Question 1

Project financing is the arrangement of financing for very large individual long-term capital projects.

Accepted Answer

A) True 
 B)False

Question 2

Of the following, which is NOT an internal source of financing for the foreign subsidiary?

Accepted Answer

A)  equity in the form of cash from the parent firm 
B)  equity in the form of real goods from the parent 
C)  debt in the form of loans from the same commercial bank used by the parent 
D)  All of the above are internal sources of financing for the foreign subsidiary. 
A)  equity in the form of cash from the parent firm 
B)  equity in the form of real goods from the parent 
C)  debt in the form of loans from the same commercial bank used by the parent 
D)  All of the above are internal sources of financing for the foreign subsidiary.

Question 3

General Motors has agreed to a syndicated eurocredit loan with the following terms: A revolving loan of $100,000,000 with an up-front fee of 2% of the principal and an interest rate of LIBOR plus 75 basis points. If the payments are made every six months and the current LIBOR rate is 4.00%, what is the effective annual cost of this loan?

Accepted Answer

A)  4.75% 
B)  4.85% 
C)  4.95% 
D)  4.00% 
A)  4.75% 
B)  4.85% 
C)  4.95% 
D)  4.00%

Question 4

Of the following, which is NOT identified by the authors as a country-specific environmental variable key to determining debt ratios?

Accepted Answer

A)  historical development 
B)  taxation 
C)  corporate governance 
D)  All of the above are key variables identified by the authors. 
A)  historical development 
B)  taxation 
C)  corporate governance 
D)  All of the above are key variables identified by the authors.

Question 5

Obtaining local currency debt obligations is particularly attractive to an MNE if the subsidiary has

Accepted Answer

A)  substantial accounts payable in the local currency. 
B)  substantial financial obligations in foreign currency units. 
C)  substantial accounts receivable in the local currency. 
D)  all of the above. 
A)  substantial accounts payable in the local currency. 
B)  substantial financial obligations in foreign currency units. 
C)  substantial accounts receivable in the local currency. 
D)  all of the above.

Question 6

Which of the following is NOT a factor offsetting the tax advantage of debt as a source of financing?

Accepted Answer

A)  increased agency costs 
B)  increased probability of financial distress (bankruptcy) due to fixed interest payments 
C)  alternative tax shields to those supplied by interest payments 
D)  all of the above 
A)  increased agency costs 
B)  increased probability of financial distress (bankruptcy) due to fixed interest payments 
C)  alternative tax shields to those supplied by interest payments 
D)  all of the above

Question 7

TropiKana Inc., a U.S firm, has just borrowed $1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 6.00% per year, how much interest will they pay in the first year?

Accepted Answer

A)  $6,000 
B)  $60,000 
C)  $600,000 
D)  euro 60,000 
A)  $6,000 
B)  $60,000 
C)  $600,000 
D)  euro 60,000

Question 8

Of the following, which is NOT identified by the authors as a country-specific environmental variable key to determining debt ratios?

Accepted Answer

A)  agency costs 
B)  government regulations 
C)  the existence of a viable corporate bond market 
D)  All of the above are key variables identified by the authors. 
A)  agency costs 
B)  government regulations 
C)  the existence of a viable corporate bond market 
D)  All of the above are key variables identified by the authors.

Question 9

MNEs situated in countries with small illiquid and segmented markets are most like

Accepted Answer

A)  small domestic U.S. firms in that they must rely on internally generated funds and bank borrowing. 
B)  large U.S. MNEs in that they are all MNEs and have worldwide markets and sources of financing. 
C)  small domestic U.S. firms in that they have a strong niche market in the U.S. 
D)  none of the above is true. 
A)  small domestic U.S. firms in that they must rely on internally generated funds and bank borrowing. 
B)  large U.S. MNEs in that they are all MNEs and have worldwide markets and sources of financing. 
C)  small domestic U.S. firms in that they have a strong niche market in the U.S. 
D)  none of the above is true.

Question 10

Portfolio diversification of domestic firms reduces risk because cash flows are not perfectly correlated. The same reasoning is often argued for MNEs diversifying into international markets.

Accepted Answer

A) True 
 B)False

Question 11

Foreign bonds sold in the United States are nicknamed "Yankee bonds," foreign bonds sold in Japan are called "Samurai bonds." What are foreign bonds sold in the United Kingdom nicknamed?

Accepted Answer

A)  "Union Jacks" 
B)  "Royalty" 
C)  "Bulldogs" 
D)  "Churchill's" 
A)  "Union Jacks" 
B)  "Royalty" 
C)  "Bulldogs" 
D)  "Churchill's"

Question 12

For firms to raise capital in international markets, it is more important to adhere to capital structure ratios similar to those found in the United States and United Kingdom than to those in the firm's home country.

Accepted Answer

A) True 
 B)False

Question 13

One of the most important factors in making debt less expensive than equity is

Accepted Answer

A)  the tax deductibility of depreciation. 
B)  the tax deductibility of equity. 
C)  the tax deductibility of dividends. 
D)  the tax deductibility of interest. 
A)  the tax deductibility of depreciation. 
B)  the tax deductibility of equity. 
C)  the tax deductibility of dividends. 
D)  the tax deductibility of interest.

Question 14

The Euro-medium-term-note (EMTN) has filled a substantial niche market in global financing. What are the distinguishing characteristics of the EMTN and why is it such a popular form of financing for MNEs?

