Question 1

Since the passage of the Sarbanes-Oxley Act,

Accepted Answer

A) some foreign firms choose to list their shares on the London Stock Exchange and other European exchanges, instead of U.S.exchanges, to avoid the costly compliance. 
B) the pace of foreign firms listing their shares in the U.S.has increased. 
C) the firms have passed this increased cost on to their customers. 
A) some foreign firms choose to list their shares on the London Stock Exchange and other European exchanges, instead of U.S.exchanges, to avoid the costly compliance. 
B) the pace of foreign firms listing their shares in the U.S.has increased. 
C) the firms have passed this increased cost on to their customers.

Question 2

Even though the compliance the Cadbury Code of Best Practice is voluntary,

Accepted Answer

A) the Cadbury Code has made a significant impact on the internal governance mechanisms of U.K.companies. 
B) the job security of U.K.chief executives has become more sensitive to the company performance, strengthening managerial accountability and weakening its entrenchment. 
C) joint CEO/COB (chief executive officer and chairman of the board) positions declined. 
D) all of the above 
A) the Cadbury Code has made a significant impact on the internal governance mechanisms of U.K.companies. 
B) the job security of U.K.chief executives has become more sensitive to the company performance, strengthening managerial accountability and weakening its entrenchment. 
C) joint CEO/COB (chief executive officer and chairman of the board) positions declined. 
D) all of the above

Question 3

Managerial entrenchment efforts are clear signs of the agency problem.They include

Accepted Answer

A) anti-takeover defenses. 
B) poison pills. 
C) changes in the voting procedures to make it more difficult for the firm to be taken over. 
D) all of the above 
A) anti-takeover defenses. 
B) poison pills. 
C) changes in the voting procedures to make it more difficult for the firm to be taken over. 
D) all of the above

Question 4

In the U.S.,corporate governance reform has included all of the following except:

Accepted Answer

A) strengthen the independence of boards of directors. 
B) enhancing the transparency and disclosure of financial statements. 
C) energizing the regulatory an monitoring functions of the SEC. 
D) requiring auditors to sit on the boards of directors. 
A) strengthen the independence of boards of directors. 
B) enhancing the transparency and disclosure of financial statements. 
C) energizing the regulatory an monitoring functions of the SEC. 
D) requiring auditors to sit on the boards of directors.

Question 5

In the United States,managers are legally bound by the "duty of loyalty" to

Accepted Answer

A) the board of directors. 
B) to the shareholders. 
C) to the bondholders. 
D) to the government. 
A) the board of directors. 
B) to the shareholders. 
C) to the bondholders. 
D) to the government.

Question 6

In the United States,it is not uncommon for the same person to serve as both CEO and chairman of the board.

Accepted Answer

A) This situation must not have much conflict of interest since it is common. 
B) This situation has a built-in conflict of interest. 
C) This is only legal if that individual owns a controlling number of shares in the firm. 
D) None of the above. 
A) This situation must not have much conflict of interest since it is common. 
B) This situation has a built-in conflict of interest. 
C) This is only legal if that individual owns a controlling number of shares in the firm. 
D) None of the above.

Question 7

Outside the United States and the United Kingdom,

Accepted Answer

A) concentrated ownership of the company is more the exception than the rule. 
B) diffused ownership of the company is more the exception than the rule. 
C) partnerships are more important than corporations. 
D) none of the above 
A) concentrated ownership of the company is more the exception than the rule. 
B) diffused ownership of the company is more the exception than the rule. 
C) partnerships are more important than corporations. 
D) none of the above

Question 8

Tobin's Q is

Accepted Answer

A) the ratio of the market value of company assets to the replacement costs of the assets. 
B) a means to find overvalued stocks: if Q is high it means that the cost to replace a firm's assets is greater than the value of its stock. 
C) The same as the price-to-book ratio. 
D) Both a) and b) are correct 
A) the ratio of the market value of company assets to the replacement costs of the assets. 
B) a means to find overvalued stocks: if Q is high it means that the cost to replace a firm's assets is greater than the value of its stock. 
C) The same as the price-to-book ratio. 
D) Both a) and b) are correct

Question 9

In the graph at right,X,Y,and Z represent

Accepted Answer

A) entrenchment, alignment, entrenchment. 
B) alignment, entrenchment, alignment. 
C) misalignment and alignment. 
D) agency costs of debt and equity. 
A) entrenchment, alignment, entrenchment. 
B) alignment, entrenchment, alignment. 
C) misalignment and alignment. 
D) agency costs of debt and equity.

Question 10

When managerial self-dealings are excessive and left unchecked,

Accepted Answer

A) they can have serious negative effects on share values. 
B) they can impede the proper functions of capital markets. 
C) they can impede such measures as GDP growth. 
D) all of the above 
A) they can have serious negative effects on share values. 
B) they can impede the proper functions of capital markets. 
C) they can impede such measures as GDP growth. 
D) all of the above

Question 11

Self-interested managers may be tempted to

Accepted Answer

A) indulge in expensive perquisites at company expense. 
B) adopt antitakeover measures for their company to ensure their personal job security. 
C) waste company funds by undertaking unprofitable projects that benefit themselves but not shareholders. 
D) all of the above are potential abuses that self-interested managers may be tempted to visit upon shareholders. 
A) indulge in expensive perquisites at company expense. 
B) adopt antitakeover measures for their company to ensure their personal job security. 
C) waste company funds by undertaking unprofitable projects that benefit themselves but not shareholders. 
D) all of the above are potential abuses that self-interested managers may be tempted to visit upon shareholders.

