Question 1

The agency problem tends

Accepted Answer

A) to be more serious in firms with free cash flows. 
B) to be more serious in firms with excessive amounts of excess cash. 
C) to be less serious in firms with few numbers of shareholders. 
D) all of the options 
A) to be more serious in firms with free cash flows. 
B) to be more serious in firms with excessive amounts of excess cash. 
C) to be less serious in firms with few numbers of shareholders. 
D) all of the options

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 options 
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 options

Question 3

Several studies document the empirical link between

Accepted Answer

A) weak investor protection and GDP growth. 
B) financial development and economic growth. 
C) growth in GDP and concentrated ownership. 
D) none of the options 
A) weak investor protection and GDP growth. 
B) financial development and economic growth. 
C) growth in GDP and concentrated ownership. 
D) none of the options

Question 4

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 5

The Dodd-Frank Act was passed

Accepted Answer

A) in 1933. 
B) in 2010. 
C) in 1933 and repealed in 2010. 
D) none of the options 
A) in 1933. 
B) in 2010. 
C) in 1933 and repealed in 2010. 
D) none of the options

Question 6

Benetton,an Italian clothier,is listed on the New York Stock Exchange.

Accepted Answer

A) This decision provides their shareholders with a higher degree of protection than is available in Italy. 
B) This decision can be a signal of the company's commitment to shareholder rights. 
C) This may make investors both in Italy and abroad more willing to provide capital and to increase the value of the pre-existing shares. 
D) all of the options 
A) This decision provides their shareholders with a higher degree of protection than is available in Italy. 
B) This decision can be a signal of the company's commitment to shareholder rights. 
C) This may make investors both in Italy and abroad more willing to provide capital and to increase the value of the pre-existing shares. 
D) all of the options

Question 7

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 Italy and Mexico,where corporate ownership is highly concentrated. 
C) is a rational response to the agency problem. 
D) none of the options 
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 Italy and Mexico,where corporate ownership is highly concentrated. 
C) is a rational response to the agency problem. 
D) none of the options

Question 8

The key strength(s)of the public corporation is/are

Accepted Answer

A) their capacity to allow efficient risk sharing among many investors. 
B) their capacity to raise large amounts of funds at relatively low cost. 
C) their capacity to consolidate decision-making. 
D) all of the options 
A) their capacity to allow efficient risk sharing among many investors. 
B) their capacity to raise large amounts of funds at relatively low cost. 
C) their capacity to consolidate decision-making. 
D) all of the options

Question 9

In the U.S.,the chief role of the board of directors is

Accepted Answer

A) to hire the management team. 
B) to decide on the annual capital budget. 
C) to design an effective incentive compatible compensation scheme for themselves. 
D) none of the options 
A) to hire the management team. 
B) to decide on the annual capital budget. 
C) to design an effective incentive compatible compensation scheme for themselves. 
D) none of the options

Question 10

The genius of public corporations stems from their capacity to allow efficient sharing or spreading of risk among many investors,who can buy and sell their ownership shares on liquid stock exchanges and let professional managers run the company on behalf of shareholders.This risk sharing stems from

Accepted Answer

A) the liquidity of the shares. 
B) the limited liability of shareholders. 
C) the limited liability of bondholders. 
D) the limited ability of shareholders. 
A) the liquidity of the shares. 
B) the limited liability of shareholders. 
C) the limited liability of bondholders. 
D) the limited ability of shareholders.

Question 11

Accounting transparency

Accepted Answer

A) can only be achieved when managers commit to serving on their own audit committee. 
B) occurs when the accounting department has translucent cubicles for their workers. 
C) promises to reduce the information asymmetry between corporate insiders and the public. 
D) none of the options 
A) can only be achieved when managers commit to serving on their own audit committee. 
B) occurs when the accounting department has translucent cubicles for their workers. 
C) promises to reduce the information asymmetry between corporate insiders and the public. 
D) none of the options

Question 12

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 options 
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 options

Question 13

After a hostile takeover,

Accepted Answer

A) the existing management team is usually fired. 
B) the existing management team is usually retained at a higher wage. 
C) the target company usually mounts a takeover defense. 
D) none of the options 
A) the existing management team is usually fired. 
B) the existing management team is usually retained at a higher wage. 
C) the target company usually mounts a takeover defense. 
D) none of the options

