Quan trong_Multinational financial management_292

Quan trong_Multinational financial management_292 -...

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1 INTERNATIONAL FINANCIAL MANAGEMENT 1. Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2. One year later, the stock rises to £60. You are happy with your 20 percent return on the stock, but when you sell the stock and exchange your £60 for dollars, you only get $45 since the pound has fallen to £1 = $0.75. This loss of value is an example of a. Exchange Rate Risk b. Political Risk c. Market imperfections d. Weakness in the dollar 2. The fundamental goal of sound business management is a. Shareholder wealth maximization b. Market share maximization c. Globalization d. Increasing the size of the firm 3. With regard to the financial structure of foreign subsidiaries a. It may be best to conform to the parent firm’s debt-to-equity ratio b. It may be best to conform to the local norm of the country where the subsidiary operates. c. It may be advantageous to vary judiciously to capitalize on opportunities to lower taxes, reduce financing costs and risk, and take advantage fo various market imperfections d. All of the above may be correct. 4. When a parent company is willing to let its subsidiary default, a. Creditors and potential creditors will examine the subsidiary’s financial structure closely to assess default risk. b. Potential creditors will still look to the parent company’s capital structure as it is still legally and morally responsible for its subsidiary’s debts. c. It is incumbent upon the subsidiary to take on as much debt as possible, pay a dividend to the parent and then default. d. None of the above.
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2 5. The cost of capital a. Is defined as K = (1 – λ)Kl + λ(1 – t)i b. Is the minimum rate of return an investment project must generate in order to pay its financing costs. c. Is an accounting number reflecting historical costs. d. Is an accounting number reflecting historical costs. None of the above 6. Companies can benefit from cross-border listing of stocks in what ways? a. The company can expand its potential investor base, which will lead to a higher stock price and a lower cost of capital. b. Cross-listing can enhance the liquidity of the company’s stock. c. Cross listing may improve the company’s corporate governance and transparency. d. All of the above 7. A firm that can reduce its cost of capital a. Has an arbitrage opportunity. b. Can identify more projects that generate returns exceeding the cost of capital and thereby increase the firm’s value. c. Will lower its overall risk. d. None of the above 8. If international financial markets are fully integrated rather than segmented a. Investors would require, on average, lower expected returns on securities. b. Investors would require, on average, higher expected returns on securities. c.
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Quan trong_Multinational financial management_292 -...

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