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International Financial Management - Sec C

55 Questions
Financial Management Quizzes & Trivia

This is IFM quiz for students of Semester 2 July 12-13 batch (Sec C), Alliance School of Business, Bangalore. This quiz will be for 20 minutes students need to answer 30 questions. By Prof. Sarath Babu

Questions and Answers
  • 1. 
    Which of the following is not a form of corporate control that could reduce agency problems for an MNC?
    • A. 

      Investor monitoring

    • B. 

      Stock options

    • C. 

      Hostile takeover threat

    • D. 

      All of the above

  • 2. 
    Which of the following theories suggests that firms seek to penetrate new markets over time?
    • A. 

      Theory of comparative advantage

    • B. 

      Imperfect markets theory

    • C. 

      Product cycle theory

    • D. 

      None of the above

  • 3. 
    Licensing is the process by which a firm provides its technology (copyrights, patents, trademarks or trade names) in exchange for fees or some other specified benefits.
    • A. 

      True

    • B. 

      False

  • 4. 
    Which of the following is not a way in which agency problems can be reduced through corporate control?
    • A. 

      Threat of hostile takeover

    • B. 

      Acquisition of a foreign subsidiary

    • C. 

      Executive compensation

    • D. 

      Monitoring by large shareholders

  • 5. 
    An increase in the current account deficit will place _______ pressure on the home currency value, other things equal
    • A. 

      Downward

    • B. 

      Upward

    • C. 

      No

    • D. 

      Upward or downward (depending on the size of the deficit)

  • 6. 
    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

  • 7. 
    Assume that a bank's bid rate on Swiss francs is £0.25 and its ask rate is £0.26. Its bid-ask percentage spread is:
    • A. 

      4.26%

    • B. 

      4%

    • C. 

      About 4.17%

    • D. 

      About 3.85%

  • 8. 
    The forward rate is the exchange rate used for immediate exchange of currencies
    • A. 

      True

    • B. 

      False

  • 9. 
    Assume the Canadian dollar is equal to £0.51 and the Peruvian Sol is equal to £0.16. The value of the Peruvian Sol in Canadian dollars is:-
    • A. 

      About 2.36 Canadian dollars

    • B. 

      About .3621 Canadian dollars

    • C. 

      About 2.51 Canadian dollars

    • D. 

      About .3137 Canadian dollars

  • 10. 
    From 1944 to 1971, the exchange rate between any two currencies was typically:-
    • A. 

      Non existent; that is currencies were not exchanged, but gold was used to pay for all foreign transactions

    • B. 

      Floating, but subject to central bank intervention

    • C. 

      Fixed within narrow boundaries

    • D. 

      Floating and not subject to central bank intervention

  • 11. 
    Futures contracts are typically _______; forward contracts are typically _______.
    • A. 

      Sold on an exchange; Offered by commercial banks

    • B. 

      Sold on an exchange; Sold on an exchange

    • C. 

      Offered by commercial banks; Sold on an exchange

    • D. 

      Offered by commercial banks; Offered by commercial banks

  • 12. 
    When the foreign exchange market opens in the UK each morning, the opening exchange rate quotations will be based on the:-
    • A. 

      Prevailing prices in locations where the foreign exchange markets have been open

    • B. 

      Closing prices in Canada during the previous day

    • C. 

      Officially set by central banks before the U.S. market opens

    • D. 

      Closing prices in the U.S. during the previous day

  • 13. 
    Under the gold standard, each currency was convertible into gold at a specified rate and the exchange rate between two currencies was determined by their relative convertibility rates per ounce of gold.
    • A. 

      True

    • B. 

      False

  • 14. 
    The strike price is also known as the premium price.
    • A. 

      True

    • B. 

      False

  • 15. 
    Eurobonds are certificates representing bundles of stock.
    • A. 

      True

    • B. 

      False

  • 16. 
    A share of the ADR of a Dutch firm represents one share of that firm's stock that is traded on a Dutch stock exchange. The share price of the firm was 15 Euros when the Dutch market closed. As the U.S. market opens, the Euro is worth $1.10. Thus, the price of the ADR should be _____.
    • A. 

      $15

    • B. 

      $16.5

    • C. 

      16.50 euro

    • D. 

      15 euro

  • 17. 
    The commonly accepted goal of the MNC is to:-
    • A. 

      Maximize short-term earnings

    • B. 

      Maximize shareholder wealth

    • C. 

      Maximize international sales

    • D. 

      None of the above

  • 18. 
    An increase in UK interest rates relative to India's interest rates is likely to ________ the UK demand for Rupees and _________ the supply of Rupees for sale.
    • A. 

      Reduce; Increase

    • B. 

      Increase; Increase

    • C. 

      Reduce; Reduce

    • D. 

      Increase; Reduce

  • 19. 
    In general, when speculating on exchange rate movements, the speculator will borrow the currency that is expected to appreciate and invest in the country whose currency is expected to depreciate.
    • A. 

