Question 1

In the graph at right,for Fortune 500 companies,X,Y are

Accepted Answer

A) 5% and 25%. 
B) 15% and 50%. 
C) 50% and 75%. 
D) None of the above 
A) 5% and 25%. 
B) 15% and 50%. 
C) 50% and 75%. 
D) None of the above

Question 2

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 above 
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 above

Question 3

Many companies issue shares with differential voting rights,deviating from the one-share one-vote principle.

Accepted Answer

A) By accumulating superior voting shares, investors can acquire cash flow rights exceeding control rights. 
B) The price of the voting shares is usually twice the price of the voting shares. 
C) By accumulating superior voting shares, investors can acquire control rights exceeding cash flow rights. 
D) None of the above 
A) By accumulating superior voting shares, investors can acquire cash flow rights exceeding control rights. 
B) The price of the voting shares is usually twice the price of the voting shares. 
C) By accumulating superior voting shares, investors can acquire control rights exceeding cash flow rights. 
D) None of the above

Question 4

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 above 
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 above

Question 5

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 above 
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 above

Question 6

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 7

The agency problem refers to the possible conflicts of interest between

Accepted Answer

A) self-interested managers as principals and shareholders of the firm who are the agents. 
B) altruistic managers as agents and shareholders of the firm who are the principals. 
C) self-interested managers as agents and shareholders of the firm who are the principals. 
D) dutiful managers as principals and shareholders of the firm who are the agents. 
A) self-interested managers as principals and shareholders of the firm who are the agents. 
B) altruistic managers as agents and shareholders of the firm who are the principals. 
C) self-interested managers as agents and shareholders of the firm who are the principals. 
D) dutiful managers as principals and shareholders of the firm who are the agents.

Question 8

In a hostile takeover attempt,the bidder typically

Accepted Answer

A) makes a tender offer to the target shareholders at a price substantially less than the prevailing share price. 
B) makes a tender offer to the target shareholders at the prevailing share price. 
C) makes a tender offer to the target shareholders at a price substantially exceeding the prevailing share price. 
D) seeks to merge with the target company with an exchange of shares. 
A) makes a tender offer to the target shareholders at a price substantially less than the prevailing share price. 
B) makes a tender offer to the target shareholders at the prevailing share price. 
C) makes a tender offer to the target shareholders at a price substantially exceeding the prevailing share price. 
D) seeks to merge with the target company with an exchange of shares.

Question 9

The Sarbanes-Oxley Act of 2002 stipulates that

Accepted Answer

A) a public accounting oversight board be created. 
B) the company should appoint independent financial experts to its audit committee. 
C) CEO and CFO sign off the company's financial statements. 
D) all of the above 
A) a public accounting oversight board be created. 
B) the company should appoint independent financial experts to its audit committee. 
C) CEO and CFO sign off the company's financial statements. 
D) all of the above

Question 10

Which of the following is true regarding leveraged buy-outs (LBOs)?

Accepted Answer

A) LBOs involve managers or buyout partners acquiring controlling interests in public companies, usually financed by heavy borrowing. 
B) Concentrated ownership and high level of debt associated with LBOs are the mechanism for solving the agency problem. 
C) LBOs improve a company's free cash flow and this is the mechanism by which they can solve the agency problem. 
D) Both a and b 
A) LBOs involve managers or buyout partners acquiring controlling interests in public companies, usually financed by heavy borrowing. 
B) Concentrated ownership and high level of debt associated with LBOs are the mechanism for solving the agency problem. 
C) LBOs improve a company's free cash flow and this is the mechanism by which they can solve the agency problem. 
D) Both a and b

Question 11

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 12

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 13

The objective of corporate governance reform should be what?

Accepted Answer

A) Strengthen the protection of outside investors from expropriation by managers 
B) Strengthen the protection of outside investors from expropriation by controlling insiders 
C) Both a and b 
D) None of the above 
A) Strengthen the protection of outside investors from expropriation by managers 
B) Strengthen the protection of outside investors from expropriation by controlling insiders 
C) Both a and b 
D) None of the above

Question 14

English common law countries tend to provide a stronger protection of shareholder rights than French civil law countries because

Accepted Answer

A) the former countries tend to be more democratic than the latter. 
B) the former countries tend to protect property rights better than the latter. 
C) the former countries tend to have more separation of power than the latter. 
D) all of the above 
A) the former countries tend to be more democratic than the latter. 
B) the former countries tend to protect property rights better than the latter. 
C) the former countries tend to have more separation of power than the latter. 
D) all of the above

Question 15

The strongest protection for investors is provided by

Accepted Answer

A) English common law countries, such as Canada, the United States, and the U.K. 
B) French civil law countries, such as Belgium, Italy, and Mexico. 
C) a weak board of directors. 
D) socialized firms. 
A) English common law countries, such as Canada, the United States, and the U.K. 
B) French civil law countries, such as Belgium, Italy, and Mexico. 
C) a weak board of directors. 
D) socialized firms.

Question 16

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 17

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 18

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 19

In the United States

Accepted Answer

A) boards of directors are legally responsible for representing the interests of the shareholders. 
B) due to the diffused ownership structure of the public company, management often gets to choose board members who are likely to be friendly to management. 
C) there is a correlation between underperforming firms and boards of directors who are not fully independent. 
D) all of the above are true, in the United States. 
A) boards of directors are legally responsible for representing the interests of the shareholders. 
B) due to the diffused ownership structure of the public company, management often gets to choose board members who are likely to be friendly to management. 
C) there is a correlation between underperforming firms and boards of directors who are not fully independent. 
D) all of the above are true, in the United States.

Question 20

In high-growth industries where companies' internally generated funds fall short of profitable investment opportunities,

Accepted Answer

A) managers are less likely to waste funds in unprofitable projects. 
B) managers are more likely to waste funds in unprofitable projects. 
A) managers are less likely to waste funds in unprofitable projects. 
B) managers are more likely to waste funds in unprofitable projects.

Exam 4: Corporate Governance Around the World

In the graph at right,for Fortune 500 companies,X,Y are

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

Many companies issue shares with differential voting rights,deviating from the one-share one-vote principle.

Accounting Transparency

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

Debt can reduce agency costs between shareholders and management,but

The agency problem refers to the possible conflicts of interest between

In a hostile takeover attempt,the bidder typically

The Sarbanes-Oxley Act of 2002 stipulates that

Which of the following is true regarding leveraged buy-outs (LBOs)?

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

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

The objective of corporate governance reform should be what?

English common law countries tend to provide a stronger protection of shareholder rights than French civil law countries because

The strongest protection for investors is provided by

Outside the United States and the United Kingdom,

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

The cost of compliance with the Sarbanes-Oxley Act

In the United States

In high-growth industries where companies' internally generated funds fall short of profitable investment opportunities,

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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