Question 1

How does a syndicate affect the interest rate that an MNC can expect to pay for a loan?

Accepted Answer

A) Since syndicates pool resources to make loans,each participant in the syndicate assumes less risk related to the loan,and lower risk usually results in a lower interest rate on the loan. 
B) Since syndicates are government-sponsored institutions,they can obtain funds at less cost than other institutions,so they can loan money to MNCs at a lower interest rate. 
C) Since there is a significant cost involved in forming a syndicate,the interest rates charged by syndicates on the loans they make are higher to compensate for the increased costs. 
D) Since syndicates loan money to MNCs,the interest rates that they charge are the same interest rates that the MNC could obtain from any other source of funds. 
A) Since syndicates pool resources to make loans,each participant in the syndicate assumes less risk related to the loan,and lower risk usually results in a lower interest rate on the loan. 
B) Since syndicates are government-sponsored institutions,they can obtain funds at less cost than other institutions,so they can loan money to MNCs at a lower interest rate. 
C) Since there is a significant cost involved in forming a syndicate,the interest rates charged by syndicates on the loans they make are higher to compensate for the increased costs. 
D) Since syndicates loan money to MNCs,the interest rates that they charge are the same interest rates that the MNC could obtain from any other source of funds.

Question 2

Traditionally,the primary source of financing for firms has been:

Accepted Answer

A) bank loans. 
B) the sale of securities. 
C) the issuance of bonds. 
D) transactions in currency markets. 
A) bank loans. 
B) the sale of securities. 
C) the issuance of bonds. 
D) transactions in currency markets.

Question 3

The cost of equity is more difficult to determine than the cost of debt because:

Accepted Answer

A) cash flows to equity-holders is not contractually set,so when that cash flow will take place is not certain. 
B) the discount rate used to determine cost of equity is not set as it is in determining the cost of debt. 
C) the transaction costs of issuing equity are not as easy to determine as the transaction costs of issuing debt. 
D) the cost of equity is subject to more contingencies than the cost of debt. 
A) cash flows to equity-holders is not contractually set,so when that cash flow will take place is not certain. 
B) the discount rate used to determine cost of equity is not set as it is in determining the cost of debt. 
C) the transaction costs of issuing equity are not as easy to determine as the transaction costs of issuing debt. 
D) the cost of equity is subject to more contingencies than the cost of debt.

Question 4

MNCs face some issues in arranging financing that domestic organizations do not face.One of these issues is that MNCs:

Accepted Answer

A) deal in a variety of foreign currencies and MNCs incur losses when those foreign currencies are converted into the home currency of the MNC. 
B) are subject to competition in foreign countries that is different than the competition faced by domestic firms. 
C) are vulnerable to political and economic situations in the countries where they operate,and these situations can adversely affect the cash flow of an MNC. 
D) cannot borrow money domestically as easily as domestic organizations can borrow money domestically. 
A) deal in a variety of foreign currencies and MNCs incur losses when those foreign currencies are converted into the home currency of the MNC. 
B) are subject to competition in foreign countries that is different than the competition faced by domestic firms. 
C) are vulnerable to political and economic situations in the countries where they operate,and these situations can adversely affect the cash flow of an MNC. 
D) cannot borrow money domestically as easily as domestic organizations can borrow money domestically.

Question 5

How does a venture capital firm usually end its involvement with a firm in which it has invested?

Accepted Answer

A) The venture capital firm usually sells its interest in the firm back to the firm. 
B) The venture capital firm usually arranges an initial public offering that results in the venture capital firm selling its ownership in the firm. 
C) The venture capital firm usually simply donates its interest in the firm back to the firm. 
D) The venture capital firm usually sells its interest in the firm to another venture capital firm. 
A) The venture capital firm usually sells its interest in the firm back to the firm. 
B) The venture capital firm usually arranges an initial public offering that results in the venture capital firm selling its ownership in the firm. 
C) The venture capital firm usually simply donates its interest in the firm back to the firm. 
D) The venture capital firm usually sells its interest in the firm to another venture capital firm.

Question 6

The primary attraction of the Eurobond market is that:

Accepted Answer

A) it is in Europe where there are more opportunities for financing operations. 
B) more investors are interested in Eurobonds than in any other kind of financing vehicle. 
C) it offers flexible financing opportunities and minimal regulation. 
D) it offers flexible financing opportunities and low costs. 
A) it is in Europe where there are more opportunities for financing operations. 
B) more investors are interested in Eurobonds than in any other kind of financing vehicle. 
C) it offers flexible financing opportunities and minimal regulation. 
D) it offers flexible financing opportunities and low costs.

Question 7

How can local financing help MNCs reduce country risk?

