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Comprehensive Questions-International Financial Management Jeff Madura
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IFM -MaduraMultiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
____ 1. Which of the following theories identifies specialization as a reason for international business?
a. theory of comparative advantage.
b. imperfect markets theory.
c. product cycle theory.
d. none of the above.
____ 2. A product cycle is the process by which a firm provides a specialized sales or service strategy, support
assistance, and possibly an initial investment in the franchise in exchange for periodic fees.
a. true.
b. false.
____ 3. Which of the following is not a provision or result of the Single European Act of 1987?
a. increased regulatory uniformity among European countries.
b. the phasing in of a common currency for all European countries by 1992.
c. the removal of many taxes on goods traded between European countries.
d. firms' ability to achieve economies of scale.
e. all of the above.
____ 4. Which of the following is not mentioned in the text as an additional risk resulting from international business?
a. exchange rate fluctuations.
b. political risk.
c. interest rate risk.
d. exposure to foreign economies.
____ 5. Due to the larger opportunity set of funding sources around the world from which an MNC can choose, an
MNC may be able to obtain capital at a lower cost than a purely domestic firm.
a. true.
b. false.
____ 6. Although MNCs may need to convert currencies occasionally, they do not face any exchange rate risk, as
exchange rates are stable over time.
a. true.
b. false.
____ 7. If the home currency begins to appreciate against other currencies, this should ____________ the current
account balance, other things equal (assume that substitutes are readily available in the countries, and that the
prices charged by firms remain the same).
a. increase
b. have no impact on
c. reduce
d. all of the above are equally possible
____ 8. According to the text, international trade (exports plus imports combined) as a percentage of GDP is:
a. higher in the U.S. than in European countries.
b. lower in the U.S. than in European countries.
c. higher in the U.S. than in about half the European countries, and lower in the U.S. than the
others.
d. about the same in the U.S. as in European countries.
, ____ 9. Like the International Monetary Fund (IMF), the _______________ is composed of a collection of nations as
members. However, unlike the IMF, it uses the private rather than the government sector to achieve its
objectives.
a. World Bank
b. International Financial Corporation (IFC)
c. World Trade Organization (WTO)
d. International Development Association (IDA)
e. Bank for International Settlements (BIS)
____ 10. A weakening of the U.S. dollar with respect to the British pound would likely reduce the U.S. exports to
Britain and increase U.S. imports from Britain.
a. true.
b. false.
____ 11. The World Bank extends loans only to developed nations, while the International Development Association
(IDA) extends loans only to developing nations.
a. true.
b. false.
____ 12. Portfolio investment represents transactions involving long-term financial assets (such as stocks and bonds)
between countries that do not affect the transfer of control.
a. true.
b. false.
____ 13. Intracompany trade represents the exporting of products by one country to other countries below cost.
a. true.
b. false.
____ 14. A tariff is a maximum limit on imports.
a. true.
b. false.
____ 15. Eurocurrency market transactions normally represent:
a. the equivalent of $1 million or more.
b. the equivalent of $1,000 to $10,000.
c. the equivalent of between $10,000 and $100,000.
d. the equivalent of between $100,000 and $200,000.
____ 16. From 1944 to 1971, the exchange rate between any two currencies was typically:
a. fixed within narrow boundaries.
b. floating, but subject to central bank intervention.
c. floating, and not subject to central bank intervention.
d. nonexistent; that is currencies were not exchanged, but gold was used to pay for all foreign
transactions.
____ 17. Which of the following is not true regarding the Bretton Woods Agreement?
a. It called for fixed exchange rates between currencies.
b. Governments intervened to prevent exchange rates from moving more than 1 percent
above or below their initially established levels.
c. The agreement lasted from 1944 until 1971.
d. Each country used gold to back its currency.
e. All of the above are true regarding the Bretton Woods Agreement.
____ 18. A Japanese yen is worth $.0080, and a Fijian dollar (F$) is worth $.5900. What is the value of the yen in
Fijian dollars (i.e., how many Fijian dollars do you need to buy a yen)?
a. 73.75.
b. 125.
c. 1.69.
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