Seminar 1 MCQs

Question 1

Financial globalisation has NOT resulted in:

A) an increase in quantity and speed in the flow of capital across the world.
B) uniform ways of ownership, control, and governance across the world.
C) capital markets less open and a decrease in the availability of capital for many
organizations.
D) continuing imbalances of balance of payments.

Answer 1

Uniform ways of ownership, control, and governance across the world.

Question 2

Financial globalisation has NOT resulted in:

A) Capital markets more open and an increase in the availability of capital for many
organizations.
B) Continuing imbalances of balance of payments.
C) An increase in quantity and speed in the flow of capital across the world.
D) An increase in the flow of capital into and out of industrialised markets.

Answer 2

Capital markets more open and an increase in the availability of capital for many organisations.

Question 3

The institutions of global finance are:

A) central banks.
B) investment banks.
C) commercial banks.
D) All of the above are institutions of global finance.

Answer 3

All of the above.

Question 4

A major cost avoided in the eurocurrency markets is the payment of deposit insurance fees, such as:

A) International Monetary Fund - IMF.
B) Office of the Comptroller of the Currency - OCC.
C) Federal Deposit Insurance Corporation - FDIC.
D) World Bank - WB.

Answer 4

Federal Deposit Insurance Corporation - FDIC.

Question 5

The reference rate of interest in the eurocurrency market is the:

A) Treasury rate.
B) Prima rate.
C) Federal funds rate.
D) London Interbank Offered Rate.

Answer 5

London Interbank Offered Rate.

Question 6

Interest spreads in the eurocurrency market are small for many reasons EXCEPT:

A) The eurocurrency is a wholesale market.
B) Eurocurrency loans are secured loans.
C) Eurocurrency deposits and loans are made in amounts of $500,000 or more on an
unsecured basis.
D) Borrowers are usually large corporations or government entities.

Answer 6

Eurocurrency loans are secured loans.

Question 7

The theory that suggests specialisation by country can increase worldwide production is:

A) the theory of working capital management.
B) the international Fisher effect.
C) the theory of comparative advantage.
D) the theory of foreign direct investment.

Answer 7

The theory of comparative advantage.

Question 8

Which of the following is NOT a reason governments interfere with comparative advantage?

A) national self-sufficiency in defence-related industries
B) Governments attempt to achieve full employment.
C) Governments promote economic development.
D) All are reasons governments interfere with comparative advantage.

Answer 8

All are reasons.

Question 9

Which of the following factors of production DO NOT flow freely between countries?

A) financial capital
B) (non-military) technology
C) raw materials
D) All of the above factors of production flow freely among countries.

Answer 9

Raw materials.

Question 10

Of the following, which would NOT be considered a way that government interferes with comparative advantage?

A) quotas
B) managerial skills
C) tariffs
D) other non-tariff restrictions

Answer 10

Managerial skills.

Question 11

Which of the following domestic financial instruments have NOT been modified for use in international financial management?

A) letters of credit
B) interest rate and currency swaps
C) currency options and futures
D) All of the above are domestic financial instruments that have also been modified for use in
international financial markets.

Answer 11

All of the above.

Question 12

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 12

Culture, history and institutions.

Question 13

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 13

Political safety and small likelihood of government expropriation of assets.

Question 14

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 labor pool

Answer 14

Access to capital.

Question 15

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
C) access to qualified labor pool
B) high-quality strategic management
D) access to capital

Answer 15

An open marketplace.

Question 16

The phase of the globalisation process characterised 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 16

International trade phase.

Question 17

The authors describe the multinational phase of globalisation for a firm as one characterised 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) requirement that all employees be multilingual.
D) imports from foreign suppliers and exports to foreign buyers.

Answer 17

Ownership of assets and enterprises in foreign countries.

Question 18

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 18

Foreign consumer method of payment preferences.

Question 19

The twin agency problems limiting financial globalisation 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 unsavory customs officials

Answer 19

Corporate insiders and rulers of sovereign states.

Question 20

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 20

Interrupted to the free movement of gold.

Question 21

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 21

the World Bank.

Question 22

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 payment and exchange rate problems.
C) was created as a result of the Bretton Woods Agreement.
D) is all of the above.

Answer 22

All of the above.

Question 23

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 23

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

Question 24

According to the terminology associated with changes in currency values, which of the following choices 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 24

Devaluation and revaluation.

Question 25

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 25

All are attributes.

Question 26

The authors discuss the concept of 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 26

Full financial integration and monetary independence.

Question 27

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 27

Full financial integration in an attempt to stimulate its domestic economy.

Question 28

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

A) Nominal inflation should be no more than 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 28

National birthrates must be at 2.0 or lower per person.

Question 29

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 Euro zone enjoy cheaper transaction costs.
D) all of the above

Answer 29

All of the above.

Question 30

For the three years from early 2002 to early 2005, the euro maintained a strong and steady rise in value against the U.S. dollar (USD). 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 U.S. balance of payment surpluses
B) a general weakening of the dollar after the attacks of September 11, 2001
C) severe U.S. balance of payments deficits
D) All of the above were contributing factors.

Answer 30

Large US balance of payment surpluses.

Question 31

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

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 for trade

Answer 31

When a currency becomes the reporting currency - the currency which companies report their financial statements.

Question 32

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 U.S. financial and product markets. Which of the following policies would have the greatest effectiveness for reducing
currency volatility of the client country 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 U.S. dollar
D) an internationally floating exchange rate

Answer 32

Dollarisation.

Question 33

Which of the following is NOT a major sub-account of the Balance of Payments?
A) the capital account
B) the current account
C) the financial account
D) the accounts payable

Answer 33

The accounts payable.

Question 34

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 International Monetary Fund.
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 34

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

Question 35

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 35

Net import/ export of services.

Question 36

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 transfers.

Answer 36

Goods trade.

Question 37

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

A) services trade.
B) income trade.
C) goods trade.
D) current transfers.

Answer 37

Services trade.

Question 38

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 greater than to less than.

Answer 38

Less than.

Question 39

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 39

Direct investment, portfolio investment, net financial derivatives, and other asset investment.

Question 40

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 China’s continued growth contribute to the capital/financial account surplus.
B) China’s 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 for China’s twin surpluses.

Answer 40

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