Accepted Answer

A) By raising funds locally,MNCs receive the tactic agreement of the country where the funds are raised that no government actions will be taken that will be adverse to the firm. 
B) If an MNC raises funds locally,it creates local stakeholders in the MNC,and countries may be reluctant to take actions that might damage or reduce the profitability of firms that have local stakeholders. 
C) If an MNC raises funds locally,it gains the support of the local capital markets which,in turn,lobby the local government not to take actions that will adversely affect firms that participate in the local capital market. 
D) When an MNC raises funds locally,it automatically receives special incentives from the local government that reduce country risk. 
A) By raising funds locally,MNCs receive the tactic agreement of the country where the funds are raised that no government actions will be taken that will be adverse to the firm. 
B) If an MNC raises funds locally,it creates local stakeholders in the MNC,and countries may be reluctant to take actions that might damage or reduce the profitability of firms that have local stakeholders. 
C) If an MNC raises funds locally,it gains the support of the local capital markets which,in turn,lobby the local government not to take actions that will adversely affect firms that participate in the local capital market. 
D) When an MNC raises funds locally,it automatically receives special incentives from the local government that reduce country risk.

Question 8

Coupon frequency on floating rate notes can result in:

Accepted Answer

A) multiple interest rates being paid on coupons during a year if interest rates change. 
B) stability of coupon payments despite changes in the interest rates. 
C) the issuing firm being unable to sell the debt instruments because of uncertainty in coupon payments. 
D) higher issuance cost of the underlying debt instruments. 
A) multiple interest rates being paid on coupons during a year if interest rates change. 
B) stability of coupon payments despite changes in the interest rates. 
C) the issuing firm being unable to sell the debt instruments because of uncertainty in coupon payments. 
D) higher issuance cost of the underlying debt instruments.

Question 9

The agency costs that an MNC is exposed to can be reduced by raising equity capital in a foreign country where it operates because:

Accepted Answer

A) foreign equity can be used to provide incentives to foreign managers,thereby aligning the interests of the MNC and their foreign managers. 
B) foreign countries will be reluctant to take action that will damage a firm that has raised equity capital in the country. 
C) equity markets will oversee regulation of firms that have raised equity in countries where the equity markets operate. 
D) equity instruments are much more appealing investments than debt instruments. 
A) foreign equity can be used to provide incentives to foreign managers,thereby aligning the interests of the MNC and their foreign managers. 
B) foreign countries will be reluctant to take action that will damage a firm that has raised equity capital in the country. 
C) equity markets will oversee regulation of firms that have raised equity in countries where the equity markets operate. 
D) equity instruments are much more appealing investments than debt instruments.

Question 10

One characteristic that distinguishes MNCs from domestic organizations and that makes MNCs better risks than domestic organizations is that:

Accepted Answer

A) MNCs are better organized than domestic organizations. 
B) domestic organizations are not as high-profile as MNCs. 
C) MNCs are more in touch with markets than domestic organizations. 
D) MNCs have diversified portfolios of cash flow. 
A) MNCs are better organized than domestic organizations. 
B) domestic organizations are not as high-profile as MNCs. 
C) MNCs are more in touch with markets than domestic organizations. 
D) MNCs have diversified portfolios of cash flow.

How does a syndicate affect the interest rate that an MNC can expect to pay for a loan?

Traditionally,the primary source of financing for firms has been:

The cost of equity is more difficult to determine than the cost of debt because:

MNCs face some issues in arranging financing that domestic organizations do not face.One of these issues is that MNCs:

How does a venture capital firm usually end its involvement with a firm in which it has invested?

The primary attraction of the Eurobond market is that:

How can local financing help MNCs reduce country risk?

Coupon frequency on floating rate notes can result in:

The agency costs that an MNC is exposed to can be reduced by raising equity capital in a foreign country where it operates because:

One characteristic that distinguishes MNCs from domestic organizations and that makes MNCs better risks than domestic organizations is that:

Introduction

International Financial Markets: Structure and Innovation

Currency and Eurocurrency Derivatives

Currency Systems and Valuation

Currency Parity Conditions

Currency Risk Exposure Measurement

Currency Exposure Management

Capital Budgeting

Advanced Capital Budgeting

Optimizing and Financing Working Capital

International Alliances and Acquisitions

International Trade

International Taxation and Accounting

International Portfolio Investments

Filters

Exam 10: Long-Term Financing

How does a syndicate affect the interest rate that an MNC can expect to pay for a loan?

Traditionally,the primary source of financing for firms has been:

The cost of equity is more difficult to determine than the cost of debt because:

MNCs face some issues in arranging financing that domestic organizations do not face.One of these issues is that MNCs:

How does a venture capital firm usually end its involvement with a firm in which it has invested?

The primary attraction of the Eurobond market is that:

How can local financing help MNCs reduce country risk?

Coupon frequency on floating rate notes can result in:

The agency costs that an MNC is exposed to can be reduced by raising equity capital in a foreign country where it operates because:

One characteristic that distinguishes MNCs from domestic organizations and that makes MNCs better risks than domestic organizations is that:

Introduction

International Financial Markets: Structure and Innovation

Currency and Eurocurrency Derivatives

Currency Systems and Valuation

Currency Parity Conditions

Currency Risk Exposure Measurement

Currency Exposure Management

Capital Budgeting

Advanced Capital Budgeting

Optimizing and Financing Working Capital

International Alliances and Acquisitions

International Trade

International Taxation and Accounting

International Portfolio Investments

Filters