities.

(5) Consider the following exchange rate quotation from Wall Street Journal
U.S.$$ equiv. Currency per U.S. $$

Friday Thursday Friday Thursday
Britain (Pound)
3 Months
Forward
1.5760 1.5720 0.6345 0.6361
0.6359 0.6375
0.6385 0.6402
1 Month Forward 1.5726 1.5686
1.5661 1.5621
6 Months
1.5564 1.5523 0.6425 0.6442
Forward
Judging by the exchange rates quoted above, which country has the higher rate of inflation?
A) Britain
B) The United States
C) There is not enough information to say.
D) All of the above
E) None of the above

2. Calculation and analysis
(1) Suppose that the treasurer of IBM has an extra cash reserve of $$100,000,000 to invest for six months. The
six-month interest rate is 8 percent per annum in the United States and 6 percent per annum in Germany.
Currently, the spot exchange rate is ?1.01 per dollar and the six-month forward exchange rate is ?0.99 per dollar.
The treasurer of IBM does not wish to bear any exchange risk. Where should heshe invest to maximize the
return?









(2) Due to the integrated nature of their capital markets, investor in both the U.S. and Great Britain require the
same expected real interest rate of 3 percent. The expected annual inflation in the U.S. is 2 percent and in the
U.K. expected annual inflation is 5%. The spot exchange rate is currently ?1.00 = $$1.80. Calculate the nominal
interest rates in Britain and the U.S. assuming the Fisher effect holds.

Chapter 11

1. Multiple Choice Quiz
(1) LIBOR stands for
A) Luxembourg Interbank Offered Rate
B) Lisbon International Bank Offered Rate
C) London International Bank Offered Rate
D) London Interbank Offered Rate

(2) Forward rate agreements can be used for speculative purposes. If one believes rates will be less than the
agreement rate,
A) Take a short position in a forward rate agreement.
B) The purchase of a FRA is the suitable position
C) The sale of a FRA is the suitable position.
D) Take a long position in the spot market

(3)A Eurodollar is:
A) What the Europeans call the euro.
B) Deposits of U.S. dollars held in Europe, but not elsewhere.
C) A time deposit of U.S. dollars in an international bank located outside the United States.
D) A time deposit of euros.

(4) The international debt crisis was caused by
A) Interest rates that became too high, burdening debtor nations.
B) International banks lending more to Third World sovereign governments than they should have.
C) Sovereign governments raising taxes too quickly.
D) Eurodollar defaults

2. Calculation and analysis
(1) Grecian Tile Manufacturing of Athens, Georgia, borrows $$1,500,000 at LIBOR plus a lending margin of
1.25 percent per annum on a six-month rollover basis from a London bank. If six-month LIBOR is 4 ?
percent over the first six-month interval and 5 38 percent over the second six-month interval, how much will
Grecian Tile pay in interest over the first year of its Eurodollar loan?




(2) A bank sells a “three against six” $$3,000,000 FRA for a three- month period beginning three months from
today and ending six months from today. The purpose of the FRA is to cover the interest rate risk caused by
the maturity mismatch from having made a three-month Eurodollar loan and having accepted a six-month
Eurodollar deposit. The agreement rate with the buyer is 5.5 percent. There are actually 92 days in the
three-month FRA period. Assume that three months from today the settlement rate is 4 78 percent.
Determine how much the FRA is worth and who pays who--the buyer pays the seller or the seller pays the
buyer.

Chapter 12
le Choice Quiz
(1) Regarding a bearer bond

A) Possession is evidence of ownership
B) The owner's name is on the bond and registered with the issuer.
C) The owner's name registered with the issuer but not on the bond.
D) There is a serial number on the bond and the owner's name is assigned to that serial number

(2) Eurobonds are usually
A) Registered bonds
B) Bearer bonds
C) Floating-rate, callable and convertible
D) Denominated in the currency of the country that they are sold in.

(3) Other things equal, investors will generally ____ on bearer bonds than on registered bonds of comparable
terms.
A) demand a higher credit rating
B) demand a higher yield
C) accept a lower yield
D) a) and b) are both correct

(4) The credit rating of an international borrower:
A) Depends on the volatility of the exchange rate.
B) Depends on the volatility, but not absolute level, of the exchange rate.
C) Is usually never higher than the rating assigned to the sovereign government of the country in which it
resides.
D) Is unrelated to the rating assigned to the sovereign government of the country in which it resides.

(5) Dual currency bonds would be most appropriate for
A) A domestic borrower who wants to speculate in the exchange rate markets.
B) A borrower with a long-term project that has large cash outflows at maturity.
C) A borrower who has a long-term project that will be financed with the home currency, but is expected to
produce enough foreign currency profits to repay the principal at maturity.
D) Japanese banks.

3．Problems
(1) Describe the difference between foreign bonds and Eurobonds.

Chapter 13
1. Multiple Choice Quiz
(1)Cross listing
A) Refers to a firm having its equity shares listed on one or more foreign exchanges, in addition to the home
country stock exchange.
B) Is not an option for non-MNCs.

C) Is only an option for MNCs
D) B and C are both correct

(2) Changes in exchange rates
A) Generally explain a larger portion of the variability of foreign bond indexes than foreign equity indexes.
B) Generally explain a larger portion of the variability of foreign equity indexes than foreign bond indexes.
C) Do not affect the variability of foreign equity indexes or foreign bond indexes.
D) Affect all foreign stock markets equally.

(3) An ADR
A) Is a mechanism for the avoidance of taxes, especially capital gains taxes, on shares of foreign stocks.
B) Are bearer securities, not registered securities.
C) is a receipt representing a number of foreign shares that are deposited in a U.S. bank.
D) None of the above are true.

(4) A specialist
A) Is an investor who only holds shares issued by one company
B) Is a dealer in the OTC market
C) Makes a market by holding an inventory of a security
D) none of the above

(5) A country's primary market
A) Is the market that has the largest number of shares traded through it.
B) Is the market that has the largest total value of shares traded through it.
C) Is the market that has the largest number and value of shares traded through it, like the NYSE for the U.S.
D) Is where the sale of securities by corporations to initial investors takes place.

CHAPTER 16
1. When a MNC builds brand-new production facilities overseas, this is an example of
A)
A cross-border M&A
B)
A greenfield investment
C)
Foreign direct investment
D)
b) and c) are both correct

2. Imperfect factor markets drive much FDI. Which of the following markets has the most imperfections?
A)
Product market
B)
Labor market
C)
Capital market
D)
Market for raw materials.

3. Political risk
A)
Is an example of a macro risk
B)
Arises from uncertainty regarding exchange rates
C)
Refers to the potential losses to the parent firm resulting from adverse political developments in the host
country
D)
a) and c) are both correct.

4. Country risk
A)
Is a narrower measure of risk than political risk
B)
Is a broader measure of risk than political risk
C)
Is unrelated to political risk
D)
None of the above

5. Consider a country where the bribery of officials is a normal part of doing business
A)
U.S. MNC should adjust capital budgeting projects in that country by including the cost of the bribes
B)
U.S. firms are legally able to bribe foreign officials, but are not able to deduct the costs
C)
U.S. firms are legally prohibited from bribing foreign official by the Foreign Corrupt Practices Act
D)
None of the above
Ⅱ QUESTIONS
1. How would you explain the fact that China emerged as the second most important recipient of FDI
after the United States in recent years?
2. Why do you think the host country tends to resist cross-border acquisitions, rather than green-field
investments?