Question 1

A complete contract between shareholders and managers

Accepted Answer

A) would specify exactly what the manager will do under each of all possible future contingencies. 
B) would be an expensive contract to write and a very expensive contract to monitor. 
C) would eliminate any conflicts of interest (and managerial discretion). 
D) all of the above 
A) would specify exactly what the manager will do under each of all possible future contingencies. 
B) would be an expensive contract to write and a very expensive contract to monitor. 
C) would eliminate any conflicts of interest (and managerial discretion). 
D) all of the above

Question 2

In theory,

Accepted Answer

A) managers are hired by the shareholders at the annual stockholders meeting.If the managers turn in a bad year, new ones get hired. 
B) shareholders hire the managers to oversee the board of directors. 
C) managers are hired by the board of directors; the board is accountable to the shareholders. 
D) none of the above 
A) managers are hired by the shareholders at the annual stockholders meeting.If the managers turn in a bad year, new ones get hired. 
B) shareholders hire the managers to oversee the board of directors. 
C) managers are hired by the board of directors; the board is accountable to the shareholders. 
D) none of the above

Question 3

The major components of the Sarbanes-Oxley Act include all of the following except

Accepted Answer

A) accounting regulation-The creation of a public accounting oversight board charged with overseeing the auditing of public companies, and restricting the consulting services that auditors can provide to clients. 
B) audit committee-the company should appoint independent "financial experts" to its audit committee. 
C) shareholder voting rights reform-"one share one vote" is now the law of the land. 
D) executive responsibility-CEOs and CFOs must sign off on the company's financial statements. 
A) accounting regulation-The creation of a public accounting oversight board charged with overseeing the auditing of public companies, and restricting the consulting services that auditors can provide to clients. 
B) audit committee-the company should appoint independent "financial experts" to its audit committee. 
C) shareholder voting rights reform-"one share one vote" is now the law of the land. 
D) executive responsibility-CEOs and CFOs must sign off on the company's financial statements.

Question 4

Suppose the managers of a company have driven the stock price down because they have spent the investors' money on lavish perquisites like golf club memberships.

Accepted Answer

A) This situation may prompt a corporate raider to buy up the shares of the firm in a hostile takeover. 
B) If the hostile takeover is successful, the managers will probably lose their jobs in the ensuing restructuring. 
C) If the restructuring is successful, the corporate raider can sell his shares at a profit. 
D) All of the above 
A) This situation may prompt a corporate raider to buy up the shares of the firm in a hostile takeover. 
B) If the hostile takeover is successful, the managers will probably lose their jobs in the ensuing restructuring. 
C) If the restructuring is successful, the corporate raider can sell his shares at a profit. 
D) All of the above

Question 5

The key weakness of the public corporation is

Accepted Answer

A) too many shareholders, which makes it difficult to make corporate decision. 
B) relatively high corporate income tax rates. 
C) conflicts of interest between managers and shareholders. 
D) conflicts of interests between shareholders and bondholders. 
A) too many shareholders, which makes it difficult to make corporate decision. 
B) relatively high corporate income tax rates. 
C) conflicts of interest between managers and shareholders. 
D) conflicts of interests between shareholders and bondholders.

Question 6

Following the adoption of the Cadbury Code of Best practice joint CEO/COB positions declined

Accepted Answer

A) from 27 percent of the companies before the adoption to 15 percent afterwards. 
B) from 37 percent of the companies before the adoption to 15 percent afterwards. 
C) from 47 percent of the companies before the adoption to 15 percent afterwards. 
D) from 57 percent of the companies before the adoption to 15 percent afterwards. 
A) from 27 percent of the companies before the adoption to 15 percent afterwards. 
B) from 37 percent of the companies before the adoption to 15 percent afterwards. 
C) from 47 percent of the companies before the adoption to 15 percent afterwards. 
D) from 57 percent of the companies before the adoption to 15 percent afterwards.

