MCQ - Seminar One Pt2

Question 1

Which of the following is NOT always understood by MNE management?
A) political risk
B) foreign exchange risk
C) culture, history, and institutions
D) financial instruments

Answer 1

C) culture, history, and institutions

Question 2

In determining why a firm becomes multinational there are many reasons. One reason is that the firm is a market seeker. Which of the following is NOT a reason why market-seeking firms produce in foreign countries?

A) to export to foreign markets
B) satisfaction of local demand in the foreign country
C) political safety and small likelihood of government expropriation of assets
D) all of the above are market-seeking activities

Answer 2

C) political safety and small likelihood of government expropriation of assets

Question 3

A well-established, large, Brazil-based MNE will probably be most adversely affected by which of the following elements of firm value?

A) an open marketplace
B) access to capital
C) high-quality strategic management
D) access to qualified labour pool

Answer 3

B) access to capital

Question 4

A well-established, large, China-based MNE will probably be most adversely affected by which of the following elements of firm value?

A) an open marketplace
B) high-quality strategic management
C) access to qualified labour pool
D) access to capital

Answer 4

A) an open marketplace

Question 5

The phase of the globalization process characterized by imports from foreign suppliers and exports to foreign buyers is called the:

A) domestic phase
B) import-export banking phase
C) international trade phase
D) multinational phase

Answer 5

C) international trade phase.

Question 6

The authors describe the multinational phase of globalization for a firm as one characterized by the:

A) potential for international competitors or suppliers even though all accounts are with domestic firms and are denominated in dollars
B) ownership of assets and enterprises in foreign countries
C) requirements that all employees be multilingual
D) imports from foreign suppliers and exports to foreign buyers

Answer 6

B) ownership of assets and enterprises in foreign countries.

Question 7

Of the following, which was NOT mentioned by the authors as an increase in the demands of financial management services due to increased globalisation by the firm?

A) foreign consumer method of payment preferences
B) evaluation of the credit quality of foreign buyers and sellers
C) credit risk management
D) evaluation of foreign exchange risk

Answer 7

A) foreign consumer method of payment preferences

Question 8

The twin agency problems limiting financial globalization are caused by these two groups acting in their own self-interests rather than the interests of the firm:

A) rulers of sovereign states and unsavoury customs officials
B) corporate insiders and rulers of sovereign states
C) corporate insiders and attorneys
D) attorneys and unsavoury customs officials

Answer 8

B) corporate insiders and rulers of sovereign states

Question 9

World War I caused the suspension of the gold standard for fixed international exchange rates because the war:

A) used gold as the main ingredient in armament plating
B) cost too much money
C) interrupted the free movement of gold
D) lasted too long

Answer 9

C) interrupted the free movement of gold.

Question 10

Another name for the International Bank for Reconstruction and Development is:

A) the European Monetary System
B) the Marshall Plan
C) the World Bank
D) the Recon Bank

Answer 10

C) the World Bank.

Question 11

The International Monetary Fund (IMF):

A) in recent years has provided large loans to Russia, South Korea, and Brazil
B) aids countries with balance of payments and exchange rate problems
C) was created as a result of the Bretton Woods Agreement
D) is all of the above

Answer 11

D) is all of the above.

Question 12

Based on the premise that, other things equal, countries would prefer a fixed exchange rate, which of the following statements is NOT true?

A) fixed exchange rate regimes necessitate that central banks maintain large quantities of international reserves for use in the occasional defense of the fixed rate
B) fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies
C) stable prices aid in the growth of international trade and lessen exchange rate risks for businesses
D) fixed rates provide stability in international prices for the conduct of trade

Answer 12

B) Fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies.

Question 13

According to the terminology associated with changes in currency values, which of the following is the case when a currency’s value relative to other currencies is changed by a government?

A) depreciation and revaluation
B) devaluation and appreciation
C) depreciation and appreciation
D) devaluation and revaluation

Answer 13

D) devaluation and revaluation

Question 14

Which of the following is NOT an attribute of the ‘ideal’ currency?

A) exchange rate stability
B) full financial integration
C) monetary independence
D) all are attributes of an ideal currency

Answer 14

D) All are attributes of an ideal currency.

Question 15

The authors discuss the concept is the “impossible trinity” or the inability to achieve simultaneously the goals of exchange rate stability, full financial integration, and monetary independence. If a country chooses to have a pure float exchange rate regime, which two of the three goals is a country most able to achieve?