Question 12

Debt can reduce agency costs between shareholders and management,but

Accepted Answer

A) only if the firm is totally up to its eyeballs in debt. 
B) only to the extent that the firm can commit all of its free cash flow. 
C) excessive debt can create its own agency conflicts. 
D) debt is best used as a corporate governance mechanism by young companies with limited cash reserves. 
A) only if the firm is totally up to its eyeballs in debt. 
B) only to the extent that the firm can commit all of its free cash flow. 
C) excessive debt can create its own agency conflicts. 
D) debt is best used as a corporate governance mechanism by young companies with limited cash reserves.

Question 13

The public corporation

Accepted Answer

A) is jointly owned by a (potentially) large number of shareholders. 
B) offers shareholders limited liability. 
C) separates the ownership and control of a firm's assets. 
D) all of the above 
A) is jointly owned by a (potentially) large number of shareholders. 
B) offers shareholders limited liability. 
C) separates the ownership and control of a firm's assets. 
D) all of the above

Question 14

The cost of compliance with the Sarbanes-Oxley Act

Accepted Answer

A) is a small amount, since most firms were playing by rules to begin with. 
B) disproportionately affects small firms. 
C) is paid for with tax credits for firms found to be in compliance. 
D) all of the above 
A) is a small amount, since most firms were playing by rules to begin with. 
B) disproportionately affects small firms. 
C) is paid for with tax credits for firms found to be in compliance. 
D) all of the above

Question 15

While debt can reduce agency costs between shareholders and management,

Accepted Answer

A) excessive debt may also induce the risk-averse managers to forgo profitable but risky investment projects, causing an underinvestment problem. 
B) with debt financing companies can misuse debt to finance corporate empire building. 
C) both a) and b) 
D) none of the above 
A) excessive debt may also induce the risk-averse managers to forgo profitable but risky investment projects, causing an underinvestment problem. 
B) with debt financing companies can misuse debt to finance corporate empire building. 
C) both a) and b) 
D) none of the above

Question 16

Concentrated ownership of a public company

Accepted Answer

A) is normal in the United States, following the well-publicized scandals of recent years. 
B) is relatively rare in the United States and common in many other parts of the world. 
C) leads to a free-rider problem with the minority shareholders relying on the majority.shareholders to assume an undue burden in monitoring the management. 
D) is the norm in Great Britain. 
A) is normal in the United States, following the well-publicized scandals of recent years. 
B) is relatively rare in the United States and common in many other parts of the world. 
C) leads to a free-rider problem with the minority shareholders relying on the majority.shareholders to assume an undue burden in monitoring the management. 
D) is the norm in Great Britain.

Question 17

Suppose in order to defraud the shareholders,a manager sets up an independent company that he owns sells the main company's output to this company.He would be tempted to set the transfer price

Accepted Answer

A) below market prices. 
B) above market prices. 
C) at the market price. 
D) in accordance with GAAP. 
A) below market prices. 
B) above market prices. 
C) at the market price. 
D) in accordance with GAAP.

Question 18

Following the adoption of the Cadbury Code of Best practice,

Accepted Answer

A) joint CEO/COB (chief executive officer and chairman of the board) positions declined. 
B) there has been a significant impact on the internal governance mechanisms of U.K.companies. 
C) CEOs have become more sensitive to company performance, strengthening managerial accountability and weakening managerial entrenchment. 
D) all of the above 
A) joint CEO/COB (chief executive officer and chairman of the board) positions declined. 
B) there has been a significant impact on the internal governance mechanisms of U.K.companies. 
C) CEOs have become more sensitive to company performance, strengthening managerial accountability and weakening managerial entrenchment. 
D) all of the above

Question 19

Why do managers tend to retain free cash flow?

Accepted Answer

A) Managers are in the best position to decide the best use of those funds. 
B) These funds are needed for undertaking profitable projects and the issue costs are less than new issues of stocks or bonds. 
C) Managers may not be acting in the shareholders best interest, and for a variety of reasons, want to use the free cash flow. 
D) None of the above 
A) Managers are in the best position to decide the best use of those funds. 
B) These funds are needed for undertaking profitable projects and the issue costs are less than new issues of stocks or bonds. 
C) Managers may not be acting in the shareholders best interest, and for a variety of reasons, want to use the free cash flow. 
D) None of the above

Question 20

Free cash flow refers to

Accepted Answer

A) a firm's cash reserve in excess of tax obligation. 
B) a firm's funds in excess of what's needed for undertaking all profitable projects. 
C) a firm's cash reserve in excess of interest and tax payments. 
D) a firm's income tax refund that is due to interest payments on borrowing. 
A) a firm's cash reserve in excess of tax obligation. 
B) a firm's funds in excess of what's needed for undertaking all profitable projects. 
C) a firm's cash reserve in excess of interest and tax payments. 
D) a firm's income tax refund that is due to interest payments on borrowing.

Exam 4: Corporate Governance Around the World

Since the passage of the Sarbanes-Oxley Act,

Even though the compliance the Cadbury Code of Best Practice is voluntary,

Managerial entrenchment efforts are clear signs of the agency problem.They include

In the U.S.,corporate governance reform has included all of the following except:

In the United States,managers are legally bound by the "duty of loyalty" to

In the United States,it is not uncommon for the same person to serve as both CEO and chairman of the board.

Outside the United States and the United Kingdom,

Tobin's Q is

In the graph at right,X,Y,and Z represent

When managerial self-dealings are excessive and left unchecked,

Self-interested managers may be tempted to

Debt can reduce agency costs between shareholders and management,but

The public corporation

The cost of compliance with the Sarbanes-Oxley Act

While debt can reduce agency costs between shareholders and management,

Concentrated ownership of a public company

Suppose in order to defraud the shareholders,a manager sets up an independent company that he owns sells the main company's output to this company.He would be tempted to set the transfer price

Following the adoption of the Cadbury Code of Best practice,

Why do managers tend to retain free cash flow?

Free cash flow refers to

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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