Question 7

The key requirements of the Cadbury Code of Best Practice state that

Accepted Answer

A) the compensation, nominating, and audit committees to be entirely composed of independent directors. 
B) the positions of CEO and chairman of the board should not reside in the same individual. 
C) listed companies to have boards of directors with a majority of independents. 
D) none of the above 
A) the compensation, nominating, and audit committees to be entirely composed of independent directors. 
B) the positions of CEO and chairman of the board should not reside in the same individual. 
C) listed companies to have boards of directors with a majority of independents. 
D) none of the above

Question 8

The board of directors may grant stock options to managers in order to

Accepted Answer

A) save executive compensation costs. 
B) use as a substitute for bonus. 
C) align the interest of managers with that of shareholders. 
D) none of the above 
A) save executive compensation costs. 
B) use as a substitute for bonus. 
C) align the interest of managers with that of shareholders. 
D) none of the above

Question 9

In what country do the three largest shareholders control,on average,about 60 percent of the shares of a public company?

Accepted Answer

A) United States 
B) Canada 
C) Great Britain 
D) Italy 
A) United States 
B) Canada 
C) Great Britain 
D) Italy

Question 10

Concentrated ownership of a public company

Accepted Answer

A) can be an effective way to alleviate the agency problem between shareholders and managers. 
B) is the norm in Great Britain. 
C) tends to be an ineffective way to alleviate conflicts of interest between groups of shareholders. 
D) none of the above 
A) can be an effective way to alleviate the agency problem between shareholders and managers. 
B) is the norm in Great Britain. 
C) tends to be an ineffective way to alleviate conflicts of interest between groups of shareholders. 
D) none of the above

Question 11

Financial development can contribute to economic growth in what way(s)?

Accepted Answer

A) Financial development enhances savings. 
B) Financial development channels savings toward real investments in productive capacities. 
C) Financial development enhances the efficiency of investment allocation through the monitoring and signaling functions of capital markets. 
D) All of the above. 
A) Financial development enhances savings. 
B) Financial development channels savings toward real investments in productive capacities. 
C) Financial development enhances the efficiency of investment allocation through the monitoring and signaling functions of capital markets. 
D) All of the above.

Question 12

In Germany the corporate board is

Accepted Answer

A) legally charged with representing the interests of shareholders exclusively. 
B) legally charged with looking after the interests of stakeholders (e.g., workers, creditors, etc.) in general, not just shareholders. 
C) legally charged as a supervisory board only. 
D) legally charged as a management board only. 
A) legally charged with representing the interests of shareholders exclusively. 
B) legally charged with looking after the interests of stakeholders (e.g., workers, creditors, etc.) in general, not just shareholders. 
C) legally charged as a supervisory board only. 
D) legally charged as a management board only.

Question 13

Suppose you are the CEO of company A,and you serve on the board of company B,while the CEO of B is on your board.

Accepted Answer

A) This is a potential conflict of interest for both parties. 
B) This is normal and even a desirable situation since it allows for efficient information sharing between the firms. 
C) There is a potential conflict for the shareholders of the two firms. 
D) All of the above are true. 
A) This is a potential conflict of interest for both parties. 
B) This is normal and even a desirable situation since it allows for efficient information sharing between the firms. 
C) There is a potential conflict for the shareholders of the two firms. 
D) All of the above are true.

Question 14

A pyramidal ownership structure is one in which

Accepted Answer

A) a shareholder controls a holding company that owns a controlling block of another company, which in turn owns controlling interests in yet another company, and so on. 
B) equity cross-holdings among a group of companies, such as keiretsu and chaebols can be used to concentrate and leverage voting rights to acquire control. 
C) a combination of these schemes may also be used to leverage control in a pyramidal ownership structure. 
A) a shareholder controls a holding company that owns a controlling block of another company, which in turn owns controlling interests in yet another company, and so on. 
B) equity cross-holdings among a group of companies, such as keiretsu and chaebols can be used to concentrate and leverage voting rights to acquire control. 
C) a combination of these schemes may also be used to leverage control in a pyramidal ownership structure.

Question 15

Corporate governance can be defined as

Accepted Answer

A) the economic, legal, and institutional framework in which corporate control and cash flow rights are distributed among shareholders, managers and other stakeholders of the company. 
B) the general framework in which company management is selected and monitored. 
C) the rules and regulations adopted by boards of directors specifying how to manage companies. 
D) the government-imposed rules and regulations affecting corporate management. 
A) the economic, legal, and institutional framework in which corporate control and cash flow rights are distributed among shareholders, managers and other stakeholders of the company. 
B) the general framework in which company management is selected and monitored. 
C) the rules and regulations adopted by boards of directors specifying how to manage companies. 
D) the government-imposed rules and regulations affecting corporate management.

