Question 1

Systematic risk:

Accepted Answer

A)  is the standard deviation of a security's return. 
B)  is measured with beta. 
C)  is measured with standard deviation. 
D)  none of the above 
A)  is the standard deviation of a security's return. 
B)  is measured with beta. 
C)  is measured with standard deviation. 
D)  none of the above

Question 2

Since the 1980s and 1990s, segmentation in global financial markets has been reduced. As a result of this, the correlation among securities markets has increased, thereby reducing, but not eliminating, the benefits of international portfolio diversification.

Accepted Answer

A) True 
 B)False

Question 3

If a firm lies within a country with ________ or ________ domestic capital markets, it can achieve lower global cost and greater availability of capital with a properly designed and implemented strategy to participate in international capital markets.

Accepted Answer

A)  liquid; segmented 
B)  liquid; large 
C)  illiquid; segmented 
D)  large; illiquid 
A)  liquid; segmented 
B)  liquid; large 
C)  illiquid; segmented 
D)  large; illiquid

Question 4

Reasons that firms may find themselves with relatively high costs of capital include:

Accepted Answer

A)  The firms reside in emerging countries with undeveloped capital markets. 
B)  The firms are too small to easily gain access to their own national securities market. 
C)  The firms are family owned and they choose not to access public markets and lose control of the firm. 
D)  all of the above 
A)  The firms reside in emerging countries with undeveloped capital markets. 
B)  The firms are too small to easily gain access to their own national securities market. 
C)  The firms are family owned and they choose not to access public markets and lose control of the firm. 
D)  all of the above

Question 5

Instruction 13.1:
Use the information to answer the following question(s).
In September 2009 a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is $1.35/euro.
-Refer to Instruction 13.1. At the end of the year the investor sells his stock that now has an average price per share of €57. What is the investor's average rate of return before converting the stock back into dollars?

Accepted Answer

A)  5.0% 
B)  -3.0% 
C)  -5.0% 
D)  3.0% 
A)  5.0% 
B)  -3.0% 
C)  -5.0% 
D)  3.0%

Question 6

Which of the following is NOT a portfolio diversification technique used by portfolio managers?

Accepted Answer

A)  diversify by type of security 
B)  diversify by the size of capitalization of the securities held 
C)  diversify by country 
D)  All of the above are diversification techniques. 
A)  diversify by type of security 
B)  diversify by the size of capitalization of the securities held 
C)  diversify by country 
D)  All of the above are diversification techniques.

Question 7

The opportunity set of projects is typically smaller for MNEs than for purely domestic firms because international markets are typically specialized niches.

Accepted Answer

A) True 
 B)False

Question 8

Increasing the number of securities in a portfolio reduces the unsystematic risk but not the systematic risk.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is NOT true regarding beta?

Accepted Answer

A)  Beta will have a value of less than 1.0 if the firm's returns are less volatile than the market. 
B)  Beta will have a value of greater than 1.0 if the firm's returns are more volatile than the market. 
C)  Beta will have a value of equal to 1.0 if the firm's returns are of equal volatility to the market. 
D)  All of the statements above are true. 
A)  Beta will have a value of less than 1.0 if the firm's returns are less volatile than the market. 
B)  Beta will have a value of greater than 1.0 if the firm's returns are more volatile than the market. 
C)  Beta will have a value of equal to 1.0 if the firm's returns are of equal volatility to the market. 
D)  All of the statements above are true.

Question 10

A national securities market is segmented if the required rate of return on securities in that market differs from comparable securities traded in other, unsegmented markets.

Accepted Answer

A) True 
 B)False

Question 11

Capital market segmentation is a financial market imperfection caused mainly by government constraints, institutional practices, and investor perceptions.

Accepted Answer

A) True 
 B)False

Question 12

Capital market imperfections leading to financial market segmentation include:

Accepted Answer

A)  asymmetric information between domestic and foreign-based investors. 
B)  high securities transaction costs. 
C)  foreign exchange risks. 
D)  all of the above 
A)  asymmetric information between domestic and foreign-based investors. 
B)  high securities transaction costs. 
C)  foreign exchange risks. 
D)  all of the above

Question 13

The weighted average cost of capital (WACC) is:

Accepted Answer

A)  the required rate of return for all of a firm's capital investment projects. 
B)  the required rate of return for a firm's average risk projects. 
C)  not applicable for use by MNE. 
D)  equal to 13%. 
A)  the required rate of return for all of a firm's capital investment projects. 
B)  the required rate of return for a firm's average risk projects. 
C)  not applicable for use by MNE. 
D)  equal to 13%.

Question 14

When estimating an average corporate after-tax cost of capital, the component cost of equity is multiplied by (1-t) to allow for the tax-deductibility of dividend payments.

Accepted Answer

A) True 
 B)False

Question 15

The beginning share price for a security over a three-year period was $50. Subsequent year-end prices were $62, $58 and $64. The arithmetic average annual rate of return and the geometric average annual rate of return for this stock were:

Accepted Answer

A)  9.30% and 8.58% respectively. 
B)  9.30% and 7.89% respectively. 
C)  9.30% and 7.03% respectively. 
D)  9.30% and 6.37% respectively. 
A)  9.30% and 8.58% respectively. 
B)  9.30% and 7.89% respectively. 
C)  9.30% and 7.03% respectively. 
D)  9.30% and 6.37% respectively.

Question 16

What are the components of the weighted average cost of capital (WACC) and how do they differ for an MNE compared to a purely domestic firm?