Accepted Answer

EMTNs have maturity between the long-liv

Question 15

One of the most important factors in making debt less expensive than equity is

Accepted Answer

A)  the seniority of equity obligations to debt claims. 
B)  the tax deductibility of dividends. 
C)  the tax deductibility of equity. 
D)  the seniority of debt obligations to equity claims. 
A)  the seniority of equity obligations to debt claims. 
B)  the tax deductibility of dividends. 
C)  the tax deductibility of equity. 
D)  the seniority of debt obligations to equity claims.

Question 16

TropiKana Inc., a U.S firm, has just borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 5.50% per year and the Euro appreciates against the dollar from $1.40/euro at the time the loan was made to $1.45/euro at the end of the first year, how much interest will TropiKana pay at the end of the first year (rounded)?

Accepted Answer

A)  $55,000 
B)  $79,750 
C)  $77,000 
D)  $37,931 
A)  $55,000 
B)  $79,750 
C)  $77,000 
D)  $37,931

Question 17

Of the following, which is NOT considered to be a disadvantage to MNEs of having a financial structure adhere to local debt norms?

Accepted Answer

A)  Why adhere to local standards if, as an MNE, the firm has important competitive advantages relating to capital structure? 
B)  Adhering to local standards may push the MNE consolidated financial ratios out of the optimal range. 
C)  A localized financial structure makes it difficult for management to compare operating results with those of local competitors. 
D)  All of the above are noted as disadvantages to having a localized capital structure. 
A)  Why adhere to local standards if, as an MNE, the firm has important competitive advantages relating to capital structure? 
B)  Adhering to local standards may push the MNE consolidated financial ratios out of the optimal range. 
C)  A localized financial structure makes it difficult for management to compare operating results with those of local competitors. 
D)  All of the above are noted as disadvantages to having a localized capital structure.

Question 18

TropiKana Inc., a U.S firm, has just borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 5.50% per year and the Euro appreciates against the dollar from $1.40/euro at the time the loan was made to $1.45/euro at the end of the first year, what is the before tax cost of capital if the firm repays the entire loan plus interest (rounded)?

Accepted Answer

A)  1.73% 
B)  5.50% 
C)  10.50% 
D)  9.27% 
A)  1.73% 
B)  5.50% 
C)  10.50% 
D)  9.27%

Project financing is the arrangement of financing for very large individual long-term capital projects.

Of the following, which is NOT an internal source of financing for the foreign subsidiary?

Of the following, which is NOT identified by the authors as a country-specific environmental variable key to determining debt ratios?

Obtaining local currency debt obligations is particularly attractive to an MNE if the subsidiary has

Which of the following is NOT a factor offsetting the tax advantage of debt as a source of financing?

TropiKana Inc., a U.S firm, has just borrowed $1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 6.00% per year, how much interest will they pay in the first year?

Of the following, which is NOT identified by the authors as a country-specific environmental variable key to determining debt ratios?

MNEs situated in countries with small illiquid and segmented markets are most like

Portfolio diversification of domestic firms reduces risk because cash flows are not perfectly correlated. The same reasoning is often argued for MNEs diversifying into international markets.

Foreign bonds sold in the United States are nicknamed "Yankee bonds," foreign bonds sold in Japan are called "Samurai bonds." What are foreign bonds sold in the United Kingdom nicknamed?

For firms to raise capital in international markets, it is more important to adhere to capital structure ratios similar to those found in the United States and United Kingdom than to those in the firm's home country.

One of the most important factors in making debt less expensive than equity is

The Euro-medium-term-note (EMTN) has filled a substantial niche market in global financing. What are the distinguishing characteristics of the EMTN and why is it such a popular form of financing for MNEs?

One of the most important factors in making debt less expensive than equity is

Of the following, which is NOT considered to be a disadvantage to MNEs of having a financial structure adhere to local debt norms?

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

The Foreign Exchange Market

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Foreign Currency Derivatives

Transaction Exposure

Operating Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Interest Rate and Currency Swaps

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

International Trade Finance

Multinational Tax Management

Working Capital Management

Filters

Exam 14: Financial Structure and International Debt

Project financing is the arrangement of financing for very large individual long-term capital projects.

Of the following, which is NOT an internal source of financing for the foreign subsidiary?

Of the following, which is NOT identified by the authors as a country-specific environmental variable key to determining debt ratios?

Obtaining local currency debt obligations is particularly attractive to an MNE if the subsidiary has

Which of the following is NOT a factor offsetting the tax advantage of debt as a source of financing?

TropiKana Inc., a U.S firm, has just borrowed $1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 6.00% per year, how much interest will they pay in the first year?

Of the following, which is NOT identified by the authors as a country-specific environmental variable key to determining debt ratios?

MNEs situated in countries with small illiquid and segmented markets are most like

Portfolio diversification of domestic firms reduces risk because cash flows are not perfectly correlated. The same reasoning is often argued for MNEs diversifying into international markets.

Foreign bonds sold in the United States are nicknamed "Yankee bonds," foreign bonds sold in Japan are called "Samurai bonds." What are foreign bonds sold in the United Kingdom nicknamed?

For firms to raise capital in international markets, it is more important to adhere to capital structure ratios similar to those found in the United States and United Kingdom than to those in the firm's home country.

One of the most important factors in making debt less expensive than equity is

The Euro-medium-term-note (EMTN) has filled a substantial niche market in global financing. What are the distinguishing characteristics of the EMTN and why is it such a popular form of financing for MNEs?

One of the most important factors in making debt less expensive than equity is

Of the following, which is NOT considered to be a disadvantage to MNEs of having a financial structure adhere to local debt norms?

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

The Foreign Exchange Market

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Foreign Currency Derivatives

Transaction Exposure

Operating Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Interest Rate and Currency Swaps

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

International Trade Finance

Multinational Tax Management

Working Capital Management

Filters