Question 14

The formula to compute the value of the "block premium" is

Accepted Answer

A)

$\frac{Price per share paid for the control block - the exchange price after the control transaction }{  the exchange price after the announcement of the control transaction}$ 
B)  $\frac{Price per share paid for the control block - the exchange price after the control transaction }{ price per share paid for the control block}$ 
C)

$\frac{the exchange price after the control transaction - price per share paid for the control block}{  price per share paid for the control block}$ 
D)

$\frac{Price per share paid for the control block - the exchange price after the control transaction}{ the exchange price prior to the announcement of the control transaction}$ 
A)

$\frac{Price per share paid for the control block - the exchange price after the control transaction }{  the exchange price after the announcement of the control transaction}$ 
B)  $\frac{Price per share paid for the control block - the exchange price after the control transaction }{ price per share paid for the control block}$ 
C)

$\frac{the exchange price after the control transaction - price per share paid for the control block}{  price per share paid for the control block}$ 
D)

$\frac{Price per share paid for the control block - the exchange price after the control transaction}{ the exchange price prior to the announcement of the control transaction}$

Question 15

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 options 
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 options

Question 16

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 17

The Cadbury Code has not been legislated into law,and compliance with the code is voluntary.

Accepted Answer

A) However,the London Stock Exchange (LS
E) currently requires that each listed company show whether the company is in compliance with the code and explain why if it is not. 
B) This "comply or explain" approach has apparently persuaded many companies to comply rather than explain. 
C) Currently,90 percent of all LSE-listed companies have adopted the Cadbury Code. 
D) all of the options 
A) However,the London Stock Exchange (LS
E) currently requires that each listed company show whether the company is in compliance with the code and explain why if it is not. 
B) This "comply or explain" approach has apparently persuaded many companies to comply rather than explain. 
C) Currently,90 percent of all LSE-listed companies have adopted the Cadbury Code. 
D) all of the options

Question 18

For firms with free cash flows,

Accepted Answer

A) debt can be a stronger mechanism than stocks for credibly bonding managers to release cash flows to investors. 
B) equity dividends can be a stronger mechanism than bonds for credibly bonding managers to release cash flows to investors. 
C) preferred stock dividends can be a stronger mechanism than bonds for credibly bonding managers to release cash flows to investors. 
D) none of the options 
A) debt can be a stronger mechanism than stocks for credibly bonding managers to release cash flows to investors. 
B) equity dividends can be a stronger mechanism than bonds for credibly bonding managers to release cash flows to investors. 
C) preferred stock dividends can be a stronger mechanism than bonds for credibly bonding managers to release cash flows to investors. 
D) none of the options

Question 19

Studies show that the quality of law enforcement,as measured by the rule of law index,will tend to be

Accepted Answer

A) higher in French civil law countries than in English common law countries. 
B) higher in English common law countries than in Scandinavian civil law countries. 
C) highest in Scandinavian civil law countries and German civil law countries. 
D) highest in English common law countries. 
A) higher in French civil law countries than in English common law countries. 
B) higher in English common law countries than in Scandinavian civil law countries. 
C) highest in Scandinavian civil law countries and German civil law countries. 
D) highest in English common law countries.

Question 20

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.

Exam 4: Corporate Governance Around the World

The agency problem tends

In theory,

Several studies document the empirical link between

Concentrated ownership of a public company

The Dodd-Frank Act was passed

Benetton,an Italian clothier,is listed on the New York Stock Exchange.

The separation of the company's ownership and control,

The key strength(s)of the public corporation is/are

In the U.S.,the chief role of the board of directors is

The genius of public corporations stems from their capacity to allow efficient sharing or spreading of risk among many investors,who can buy and sell their ownership shares on liquid stock exchanges and let professional managers run the company on behalf of shareholders.This risk sharing stems from

Accounting transparency

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

After a hostile takeover,

The formula to compute the value of the "block premium" is

Following the adoption of the Cadbury Code of Best Practice,

Debt can reduce agency costs between shareholders and management,but

The Cadbury Code has not been legislated into law,and compliance with the code is voluntary.

For firms with free cash flows,

Studies show that the quality of law enforcement,as measured by the rule of law index,will tend to be

Corporate governance can be defined as

International Monetary System

Globalization and the Multinational Firm

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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