29.

The twin agency problems limiting financial globalization are caused by these two groups acting in their own self-interests rather FIBOR. Frankfurt Interbank Offered Rate
than the interests of the firm. FDIC. Federal Deposit Insurance Corporation
Narrow interest rate spread. The difference between the bid (buying) quote and ask (selling) quote.
a. rulers of sovereign states and unsavory customs officials
b. corporate insiders and attorneys. Theory of comparative advantage. Based on the concept of absolute advantage, in which each country specializes in the
c. corporate insiders and rulers of sovereign states. production of those goods for which it is uniquely suited, the theory of comparative advantage states that exchange
d. attorneys and unsavory customs officials between these countries will result in all parties or countries being better off through specialization and exchange than
by attempting to produce all at home.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
D B B D A C B D A A B C C B C A A C D D NAFTA. North American Free Trade Agreement
21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
A A D C A B C A C

MNE. Multinational Enterprise. Firms that have operations in more than one country and conduct their business through
branches, foreign subsidiaries, or joint ventures with host country firms.
BRIC. Brazil, Russia, India, China.
BIITS. Brazil, India, Indonesia, Turkey, South Africa.
MINT. Mexico, Indonesia, Nigeria, Turkey.
Fragile Five. The same countries as BIITS.
One way to characterize the global financial marketplace. Assets, Institutions, Linkages.
Assets. Financial assets. U.S. Treasury Bonds are the foundation. The quality of this together with other financial assets
and derivatives are what the health and security of the global financial system relies on.
Derivatives. Additional securities that have been created from existing securities. The value of these are based on market
value changes of the underlying securities.
U.S. Treasury Bonds. The debt free securities issued by the governments. Low risk/Risk free assets that form the
foundation for the creation, trading and pricing of other financial assets like bank loans, corporate bonds and equities
(stocks).
Institutions. The central banks, which create and control each country's money supply (the commercial banks and other
financial institutions).
Linkages. The links between the financial institutions are the interbank networks using currency.
The international interbank network. The exchange of currencies, and the subsequent exchange of all other securities
globally via currency. The primary price is the LIBOR.
LIBOR. London Interbank Offered Rate.
Mid-rate. The middle or average of the bid- and offer rate.
Bid rate. The rate at which traders buy currency.
Offer rate. The rate at which traders sell currency.
Eurocurrencies. Domestic currencies of one country on deposit in a second country for period ranging from overnight to
more than a year or longer. It's not a demand deposit.
Demand deposit. A bank deposit that can be withdrawn or transferred at any time without notice, in contrast to a time
deposit where (theoretically) the bank may require a waiting period before the deposit can be withdrawn. Demand
deposits may or may not earn interest. A time deposit is the opposite of a demand deposit.
Correspondent bank. A bank that holds deposits for and provides servies to another bank, located in another geographic
area, on reciprocal basis.
Convertible currency. A currency that can be exchanged freely for any other currency without government restrictions.
PIBOR. Paris Interbank Offered Rate
MIBOR. Madrid Interbank Offered Rate
SIBOR. Singapore Interbank Offered Rate

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15. Refer to Table 1.1. Assume no trade between Russia and Austria. If each country put 25% of their production units into each 22. MNEs look to exploit ________ in national markets for products, factors of production, and/or financial assets.
product, the total number of snowboards and digital cameras produced by the two countries combined are ________ and
________. a. Imperfections
b. perfect capital markets.
a. 15,000 snowboards; 3,000 digital cameras. c. corrupt governments.
b. 6,000 snowboards; 4,000 digital cameras. d. none of the above
c. 2,750 digital cameras; 6,750 snowboards.
d. 15,000 digital cameras; 1,000 snowboards 23. Large international firms may be better able to exploit such competitive factors as ________ than are their domestic
competitors.
16. Refer to Table 1.1. If trade takes place at Russia's domestic price, ________ snowboards will be required to obtain 1 digital
camera. a. economies of scale
b. technological expertise.
a. 4 c. product differentiation.
b. 2 and 2/3 d. all of the above
c. 1.25
d. 0.25 24. The phase of the globalization process characterized by imports from foreign suppliers and exports to foreign buyers is called
the
17. Refer to Table 1.1. If each country specializes in their production with Austria producing only digital cameras and Russia
producing only snowboards, at a trading rate of three snowboards per digital camera, how many cameras and snowboards will be a. domestic phase.
available to be consumed in Austria if they trade 3,000 cameras to Russia? b. multinational phase.
c. international trade phase.
a. 9,000 snowboards and 5,000 digital cameras d. import-export banking phase.
b. 3,000 snowboards and 3,000 digital cameras
c. 3,000 snowboards and 9,000 digital cameras 25. The authors describe the multinational phase of globalization for a firm as one characterized by the
d. There is not enough information to answer this question.
a. ownership of assets and enterprises in foreign countries.
18. Refer to Table 1.1. If each country specializes in their production with Austria producing only digital cameras and Russia b. potential for international competitors or suppliers even though all accounts are with domestic firms and are denominated
producing only snowboards, at a trading rate of three snowboards per digital camera, how many cameras and snowboards will be in dollars.
available to be consumed in Russia if they trade 9,000 snowboards to Austria? c. imports from foreign suppliers and exports to foreign buyers.
d. requirement that all employees be multilingual.
a. 9,000 snowboards and 5,000 digital cameras
b. 3,000 snowboards and 9,000 digital cameras 26. Of the following, which was NOT mentioned by the authors as an increase in the demands of financial management services
c. 3,000 snowboards and 3,000 digital cameras due to increased globalization by the firm?
d. There is not enough information to answer this question.
a. evaluation of the credit quality of foreign buyers and sellers
19. Which of these factors may differ for management of a domestic firm vs an international firm? b. foreign consumer method of payment preferences.
c. credit risk management
a. Culture d. evaluation of foreign exchange risk
b. corporate governance
c. political risk. 27. A firm in the International Trade Phase of Globalization
d. All of the above may differ.
a. makes all foreign payments in foreign currency units and all foreign receipts in domestic currency units.
20. Which of these issues must be addressed by domestic financial managers but may be ignored by international financial b. receives all foreign receipts in foreign currency units and makes all foreign payments in domestic currency units.
managers? c. bears direct foreign exchange risk.
d. none of the above.
a. capital budgeting decisions
b. capital structure decisions. 28. The exposure to foreign exchange risk known as Translation Exposure may be defined as
c. working capital management decisions.
d. All of the above must also be addressed by international financial managers. a. changes in reported owners' equity in consolidated financial statements caused by a change in exchange rates.
b. the impact of settling outstanding obligations entered into before change in exchange rates but to be settled after change in
21. US automotive firm manufacturing in Eastern Europe is an example of ________ strategic motive to become a MNE. exchange rates.
c. the change in expected future cash flows arising from an unexpected change in exchange rates.
a. market and production efficiency seekers all of the above.
b. large domestic corporation trying to gain access to overseas cutting edge technology and managerial expertise.
c. political safety and raw material seekers
d. US automotive firms do not invest outside of US

