Question 1

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.

Question 2

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 3

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 4

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 5

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 6

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 7

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

Question 8

In countries with concentrated ownership

Accepted Answer

A) hostile takeovers are quite rare. 
B) hostile takeovers are quite common. 
A) hostile takeovers are quite rare. 
B) hostile takeovers are quite common.

Question 9

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 10

In many countries with concentrated ownership

Accepted Answer

A) the conflicts of interest between shareholders and managers are worse than in countries with diffuse ownership of firms. 
B) the conflicts of interest are greater between large controlling shareholders and small outside shareholders than between managers and shareholders. 
C) the conflicts of interest are greater between managers and shareholders than between large controlling shareholders and small outside shareholders. 
D) corporate forms of business organization with concentrated ownership are rare. 
A) the conflicts of interest between shareholders and managers are worse than in countries with diffuse ownership of firms. 
B) the conflicts of interest are greater between large controlling shareholders and small outside shareholders than between managers and shareholders. 
C) the conflicts of interest are greater between managers and shareholders than between large controlling shareholders and small outside shareholders. 
D) corporate forms of business organization with concentrated ownership are rare.

Question 11

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 12

The Sarbanes-Oxley Act of 2002

Accepted Answer

A) has had the consequence that many foreign firms have de-listed in the U.S. exchanges and listed their shares on the London Stock Exchange and other European exchanges. 
B) has increased the pace of foreign firms listing their shares in the U.S. 
C) a and b are both true 
D) all of the above 
A) has had the consequence that many foreign firms have de-listed in the U.S. exchanges and listed their shares on the London Stock Exchange and other European exchanges. 
B) has increased the pace of foreign firms listing their shares in the U.S. 
C) a and b are both true 
D) all of the above

Question 13

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 14

Suppose in order to defraud the shareholders, a manager sets up an independent company that he owns buys one of the main company's inputs of production from 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 15

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. 
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.

Question 16

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

Question 17

The board of directors may grant stock options to managers. These are

Accepted Answer

A) call options. 
B) put options. 
C) none of the above 
A) call options. 
B) put options. 
C) none of the above

Question 18

In the United States and the United Kingdom, hostile takeovers

Accepted Answer

A) are illegal. 
B) can serve as a drastic corporate governance mechanism of the last resort. 
C) reinforce the notion that managers can take their control of the company for granted. 
D) require management approval. 
A) are illegal. 
B) can serve as a drastic corporate governance mechanism of the last resort. 
C) reinforce the notion that managers can take their control of the company for granted. 
D) require management approval.

Question 19

The public corporation has a key weakness:

Accepted Answer

A) the conflicts of interest between bondholders and shareholders. 
B) the conflicts of interest between managers and bondholders. 
C) the conflicts of interest between stakeholders and shareholders. 
D) the conflicts of interest between managers and shareholders. 
A) the conflicts of interest between bondholders and shareholders. 
B) the conflicts of interest between managers and bondholders. 
C) the conflicts of interest between stakeholders and shareholders. 
D) the conflicts of interest between managers and shareholders.

Question 20

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

Accepted Answer

A) boards of directors should include at least three outside directors. 
B) the positions of CEO and chairman of the board should not reside in the same individual. 
C) compliance is mandatory for public corporations, optional for listed non-public corporations. 
D) both a and b 
A) boards of directors should include at least three outside directors. 
B) the positions of CEO and chairman of the board should not reside in the same individual. 
C) compliance is mandatory for public corporations, optional for listed non-public corporations. 
D) both a and b

Exam 4: Corporate Governance Around the World

Free cash flow refers to

The separation of the company's ownership and control,

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

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

The cost of compliance with the Sarbanes-Oxley Act

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

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

In countries with concentrated ownership

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

In many countries with concentrated ownership

Why do managers tend to retain free cash flow?

The Sarbanes-Oxley Act of 2002

Corporate governance can be defined as

Suppose in order to defraud the shareholders, a manager sets up an independent company that he owns buys one of the main company's inputs of production from this company. He would be tempted to set the transfer price

After a hostile takeover

Several studies document the empirical link between

The board of directors may grant stock options to managers. These are

In the United States and the United Kingdom, hostile takeovers

The public corporation has a key weakness:

The key requirements of the Cadbury Code of Best Practice state 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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