Question 16

The voting premium,defined as the total vote value (value of a vote times the number of votes)as a proportion of the firm's equity market value is only about 2 percent in the United States and 36 percent in Mexico,suggesting that in Mexico,

Accepted Answer

A) dominant shareholders extract substantial private benefits of control. 
B) dominant shareholders overpay and thus fail to extract substantial private benefits. 
C) minority shareholders share in the private benefits of control. 
D) none of the above 
A) dominant shareholders extract substantial private benefits of control. 
B) dominant shareholders overpay and thus fail to extract substantial private benefits. 
C) minority shareholders share in the private benefits of control. 
D) none of the above

Question 17

Corporate governance structure

Accepted Answer

A) varies a great deal across countries. 
B) has become homogenized following the integration of capital markets. 
C) has become homogenized due to cross-listing of shares of many public corporations. 
D) none of the above 
A) varies a great deal across countries. 
B) has become homogenized following the integration of capital markets. 
C) has become homogenized due to cross-listing of shares of many public corporations. 
D) none of the above

Question 18

The separation of the company's ownership and control,

Accepted Answer

A) is especially prevalent in such countries as the United States and the United Kingdom, where corporate ownership is highly diffused. 
B) is especially prevalent in such countries as the Italy and Mexico, where corporate ownership is highly concentrated. 
C) is a rational response to the agency problem. 
D) none of the above 
A) is especially prevalent in such countries as the United States and the United Kingdom, where corporate ownership is highly diffused. 
B) is especially prevalent in such countries as the Italy and Mexico, where corporate ownership is highly concentrated. 
C) is a rational response to the agency problem. 
D) none of the above

Question 19

One of the objectives of corporate governance reform is to,

Accepted Answer

A) introduce expensive and burdensome accounting reforms. 
B) strengthen the protection of outside investors from expropriation by managers and controlling insiders. 
C) provide taxpayer financing for corporate raiders to strengthen the discipline of the marketplace. 
D) none of the above 
A) introduce expensive and burdensome accounting reforms. 
B) strengthen the protection of outside investors from expropriation by managers and controlling insiders. 
C) provide taxpayer financing for corporate raiders to strengthen the discipline of the marketplace. 
D) none of the above

Question 20

In many countries hostile takeovers are relatively rare.This is so partly because of

Accepted Answer

A) the language barrier. 
B) concentrated ownership in these countries. 
C) cultural values and political environments disapproving hostile corporate takeovers. 
D) both b) and c) 
A) the language barrier. 
B) concentrated ownership in these countries. 
C) cultural values and political environments disapproving hostile corporate takeovers. 
D) both b) and c)

Exam 4: Corporate Governance Around the World

A complete contract between shareholders and managers

In theory,

The major components of the Sarbanes-Oxley Act include all of the following except

Suppose the managers of a company have driven the stock price down because they have spent the investors' money on lavish perquisites like golf club memberships.

The key weakness of the public corporation is

Following the adoption of the Cadbury Code of Best practice joint CEO/COB positions declined

The key requirements of the Cadbury Code of Best Practice state that

The board of directors may grant stock options to managers in order to

In what country do the three largest shareholders control,on average,about 60 percent of the shares of a public company?

Concentrated ownership of a public company

Financial development can contribute to economic growth in what way(s)?

In Germany the corporate board is

Suppose you are the CEO of company A,and you serve on the board of company B,while the CEO of B is on your board.

A pyramidal ownership structure is one in which

Corporate governance can be defined as

The voting premium,defined as the total vote value (value of a vote times the number of votes)as a proportion of the firm's equity market value is only about 2 percent in the United States and 36 percent in Mexico,suggesting that in Mexico,

Corporate governance structure

The separation of the company's ownership and control,

One of the objectives of corporate governance reform is to,

In many countries hostile takeovers are relatively rare.This is so partly because of

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

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