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CHAPTER 1. MULTINATIONAL FINANCIAL MANAGEMENT: OPPORTUNITIES AND CHALLENGES 8. The Eurocurrency loan market is characterized by narrow interest rate spreads between deposit and loan rates. This is due in
part to which of the following factors?
1. Which of the following firms are NOT considered to be multinational enterprises (MNEs) even if they have operations in more
a. The Eurocurrency market is a "wholesale" market.
than one country?
b. Loan amounts are very large, often in excess of $500,000.
c. Eurocurrency borrowers are typically large, low-risk corporations or government entities.
for-profit companies
d. All of the above are legitimate reasons for the narrow spread in the Eurocurrency market.
non-for-profit organizations.
non-government organizations (NGOs). 9. The theory that suggests specialization by country can increase worldwide production is
all of the above may be considered MNEs
a. the theory of comparative advantage.
2. "BRIC" is a term coined in 2001 to refer to a group of countries at about the same stage of advanced economic development. The
b. the theory of foreign direct investment.
BRIC countries are
c. the international Fisher effect.
d. the theory of working capital management.
a. Belgium, Romania, Italy, and Canada.
b. Brazil, Russia, India, and China.
10. The source of a nation's comparative advantage
c. Britain, Romania, Israel, and Colombia.
d. Brazil, Russia, Italy, and Chile.
a. is created from the mixture of its own labor skills, access to capital, and technology.
b. is determined by its military capability.
3. Eurobank is
c. remains constant over time.
d. is an outdated concept for the 21st century because of the process of globalization.
a. bank incorporated in the European Union.
b. financial intermediary that simultaneously bids for time deposits and makes loans in a currency other than that of its home
11. Of the following, which would NOT be considered a way that government interferes with comparative advantage?
currency.
c. a department of a large commercial European bank making loans in Euros.
a. tariffs
d. All of the above are true.
b. managerial skills.
c. Quotas
4. LIBOR is
d. other non-tariff restrictions
a. insignificant interest rate for global financial markets' operation.
12. Some of the factors contributing to the emergence of India's low-cost and highly efficient software industry are
b. Madrid and Paris Interbank Offered Rate.
c. published by British Bankers Association (BBA) once per year. a. combination of Indian Government agricultural subsidies and the overcapacity and the low cost of the international
d. adjusted average of estimated borrowing rates in the unsecured interbank market. telecommunication networks.
b. large number of well-educated, English-speaking technical experts willing to work for MNEs in USA and Western Europe.
5. According to the authors, which of the following groups or securities are at the "heart" to the global capital markets?
c. low-cost, educated and trained labor; solid infrastructure and liberalized foreign direct investments regime in the service
sector.
a. debt securities issued by governments.
d. None of the above
b. bank loans and corporate bonds.
c. equity securities.
d. derivative securities

6. ________ are the largest markets in the world.

a. United States equity markets

b. European debt markets
13. Refer to Table 1.1. A production unit in Austria has a/an ________ over a production unit in Russia in ________.
c. Global currency markets.
d. Chinese export markets
a. absolute disadvantage; digital cameras
b. absolute disadvantage; snowboards.
7. Domestic currencies of one country on deposit in a second country are called
c. absolute advantage; both cameras and snowboards.
d. none of the above
a. export deposits.
b. eurocurrencies.
14. Refer to Table 1.1. Austria has a larger relative advantage over Russia in the production of ________ at a ratio of ________.
c. import deposits.
d. forocurrencies.
a. snowboards; 5 to 4
b. cameras; 8 to 3.

c. snowboards; 8 to 3.
d. cameras; 3 to 8
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