Final - MID TERM 2

Question 1

A capital market brings together those who want to invest money and those who want to borrow money.

True or False

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Market makers are companies that make large investments in governmental bonds.

True or False

Answer 3

False

Question 4

Commercial banks perform a direct connection function in capital markets.

True or False

Answer 4

False

Question 5

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

Answer 5

False

Question 6

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

Answer 6

True

Question 7

Debt loans include cash loans from banks and funds raised from the sale of corporate bonds to investors.

True or False

Answer 7

True

Question 8

The liquidity of the market is limited in a purely domestic capital market.

True or False

Answer 8

True

Question 9

The cost of capital is the difference between cost of inputs and outputs.

True or False

Answer 9

False

Question 10

The cost of capital is higher in a global market than in a purely domestic capital market.

True or False

Answer 10

False

Question 11

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 **

Answer 11

True

Question 12

The risk associated with a portfolio increases as the investor increases the nuber of stock in her portfolio.

True or False

Answer 12

False

Question 13

Investors can reduce the level of risk by diversifying a portfolio internationally.

True or False

Answer 13

**True **

Question 14

The systamtic risk is the level of diversifiable risk in an economy.

True or False

Answer 14

False

Question 15

The relatively low correlation between the movements of stock markets in different countries indicates that countries face different economic conditions.

True or False

Answer 15

True

Question 16

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

Answer 16

True

Question 17

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

Answer 17

False

Question 18

Performance of international subsidiaries depends on the transfer price set-up by the corporate.

True or False

Answer 18

True

Question 19

Most subsidiaries of an international business operate in uniform environments.

True or False

Answer 19

False

Question 20

Evaluation of a subsidiary should not be separate from the evaluation of its manager.

True or False

Answer 20

False

Question 21

Capital budgeting is the technique financial managers use to try to quantify the benefits, costs, and risks of an investment.

True or False

Answer 21

True

Question 22

The theoretical framework for performing capital budgeting for a foregin project is vastly different from domestic capital budgeting.

True or False

Answer 22

False

Question 23

Moving up the experience curve allows a firm to reduce its cost of creating value and increase its profitability.

True or False

Answer 23

**False **

Question 24

Once a firm has established a low-cost position, it can act as a barrier to new competition.

True or False

Answer 24

True

Question 25

**In a multinational enterprise, skills are always generated at the headquarters location and are then disperesed to rest of the organization.** **True or False**

Answer 25

**False **

Question 26

**To leverage subsidiary skills, companies should establish incentive systems that encourage local employees to acquire new skills.** **True or False**

Answer 26

**True**

Question 27

**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**

Answer 27

**True**

Question 28

**Because differentation across countries can involve significant duplication and a lack of product standardization, it may reduce costs.** **True or False**

Answer 28

**False**

Question 29

**Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical.** **True or False**

Answer 29

**True **

Question 30

**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**

Answer 30

**False**

Question 31

**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**

Answer 31

**D. capital market**

Question 32

**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

Answer 32

## Footnote **A. financial service companies that connect investors and borrowers**

Question 33

**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.

Answer 33

## Footnote **D. Market makers connect investors and borrowers in a capital market.**

Question 34

**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

Answer 34

## Footnote **C. a corporation sells stock to investors**

Question 35

**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.

Answer 35

**B. Debt loans should be repaid at regular intervals.**

Question 36

**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.

Answer 36

**C. specified fixed stream of income from the corporation**

Question 37

**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

Answer 37

**D. cost of capital tends to be higher than it is in a global market**

Question 38

**A purely domestic capital market faces the problem of \_\_\_\_.** A. foreign exchange risk B. limited liquidy C. lack of regulation D. deregulated markets

Answer 38

**B. limited liquidy**

Question 39

**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.

Answer 39

**B. price of borrowing money**

Question 40

**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

Answer 40

## Footnote **A. transnational financing**

Question 41

**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

Answer 41

**C. proposes standards but has no power to enforace the standards**

Question 42

**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

Answer 42

**D. Financial Accounting Standards Board**

Question 43

**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

Answer 43

## Footnote **B. the home currency**

Question 44

**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

Answer 44

**B. initial**

Question 45

**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

Answer 45

## Footnote **A. projected**

Question 46

**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.

Answer 46

**D. when the budget and performance are being compared.**

Question 47

**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

Answer 47

**A. Translating budget using ending rate and translating actual performance using initial rate**