Accepted Answer

The WACC considers the proportion or wei

Question 17

What do theory and empirical evidence say about capital structure and the cost of capital for MNEs versus their domestic counterparts?

Accepted Answer

In theory, MNEs should be able to suppor

Question 18

Other things equal, an increase in the firm's tax rate will increase the WACC for a firm that has both debt and equity financing.

Accepted Answer

A) True 
 B)False

Question 19

If the addition of a foreign security to the portfolio of the investor decreases the expected return for a given level of risk, then the security adds value to the portfolio.

Accepted Answer

A) True 
 B)False

Question 20

An internationally diversified portfolio:

Accepted Answer

A)  should result in a portfolio with a lower beta than a purely domestic portfolio. 
B)  has the same overall risk shape as a purely domestic portfolio. 
C)  is only about 12% as risky as the typical individual stock. 
D)  all of the above 
A)  should result in a portfolio with a lower beta than a purely domestic portfolio. 
B)  has the same overall risk shape as a purely domestic portfolio. 
C)  is only about 12% as risky as the typical individual stock. 
D)  all of the above

Systematic risk:

Since the 1980s and 1990s, segmentation in global financial markets has been reduced. As a result of this, the correlation among securities markets has increased, thereby reducing, but not eliminating, the benefits of international portfolio diversification.

If a firm lies within a country with or domestic capital markets, it can achieve lower global cost and greater availability of capital with a properly designed and implemented strategy to participate in international capital markets.

Reasons that firms may find themselves with relatively high costs of capital include:

Which of the following is NOT a portfolio diversification technique used by portfolio managers?

The opportunity set of projects is typically smaller for MNEs than for purely domestic firms because international markets are typically specialized niches.

Increasing the number of securities in a portfolio reduces the unsystematic risk but not the systematic risk.

Which of the following statements is NOT true regarding beta?

A national securities market is segmented if the required rate of return on securities in that market differs from comparable securities traded in other, unsegmented markets.

Capital market segmentation is a financial market imperfection caused mainly by government constraints, institutional practices, and investor perceptions.

Capital market imperfections leading to financial market segmentation include:

The weighted average cost of capital (WACC) is:

When estimating an average corporate after-tax cost of capital, the component cost of equity is multiplied by (1-t) to allow for the tax-deductibility of dividend payments.

The beginning share price for a security over a three-year period was $50. Subsequent year-end prices were $62, $58 and $64. The arithmetic average annual rate of return and the geometric average annual rate of return for this stock were:

What are the components of the weighted average cost of capital (WACC) and how do they differ for an MNE compared to a purely domestic firm?

What do theory and empirical evidence say about capital structure and the cost of capital for MNEs versus their domestic counterparts?

Other things equal, an increase in the firm's tax rate will increase the WACC for a firm that has both debt and equity financing.

If the addition of a foreign security to the portfolio of the investor decreases the expected return for a given level of risk, then the security adds value to the portfolio.

An internationally diversified portfolio:

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives: Futures and Options

Interest Risk and Swaps

Foreign Exchange Rate Determination and Intervention

Transaction Exposure

Translation Exposure

Operating Exposure

Funding the Multinational Firm

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

Exam 13: Global Cost and Availability of Capital

Systematic risk:

Since the 1980s and 1990s, segmentation in global financial markets has been reduced. As a result of this, the correlation among securities markets has increased, thereby reducing, but not eliminating, the benefits of international portfolio diversification.

If a firm lies within a country with ________ or ________ domestic capital markets, it can achieve lower global cost and greater availability of capital with a properly designed and implemented strategy to participate in international capital markets.

Reasons that firms may find themselves with relatively high costs of capital include:

Which of the following is NOT a portfolio diversification technique used by portfolio managers?

The opportunity set of projects is typically smaller for MNEs than for purely domestic firms because international markets are typically specialized niches.

Increasing the number of securities in a portfolio reduces the unsystematic risk but not the systematic risk.

Which of the following statements is NOT true regarding beta?

A national securities market is segmented if the required rate of return on securities in that market differs from comparable securities traded in other, unsegmented markets.

Capital market segmentation is a financial market imperfection caused mainly by government constraints, institutional practices, and investor perceptions.

Capital market imperfections leading to financial market segmentation include:

The weighted average cost of capital (WACC) is:

When estimating an average corporate after-tax cost of capital, the component cost of equity is multiplied by (1-t) to allow for the tax-deductibility of dividend payments.

The beginning share price for a security over a three-year period was $50. Subsequent year-end prices were $62, $58 and $64. The arithmetic average annual rate of return and the geometric average annual rate of return for this stock were:

What are the components of the weighted average cost of capital (WACC) and how do they differ for an MNE compared to a purely domestic firm?

What do theory and empirical evidence say about capital structure and the cost of capital for MNEs versus their domestic counterparts?

Other things equal, an increase in the firm's tax rate will increase the WACC for a firm that has both debt and equity financing.

If the addition of a foreign security to the portfolio of the investor decreases the expected return for a given level of risk, then the security adds value to the portfolio.

An internationally diversified portfolio:

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives: Futures and Options

Interest Risk and Swaps

Foreign Exchange Rate Determination and Intervention

Transaction Exposure

Translation Exposure

Operating Exposure

Funding the Multinational Firm

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

If a firm lies within a country with or domestic capital markets, it can achieve lower global cost and greater availability of capital with a properly designed and implemented strategy to participate in international capital markets.