跨国财务Ch001.docx
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跨国财务Ch001.docx
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跨国财务Ch001
Eun&Resnick4e
CHAPTER1GlobalizationandtheMultinationalFirm
Questionsinthetestbankfollowtheorderofthechapteroutline:
What’sSpecialaboutInternationalFinance?
ForeignExchangeandPoliticalRisks
MarketImperfections
ExpandedOpportunitySet
GoalsforInternationalFinancial
Management
GlobalizationoftheWorldEconomy:
MajorTrends
EmergenceofGlobalizedFinancialMarkets
EmergenceoftheEuroasaGlobalCurrency
TradeLiberalizationandEconomicIntegration
Privatization
MultinationalCorporations
Summary
MINICASE:
NikeandSweatshopLabor
APPENDIX1A:
GainsfromTrade:
TheTheoryof
ComparativeAdvantage
What’sSpecialabout“International”Finance?
1)Whatmajordimensionsetsapartinternationalfinancefromdomesticfinance?
a)foreignexchangeandpoliticalrisks
b)Marketimperfections
c)Expandedopportunityset
d)alloftheabove
Answer:
d
2)Anexampleofapoliticalriskis
a)Expropriationofassets
b)Adversechangeintaxrules
c)Theoppositionpartybeingelected
d)a)andb)arebothcorrect
Answer:
d-p.5
3)Productionofgoodsandserviceshasbecomeglobalizedtoalargeextentasaresultof
a)Skilledlaborbeinghighlymobile
b)Naturalresourcesbeingdepletedinonecountryafteranother
c)Multinationalcorporations’effortstosourceinputsandlocateproductionanywherewherecostsarelowerandprofitshigher
d)Commontastesworldwideforthesamegoodsandservices
Answer:
c-p.4
4)Recently,financialmarketshavebecomehighlyintegrated.Thisdevelopment
a)Allowsinvestorstodiversifytheirportfoliosinternationally
b)Allowsminorityinvestorstobuyandsellstocks
c)Hasincreasedthecostofcapitalforfirms
d)Answersa)andc)arebothcorrect.
Answer:
a.seepage4
5)Japanhasexperiencedlargetradesurpluses.Japaneseinvestorshaverespondedtothisby
a)Liquidatingtheirpositionsinstockstobuydollardenominatedbonds
b)InvestingheavilyinU.S.andotherforeignfinancialmarkets
c)LobbyingtheU.S.governmenttodepreciateitscurrency
d)LobbyingtheJapanesegovernmenttoallowtheyentoappreciate
Answer:
b-p.4
6)Supposeyourfirminvests$100,000inaprojectinItaly.Atthetimetheexchangerateis$1.25=€1.00.Oneyearlatertheexchangerateisthesame,buttheItaliangovernmenthasexpropriatedyourfirm’sassetspayingonly€80,000incompensation.Thisisanexampleof
a)Exchangeraterisk
b)Politicalrisk
c)Marketimperfections
d)Noneoftheabove,since$100,000=€80,000×$1.25/€1.00
Answer:
b)politicalrisk—thegovernmentisonlygivingyoubackyourinitialinvestment,ifthiswasagoodinvestmentitshouldhavebeenworthmorethan$100,000ayearlater.Forexampleifyourcostofcapitalwas8%itshouldhavebeenworth$108,000.
7)SupposethatGreatBritainisamajorexportmarketforyourfirm,aU.S.basedMNC.IftheBritishpounddepreciatesagainsttheU.S.dollar,
a)Yourfirmwillbeabletochargemoreindollartermswhilekeepingpoundpricesstable.
b)YourfirmmaybepricedoutoftheU.K.market,totheextentthatyourdollarcostsstayconstantandyourpoundpriceswillrise.
c)ToprotectU.K.marketshare,yourfirmmayhavetocutthedollarpriceofyourgoodstokeepthepoundpricethesame.
d)b)andc)arebothcorrect.
Answer:
b)andc)arebothcorrect.Seepage5.
8)Mostgovernmentsatleasttrytomakeitdifficultforpeopletocrosstheirbordersillegally.Thisbarriertothefreemovementoflaborisanexampleof
a)Informationasymmetry
b)Excessivetransactionscosts
c)Racialdiscrimination
d)Amarketimperfection
Answer:
d)seepage6.
9)Whenindividualinvestorsbecomeawareofoverseasinvestmentopportunitiesandarewillingtodiversifytheirportfoliosinternationally,
a)theytradeonemarketimperfection,informationasymmetry,foranother,exchangeraterisk.
b)theybenefitfromanexpandedopportunityset.
c)Theyshouldnotbothertoreadortounderstandtheprospectus,sinceitsprobablywritteninaforeignlanguage
d)Theyshouldinvestonlyindollarsoreuros.
Answer:
bseepage8.
10)Nestlé,awell-knownSwisscorporation,
a)Hasbeenaparagonofvirtueinitsoppositiontoallformsofpoliticalrisk.
b)Atonetimeplacedrestrictionsonforeignownershipofitsstock.Whenitrelaxedtheserestrictions,thetotalmarketvalueofthefirmfell.
c)Atonetimeplacedrestrictionsonforeignownershipofitsstock.Whenitrelaxedtheserestrictions,therewasamajortransferofwealthfromforeignshareholderstoSwissshareholders.
d)Noneoftheabove
Answer:
c)Seepage7.