      True

    • B. 

      False

  • 20. 
    The exchange rates of smaller countries are very stable because the market for their currency is very liquid.
    • A. 

      True

    • B. 

      False

  • 21. 
    What is Option price
    • A. 

      Strike price Strike price Strike price Strike price Strike price

    • B. 

      Exercise price Exercise price Exercise price

    • C. 

      Option premium

    • D. 

      None of the above

  • 22. 
    When a company adopts the Home Market orient policy
    • A. 

      Geocentric

    • B. 

      Ethnocentric

    • C. 

      Poly-centric

    • D. 

      None

  • 23. 
    Which one of the following is  not a form of FDI
    • A. 

      Greenfield Investment

    • B. 

      Brownfield Investment

    • C. 

      M & A

    • D. 

      Listing in foreign Stock Market

  • 24. 
    Which of the following is not true about a poly-centric solution to international financial management?
    • A. 

      Decisions are made on the spot by those most informed about market considerations.

    • B. 

      It reduces the authority of the home office

    • C. 

      It treats the MNC as a holding company

    • D. 

      It centralizes decision making

  • 25. 
    Peso is currency of
    • A. 

      Norway

    • B. 

      Mexico

    • C. 

      Thailand

    • D. 

      Libya

  • 26. 
    Which of the following statements is true?
    • A. 

      A) If the value of the local currency strengthens, the sale of inventory will generate larger dollar profits

    • B. 

      If the value of the local currency weakens, the sale of inventory will generate lower dollar profits.

    • C. 

      If the value of the local currency weakens, the sale of inventory will generate larger dollar profits.

    • D. 

      None of the above

  • 27. 
    Assume that a Japanese car manufacturer exports cars to U.S. dealerships, which are priced in yen. The demand for those cars declines when the yen is strong. The manufacturer also produces some cars in the U.S. with U.S. materials and those cars are priced in dollars. The manufacturer could reduce its economic exposure by:
    • A. 

      Closing down most of its plants in the U.S.

    • B. 

      Producing more automobiles in the U.S.

    • C. 

      Relying completely on Japanese suppliers for its parts.

    • D. 

      Pricing its exports in dollars

  • 28. 
    An increases in US exports to foreign markets ________________ the amount of dollars in the foreign exchange and _______________ the value of the US dollar
    • A. 

      Increases, decreases

    • B. 

      Increases, increases

    • C. 

      Decreases, increases

    • D. 

      Decreases, decreases

  • 29. 
    When you own ______, there is no obligation on your part; however, when you own _____, there is an obligation on your part
    • A. 

      Call options; put options

    • B. 

      Futures contracts; call options

    • C. 

      Forward contracts; futures contracts

    • D. 

      Put options; forward contracts

  • 30. 
    __________ is (are) not a determinant of translation exposure
    • A. 

      The MNC's degree of foreign involvement

    • B. 

      The locations of foreign subsidiaries

    • C. 

      The local (domestic) earnings of the MNC

    • D. 

      The accounting methods used

  • 31. 
    A firm will likely benefit most from diversifying if:
    • A. 

      The correlations between country economies are high

    • B. 

      The correlations between country economies are low

    • C. 

      The variability of country economy levels is high

    • D. 

      B and C

  • 32. 
    Which of the following does not facilitate, Inter bank transaction globally
    • A. 

      Bloomberg Bloomberg

    • B. 

      Reuters

    • C. 

      Bridge

    • D. 

      MCX

  • 33. 
    Over time, the economic interdependence of nations have:
    • A. 

      Grown

    • B. 

      Diminished

    • C. 

      Remained unchanged

    • D. 

      Cannot say

  • 34. 
    Futures contracts are typically _______; forward contracts are typically _______.
    • A. 

      Sold on an exchange; Offered by commercial banks

    • B. 

      Sold on an exchange; Sold on an exchange

    • C. 

      Offered by commercial banks; Sold on an exchange

    • D. 

      Offered by commercial banks; Offered by commercial banks

  • 35. 
    European currency options can be exercised _______; American currency options can be exercised _______.
    • A. 

      A) any time up to the expiration date; any time up to the expiration date

    • B. 

      B) any time up to the expiration date; only on the expiration date

    • C. 

      Only on the expiration date; only on the expiration date

    • D. 

      D) only on the expiration date; any time up to the expiration date

  • 36. 
    In which case will locational arbitrage most likely be feasible?
    • A. 

      One bank's bid price for a currency is less than another bank's bid price for the currency

    • B. 

      One bank's ask price for a currency is less than another bank's ask price for the currency

    • C. 

      One bank's bid price for a currency is greater than another bank's ask price for the currency

    • D. 

      One bank's ask price for a currency is greater than another bank's bid price for the currency

  • 37. 
    If the interest rate is lower in the U.S. than in the United Kingdom and if the forward rate of the British pound is the same as its spot rate:-
    • A. 

