Question 1

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 firms 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 firms assets. 
D) all of the above D

Question 2

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. A

Question 3

In the reality of corporate governance at the turn of this century,

Accepted Answer

A) boards of directors are often dominated by management-friendly insiders. 
B) a typical board of directors often has relatively few outside directors who can independently and objectively monitor the management. 
C) managers of one firm often sit on the boards of other firms, whose managers are on the board of the first firm. Due to the interlocking nature of these boards, there can exist a culture of "I'll overlook your problems if you overlook mine." 
D) all of the above have been true to a greater or lesser extent in the recent past. 
A) boards of directors are often dominated by management-friendly insiders. 
B) a typical board of directors often has relatively few outside directors who can independently and objectively monitor the management. 
C) managers of one firm often sit on the boards of other firms, whose managers are on the board of the first firm. Due to the interlocking nature of these boards, there can exist a culture of "I'll overlook your problems if you overlook mine." 
D) all of the above have been true to a greater or lesser extent in the recent past. D

Question 4

What is the difference between control rights and cash flow rights?

Accepted Answer

A) Since all shareholders benefit only from pro-rata cash flows, control rights and cash flow rights are the same thing. 
B) Large investors may be able to derive private benefits from control, thus control rights can exceed cash flow rights. 
C) Cash flow rights are more important than control rights since the only reason to invest in anything is to generate cash. 
D) None of the above 
A) Since all shareholders benefit only from pro-rata cash flows, control rights and cash flow rights are the same thing. 
B) Large investors may be able to derive private benefits from control, thus control rights can exceed cash flow rights. 
C) Cash flow rights are more important than control rights since the only reason to invest in anything is to generate cash. 
D) None of the above

Question 5

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 6

Suppose Mr. Lee and his relatives hold 30% of shares outstanding of Samsung Life, which in turn holds 20% of Samsung Electronics. What is the cash flow right of the Lee family in Samsung Electronics?

Accepted Answer

A) 50 percent 
B) 10 percent 
C) 20 percent 
D) 6 percent 
A) 50 percent 
B) 10 percent 
C) 20 percent 
D) 6 percent

Question 7

The central issue of corporate governance is

Accepted Answer

A) how to protect creditors from managers and controlling shareholders. 
B) how to protect outside investors from the controlling insiders. 
C) how to alleviate the conflicts of interest between managers and shareholders. 
D) how to alleviate the conflicts of interest between shareholders and bondholders. 
A) how to protect creditors from managers and controlling shareholders. 
B) how to protect outside investors from the controlling insiders. 
C) how to alleviate the conflicts of interest between managers and shareholders. 
D) how to alleviate the conflicts of interest between shareholders and bondholders.

Question 8

In the United States, managers are bound by the "duty of loyalty" to serve the shareholders.

Accepted Answer

A) This is an ethical, not legal, obligation. 
B) This is a legal obligation. 
C) This is only a moral obligation; there are no penalties. 
A) This is an ethical, not legal, obligation. 
B) This is a legal obligation. 
C) This is only a moral obligation; there are no penalties.

Question 9

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 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

Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and management

Accepted Answer

A) by moving to a better county. 
B) by listing their stocks in countries with strong investor protection. 
C) by voluntarily complying with the provisions of the U.S. Sarbanes-Oxley Act. 
D) having a press conference and promising to be nice to their investors. 
A) by moving to a better county. 
B) by listing their stocks in countries with strong investor protection. 
C) by voluntarily complying with the provisions of the U.S. Sarbanes-Oxley Act. 
D) having a press conference and promising to be nice to their investors.

Question 12

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 13

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 14

The goal of a greater accounting transparency

Accepted Answer

A) is to impose more rules and harsher penalties for their violation. 
B) is to reduce the information asymmetry between corporate insiders and the public. 
C) is to discourage managerial self-dealings. 
D) answers b and c 
A) is to impose more rules and harsher penalties for their violation. 
B) is to reduce the information asymmetry between corporate insiders and the public. 
C) is to discourage managerial self-dealings. 
D) answers b and c

Question 15

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 16

The key to extracting private benefits of control that are not shared by other shareholders on a pro rata basis is to

Accepted Answer

A) become a large shareholder and acquire control rights exceeding cash flow rights. 
B) buy a large block of nonvoting shares. 
C) sell your shares in a tender offer. 
D) force the firm into bankruptcy. 
A) become a large shareholder and acquire control rights exceeding cash flow rights. 
B) buy a large block of nonvoting shares. 
C) sell your shares in a tender offer. 
D) force the firm into bankruptcy.

Question 17

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 18

Countries with strong shareholder protection tend to have more valuable stock markets and more companies listed on stock exchanges per capita than countries with weak protection.

Accepted Answer

A) True 
 B)False

Question 19

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 20

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

Exam 4: Corporate Governance Around the World

The public corporation

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

In the reality of corporate governance at the turn of this century,

What is the difference between control rights and cash flow rights?

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

Suppose Mr. Lee and his relatives hold 30% of shares outstanding of Samsung Life, which in turn holds 20% of Samsung Electronics. What is the cash flow right of the Lee family in Samsung Electronics?

The central issue of corporate governance is

In the United States, managers are bound by the "duty of loyalty" to serve the shareholders.

Since the passage of the Sarbanes-Oxley Act,

When managerial self-dealings are excessive and left unchecked,

Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and management

The key weakness of the public corporation is

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 goal of a greater accounting transparency

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

The key to extracting private benefits of control that are not shared by other shareholders on a pro rata basis is to

Concentrated ownership of a public company

Countries with strong shareholder protection tend to have more valuable stock markets and more companies listed on stock exchanges per capita than countries with weak protection.

In a hostile takeover attempt, the bidder typically

The Sarbanes-Oxley Act of 2002 stipulates that

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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