GoalsforInternationalFinancialManagement
11)Thegoalofshareholderwealthmaximization
a)isnotappropriatefornon-U.S.businessfirms
b)meansthatallbusinessdecisionsandinvestmentsthatafirmmakesaredoneforthepurposeofmakingtheownersofthefirmbetterofffinancially
c)isasub-objectivethefirmshouldattempttoachieveaftertheobjectiveofcustomersatisfactionismet
d)isinconflictwiththeprivatizationprocesstakingplaceinthird-worldcountries
Answer:
b-p.8
12)Ascapitalmarketsarebecomingmoreintegrated,thegoalofshareholderwealthmaximization
a)Hasbeenalteredtoincludeothergoalsaswell.
b)Haslostouttoothergoals,evenintheU.S.
c)HasbeengivenincreasingimportancebymanagersinEurope.
d)Hasbeenshowntobeadeterrenttoraisingfundsabroad.
Answerc)seepage8
13)RecentcorporatescandalsatfirmssuchasEnron,WorldComandtheItalianfirmParmalat
a)Showthatmanagersmightbetemptedtopursuetheirownprivateinterestsattheexpenseofshareholders.
b)ShowthatItalianshareholdersarebetteratmonitoringmanagerialbehaviorthanU.S.shareholders.
c)Showthatwhite-collarcriminalshardlyevergetpunished.
d)Showthatsocialismisabetterwaytogothancapitalism.
Answera)seepage9.
14)WhilethecorporategovernanceproblemisnotconfinedtotheUnitedStates,
a)Itcanbeamuchmoreseriousprobleminmanyotherpartsoftheworld,wherelegalprotectionofshareholdersisweakornonexistent.
b)IthasreacheditshighpointintheUnitedStates.
c)TheU.S.legalsystem,withlawsuitsusedonlyasalastresort,ensuredthatanyconflictsofinterestwillsoonbeathingofthepast.
d)Noneoftheabove
Answer:
a)seepage9.
15)Theownersofabusinessarethe
a)Taxpayers
b)Workers
c)Suppliers
d)Shareholders
Answer:
d)
16)Themassiveprivatizationthatiscurrentlytakingplaceinformerlysocialistcountries,willlikely
a)eventuallyenhancethestandardoflivingtothesecountries’citizens
b)dependonprivateinvestment
c)increasetheopportunitysetfacingthesecountries’citizens
d)alloftheabove
Answer:
d)Seepage10.
17)Afirmwithconcentratedownership
a)Maygiverisetoconflictsofinterestbetweendominantshareholdersandsmalloutsideshareholders.
b)Mayenjoymoreaccountingtransparencythanfirmswithdiffuseownershipstructures.
c)Isapartnership,neveracorporation.
d)TendstoexistoverseasbutnotintheU.S.
Answer:
d)Seepage9.
18)Theultimateguardiansofshareholderinterestinacorporation,arethe
a)Rankandfileworkers
b)Seniormanagement
c)Boardsofdirectors
d)Alloftheabove
Answer:
c)Seepage9.
19)IncountrieslikeFranceandGermany,
a)Managershaveoftenmadebusinessdecisionswithregardmaximizingmarketsharetotheexclusionofothergoals.
b)Managershaveoftenviewedshareholdersasoneofthe“stakeholders”ofthefirm,othersbeingemployees,customers,suppliers,banksandsoforth.
c)Managershaveoftenregardedtheprosperityandgrowthoftheircombines,orfamiliesofrelatedfirms,astheircriticalgoal.
d)Managershavetraditionallyembracedthemaximizationofshareholderwealthastheonlyworthygoal.
Answer:
b)seepage9.
20)Whencorporategovernancebreaksdown
a)Shareholdersareunlikelytoreceivefairreturnsontheirinvestments
b)Managersmaybetemptedtoenrichthemselvesatshareholderexpense
c)Theboardofdirectorsisnotdoingitsjob
d)Alloftheabove
Answer:
d)
GlobalizationoftheWorldEconomy
21)Privatizationreferstoprocessof:
a)Havinggovernmentoperatebusinessesforthebettermentofthepublicsector
b)Governmentallowingtheoperationofprivatelyownedbusiness
c)Prohibitinggovernmentoperatedenterprises
d)Acountrydivestingitselfoftheownershipandoperationofabusinessventurebyturningitovertothefreemarketsystem
Answer:
d-p.14
22)Deregulationofworldfinancialmarkets
a)Providedanaturalenvironmentforfinancialinnovations,likecurrencyfuturesandoptions.
b)Haspromotedcompetitionamongmarketparticipants.
c)HasencourageddevelopingcountriessuchasChile,Mexico,andKoreatoliberalizebyallowingforeignerstodirectlyinvestintheirfinancialmarkets.
d)Alloftheabove
Answer:
dseepage10.
23)Theemergenceofglobalfinancialmarketsisdueinnosmallpartto
a)Advancesincomputerandtelecommunicationstechnology
b)RigorousenforcementoftheSovietsystemofstateownershipofresourcesofproduction.
c)Governmentregulationandprotectionofinfantindustries.
d)Noneoftheabove.
Answer:
a)Seepage11.
24)Theeuro
a)isthecommoncurrencyofEurope
b)isdivisibleinto100cents,justliketheU.S.dollar
c)mayeventuallyhaveatransactiondomainlargerthantheU.S.dollar
d)Alloftheabove.
Answer:
d)seepage11.
25)SinceitsinceptiontheeurohasbroughtaboutrevolutionarychangesinEuropeanfinance.Forexample
a)Byredenominatingcorporatebondsandstocksfrom12differentcurrenciesintoonecommoncurrency,theeurohasprecipitatedthe
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