Final - MID TERM 2 Flashcards
A capital market brings together those who want to invest money and those who want to borrow money.
True or False
True
Systematic risk refers to the movements in a stock portfolio’s value that are attributable to macroeconomic forces affecting all firms in an economy.
True or False
True
Market makers are companies that make large investments in governmental bonds.
True or False
False
Commercial banks perform a direct connection function in capital markets.
True or False
False
An investor purchases the right to receive a specified fixed stream of income from the corportion when he purchases a share of stock.
True or False
False
A debt loan requires a corporation to repay a predetermined potion of the loan amount at regular intervals regardless of how much profit it is making.
True or False
True
Debt loans include cash loans from banks and funds raised from the sale of corporate bonds to investors.
True or False
True
The liquidity of the market is limited in a purely domestic capital market.
True or False
True
The cost of capital is the difference between cost of inputs and outputs.
True or False
False
The cost of capital is higher in a global market than in a purely domestic capital market.
True or False
False
By using the global capital market, investors have a much wider range of investment opportunities than in a purly domestic capital market.
**True or False **
True
The risk associated with a portfolio increases as the investor increases the nuber of stock in her portfolio.
True or False
False
Investors can reduce the level of risk by diversifying a portfolio internationally.
True or False
**True **
The systamtic risk is the level of diversifiable risk in an economy.
True or False
False
The relatively low correlation between the movements of stock markets in different countries indicates that countries face different economic conditions.
True or False
True
The projected rate will typically be the forward exchange rate as as determined by the foreign echange market when firms use the projected spot exchange rate to translate both the budget and performance figures into the corporate currency.
True or False
True
The price at which goods and services are transferred between subsidiary companies in a multinational firm is referred to as minimum retail price.
True or False
False
Performance of international subsidiaries depends on the transfer price set-up by the corporate.
True or False
True
Most subsidiaries of an international business operate in uniform environments.
True or False
False
Evaluation of a subsidiary should not be separate from the evaluation of its manager.
True or False
False
Capital budgeting is the technique financial managers use to try to quantify the benefits, costs, and risks of an investment.
True or False
True
The theoretical framework for performing capital budgeting for a foregin project is vastly different from domestic capital budgeting.
True or False
False
Moving up the experience curve allows a firm to reduce its cost of creating value and increase its profitability.
True or False
**False **
Once a firm has established a low-cost position, it can act as a barrier to new competition.
True or False
True
In a multinational enterprise, skills are always generated at the headquarters location and are then disperesed to rest of the organization.
True or False
**False **
To leverage subsidiary skills, companies should establish incentive systems that encourage local employees to acquire new skills.
True or False
True
**Two types of competitive pressure that affect the ability of mulitnational enterprises to compete in the global marketplace are pressure for cost reductions and pressure for local responsiveness. **
True or False
True
Because differentation across countries can involve significant duplication and a lack of product standardization, it may reduce costs.
True or False
False
Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical.
True or False
**True **
Pressures for cost reduction are minimal in industries where major competitors are based in low cost locations where there is persistent excess capacity, and where consumers are powerful and face low switching costs.
True or False
False
A ___ brings together those who want to invest money and those who want to borrow money.
A. consumer market
B. value chain
C. supply chain
D. capital market
D. capital market
Market makers are____.
A. financial service companies that connect investors and borrowers
B. nonbank financial institutions who want to invest money
c. high net worh individuals with surplus cash to reinvest
D. those who want to borrow money including individuals, companies, and governments
A. financial service companies that connect investors and borrowers
Which of the following statements is true of market makers?
A. Commerical banks are not allowed function as market makers
B. Market makers are large investors who drive an economy.
C. Market makers facilitate only equity based loans.
D. Market makers connect investors and borrowers in a capital market.
D. Market makers connect investors and borrowers in a capital market.
An equity loan is made when_____.
A. a coproration pledge equities or other assets to borrow money
B. coprorations avail cash loans from inviduals
C. a corporation sells stock to investors
D. corporations issue bonds to individual investors
C. a corporation sells stock to investors
Which of the following statements is true of debt loans?
A. Management has the discretion in paying the amount to investors.
B. Debt loans should be repaid at regular intervals.
C. Returns from debt loans are variable in nanture
D. Coporations need not pay back the debt loans if they incur losses.
B. Debt loans should be repaid at regular intervals.
When an investor purchases a corporate bond, he purchases the right to receive a _____.
A. share of overall revenues that the company generates
B. part of the title for the assets that the corporate holds
C. specified fixed stream of income from the corporation
D. share of the profits that hte company generates through operations.
C. specified fixed stream of income from the corporation
An important drawback of a purely domestic capital market is that the____.
A. investments does not receive protection from governments
B. investments are riskier than in global capital markets
C. market lacks a strong regulatroy mechanism
D. cost of capital tends to be higher than it is in a global market
D. cost of capital tends to be higher than it is in a global market
A purely domestic capital market faces the problem of ____.
A. foreign exchange risk
B. limited liquidy
C. lack of regulation
D. deregulated markets
B. limited liquidy
The cost of capital is the ____.
A. interest received on investments made by the company
B. price of borrowing money
C. difference between cost of inputs and outputs
D. toal value of raw materials that a company uses.
B. price of borrowing money
A German firm raising capital by selling stok through the London Stock Echange is an example of ______.
A. transnational financing
B. service export
C. indirect financing
D. transnational investment
A. transnational financing
The International Accounting Standards Board _____.
A. can issue a new accounting standard if majority of the board members agree
B. was formed to replace the Financial Accounting Standards Board
C. proposes standards but has no power to enforace the standards
D. was formed to supervise the accoutning practices that U.S. firms follow
C. proposes standards but has no power to enforace the standards
The___writes the generally acepted accounting principles (GAAP) that gover the financial statements of U.S firms.
A. US Securities and Exchange Commission
B. Office of Economic Analysis
C. International Accounting Standards Board
D. Financial Accounting Standards Board
D. Financial Accounting Standards Board
Most international businesses require all budgets and performance data within the firm to be express in the “corporate currency,” which is normally_______.
A. a common currency such as the U.S. dollar
B. the home currency
C. a foreign currency
D. the curency of the country where products are sold
B. the home currency
According to Lessard-Lorange model,___rate refers to the spot exchange rate when the budget is adopted.
A. ending
B. initial
C. ideal
D. projected
B. initial
According to Lessard-Lorange model,___ is the spot exchange rate forecast for the end of the budgeted period.
A. projected
B. initial
C. ideal
D. ending
A. projected
According to Lessard-Lorange model, ending rate is the spot exchange rate:
A. forecast for the end of the budget period
B. when the budget is adopted
C. when no formal exchange rate exists
D. when the budget and performance are being compared.
D. when the budget and performance are being compared.
Which of the following combinations of exchange rates was ruled out by Lessard and Lorange as illogical and unreasonable?
A. Translating budget using ending rate and translating actual performance using initial rate
B. Translating both actual performance and budget using projected rate
C. Translating both actual performance and budget using initial rate
Translaing budget using projecing rate and translaing actual perofrmancing using ending rate
A. Translating budget using ending rate and translating actual performance using initial rate