A) full financial integration and monetary independence
B) monetary independence and exchange rate stability
C) exchange rate stability and full financial integration
D) a country cannot attain any of the exchange rate goals with a pure float exchange rate regime

Answer 15

A) full financial integration and monetary independence

Question 16

China today is a clear example of a nation that has chosen the following policies EXCEPT:

A) conduct an independent monetary policy
B) control and manage the value of its currency
C) full financial integration in an attempt to stimulate its domestic economy
D) restrict the flow of capital into and out of the country

Answer 16

C) full financial integration in an attempt to stimulate its domestic economy.

Question 17

Which of the following is NOT a required convergence criterion to become a full member of the EMU (European Economic and Monetary Union)?

A) nominal inflation should be no more that 1.5% above the average inflation rate for the three members with the lowest inflation rates in the previous year
B) the fiscal deficit should be no more than 3% of GDP
C) national birthrates must be at 2.0 or lower per person
D) government debt should be no more than 60% of GDP

Answer 17

C) National birthrates must be at 2.0 or lower per person.

Question 18

Which of the following is a way in which the euro affects markets?

A) consumers and business enjoy price transparency and increased price-based competition
B) currency risks and costs related to exchange rate uncertainty are reduced
C) countries within the Eurozone enjoy cheaper transaction costs
D) all of the above

Answer 18

D) all of the above

Question 19

For the three years from now early 2002 to early 2005, the euro maintained a strong and steady rise in value against the US dollar. After a brief respite in 2005, the euro continued its climb against the USD into 2008. Which of the following was NOT a contributing factor in the assent of the euro and the decline in the dollar?

A) large US balance of payment surpluses
B) a general weakening of the dollar after the attacks of September 11th 2001
C) severe US balance of payments deficits
D) all of the above were contributing factors

Answer 19

A) large U.S. balance of payment surpluses

Question 20

Which of the following is NOT considered a currency degree of internationalization?

A) when a currency becomes the reporting currency - the currency in which companies report their financial statements
B) when a currency takes on a role as an anchor currency
C) with the use of the currency for international investments
D) when an international currency becomes readily accessible from trade

Answer 20

A) when a currency becomes the reporting currency

Question 21

You have been hired as a consultant to the central bank for a country that has for many years suffered from repeated currency crises and depends heavily on the US financial and product markets. Which of the following policies would have the greatest effectiveness for reducing currency volatility with the United States?

A) an exchange rate with a fixed price per ounce of gold
B) dollarisation
C) an exchange rate pegged to the US dollar
D) an internationally floating exchange rate

Answer 21

B) dollarization

Question 22

Which of the following is NOT a major subaccount of the Balance of Payments?

A) the capital account
B) the current account
C) financial account
D) the accounts payable

Answer 22

D) the accounts payable

Question 23

The balance of payments as applied to a course in international finance may be defined as:

A) the amount of a country’s merchandise trade deficit or surplus
B) the amount still owed by governments to the IMF
C) the measurement of all international economic transactions between the residents of a country and foreign residents
D) the amount still owed by an exporting firm after making an initial down payment

Answer 23

C) the measurement of all international economic transactions between the residents of a country and foreign residents.

Question 24

Which of the following is NOT part of the Financial Account of the BOP?

A) net import / export of services
B) net portfolio investment
C) net foreign direct investment
D) other financial items

Answer 24

A) net import/export of services

Question 25

If your company were to import and export textiles, the transactions would be recorded in the current account subcategory of:

A) services trade
B) income trade
C) goods trade
D) current transactions

Answer 25

C) goods trade.

Question 26

The travel services provided to international travelers by United Airlines would be recorded in the current account subcategory of:

A) services trade
B) income trade
C) goods trade
D) current transactions

Answer 26

A) services trade.

Question 27

Over the last two decades the surplus on U.S. services trade has typically been ________ the deficit on U.S. goods trade.

A) less than
B) greater than
C) equal to
D) the relationship is constantly shifting from grater than to less than

Answer 27

A) less than

Question 28

The financial account consists COMPLETELY of which four components?

A) direct investment, stock investment, net financial derivatives, and bond investment
B) mutual fund investment, portfolio investment, derivative investment and stock investment
C) direct investment, portfolio investment, net financial derivatives, and other asset investment
D) stock investment, bond investment, derivative investment, and mutual fund investment

Answer 28

C) direct investment, portfolio investment, net financial derivatives, and other asset investment

Question 29

China is currently experiencing a surplus in its current account and its capital/financial accounts. Which of the following is NOT a contributing factor for this unusual situation?

A) the positive prospects for Chinas continued growth contribute to the capital/financial account surplus
B) Chinas inevitable acquisition of Taiwan is driving the market for Chinese investment
C) the exceptional growth in the Chinese economy contributes to the current account surplus
D) All of the above are contributing factors from Chinas twin surpluses

Answer 29

B) China’s inevitable acquisition of Taiwan is driving the market for Chinese investment.