      U.S. investors could possibly benefit from covered interest arbitrage

    • B. 

      British investors could possibly benefit from covered interest arbitrage

    • C. 

      Neither U.S. nor British investors could benefit from covered interest arbitrage

    • D. 

      Both (a) and (b)

  • 38. 
    Based on interest rate parity, the larger the degree by which the foreign interest rate exceeds the UK interest rate, the:-
    • A. 

      Smaller will be the forward premium of the foreign currency

    • B. 

      Smaller will be the forward discount of the foreign currency

    • C. 

      Larger will be the forward premium of the foreign currency

    • D. 

      Larger will be the forward discount of the foreign currency

  • 39. 
    Assume a two-country world: Country A and Country B. Which of the following is correct about purchasing power parity (PPP) as related to these two countries?
    • A. 

      A) If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will weaken

    • B. 

      B) If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will weaken

    • C. 

      C) If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will strengthen

    • D. 

      D) If Country B's inflation rate exceeds Country A's inflation rate, Country A's currency will weaken

  • 40. 
    The international Fisher effect (IFE) suggests that:
    • A. 

      A) a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate

    • B. 

      B) a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate

    • C. 

      C) a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate

    • D. 

      D) a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate

  • 41. 
    Translation exposure reflects:
    • A. 

      A) the exposure of a firm's ongoing international transactions to exchange rate fluctuations

    • B. 

      B) the exposure of a firm's local currency value to transactions between foreign exchange traders

    • C. 

      C) the exposure of a firm's financial statements to exchange rate fluctuations

    • D. 

      D) the exposure of a firm's cash flows to exchange rate fluctuations

  • 42. 
    An example of cross-hedging is:
    • A. 

      A) find two currencies that are highly positively correlated; match the payables of the one currency to the receivables of the other currency

    • B. 

      B) use the forward market to sell forward whatever currencies you will receive

    • C. 

      C) use the forward market to buy forward whatever currencies you will receive

    • D. 

      B and C

  • 43. 
    Which of the following currency is not traded in Indian future market?
    • A. 

      Pound

    • B. 

      Euro

    • C. 

      Yuan

    • D. 

      Yen

  • 44. 
    Which of the following is not listed in ADR
    • A. 

      Tata Motors

    • B. 

      Wipro Ltd

    • C. 

      Sterlite Industries (India) Ltd

    • D. 

      Larsen & Toubro Ltd

  • 45. 
    What would be the cost of borrowing, if an Indian firms borrows money from US, Interest rate in US is 6%, India - 9% and Dollar appreciation rate – 3%
    • A. 

      9.18%

    • B. 

      9.81%

    • C. 

      12.27%

    • D. 

      12.72%

  • 46. 
    Mr. A bought 10 quantities call option from Mr. B and sold it to Mr. C. What is OI and traded Volume
    • A. 

      20,10

    • B. 

      10,20

    • C. 

      10,10

    • D. 

      20,20

  • 47. 
    What is weight of US Dollar in SDR for January 11 to December 15
    • A. 

      42.9

    • B. 

      41.9

    • C. 

      41.1

    • D. 

      42.1

  • 48. 
    SDRs are
    • A. 

      International reserve assets

    • B. 

      US currency

    • C. 

      Currency in Europe

    • D. 

      None

  • 49. 
    When Spread is low, which is not true?
    • A. 

      Low profit margin

    • B. 

      Low liquidity

    • C. 

      Low Risk

    • D. 

      High trade volume

  • 50. 
    Assume that the inflation rate in Canada is 3.20%, while the inflation rate in the U.S. is 3.00%. According to PPP, the Canadian dollar (CAD) should _______ by _______%.
    • A. 

      Appreciate; 0.1938%

    • B. 

      Depreciate; 0.1938%

    • C. 

      Appreciate; 0.1942%

    • D. 

      Depreciate; 0.1942%

  • 51. 
    What is a floating exchange rate?
    • A. 

      An exchange rate set by central banks

    • B. 

      An exchange rate set by governments

    • C. 

      An exchange rate set by brokers

    • D. 

      An exchange rate set by the supply and demand

  • 52. 
    What is the most traded pair on the Forex?
    • A. 

      USD/JPY

    • B. 

      EUR/USD

    • C. 

      EUR/JPY

    • D. 

      GBP/USD

  • 53. 
    What is the size of a unit for Yen future currency trading in India?
    • A. 

      ¥1000

    • B. 

      ¥10000

    • C. 

      ¥100000

    • D. 

      ¥100

  • 54. 
    A _________ is equal to 0.01 for exchange rates expressed to two decimal places, or 0.0001 for exchange rates expressed to four decimal places
    • A. 

      Trade

    • B. 

      Pip

    • C. 

      Selling price

    • D. 

      Spread

  • 55. 
    Buy = _________ and Sell = _________.
    • A. 

      Short, long

    • B. 

      Cost, revenue

    • C. 

      Long, short

    • D. 

      Spread, exchange