Finc 410 International Finance
The notation is Y = GNP = national income C = consumption I = private investment G = government spending X = exports M = imports T = taxes There is an intimate relationship between a country's BCA and how the country finances its domestic investment and pays for government expenditures. Given this, which of the following is a true statement? A: If (S − I) < 0, it implies that a country's domestic savings is insufficient to finance domestic investment. B: If (T − G) < 0, it implies that a country's tax revenue is insufficient to finance government spending. C: If (S − I) < 0, it implies that a country's domestic savings is insufficient to finance domestic investment and if (T − G) < 0, it implies that a country's tax revenue is insufficient to finance government spending. D: none of the options
C: If (S − I) < 0, it implies that a country's domestic savings is insufficient to finance domestic investment and if (T − G) < 0, it implies that a country's tax revenue is insufficient to finance government spending.
In 2012, the United States had a current account deficit. The current account deficit implies that the United States A: had a surplus on legal consulting and engineering services. B: produced more output than it consumed. C: consumed more output than it produced. D: none of the options
C: consumed more output than it produced.
A country's international transactions can be grouped into the following three main types: A: current account, medium term account, and long term capital account. B: current account, long term capital account, and official reserve account. C: current account, capital account, and official reserve account. D: capital account, official reserve account, trade account.
C: current account, capital account, and official reserve account. Correct
In theory, A: managers are hired by the shareholders at the annual stockholders meeting. If the managers turn in a bad year, new ones get hired. B: shareholders hire the managers to oversee the board of directors. C: managers are hired by the board of directors; the board is accountable to the shareholders. D: none of the options
C: managers are hired by the board of directors; the board is accountable to the shareholders.
The balance of payments records A: only international trade, (exports and imports). B: only cross-border investments (FDI and portfolio investment). C: not only international trade, (exports and imports) but also cross-border investments. D: none of the options
C: not only international trade, (exports and imports) but also cross-border investments.
International portfolio investments have boomed in recent years, as a result of A: a depreciating U.S. dollar. B: increased gasoline and other commodity prices. C: the general relaxation of capital controls and regulation in many countries. D: none of the options
C: the general relaxation of capital controls and regulation in many countries.
In the long run, both exports and imports tend to be A: unresponsive to changes in exchange rates. B: responsive to changes in exchange rates. C: both responsive and unresponsive to changes in exchange rates. D: none of the options
B: responsive to changes in exchange rates.
The formula to compute the value of the "block premium" is A: Price per share paid for the control block - the exchange price after the control transaction the exchange / price after the announcement of the control transaction B: Price per share paid for the control block - the exchange price after the control transaction/ price per share paid for the control block C: the exchange price after the control transaction - price per share paid for the control block / price per share paid for the control block D: Price per share paid for the control block - the exchange price after the control transaction the exchange / price prior to the announcement of the control transaction
A: Price per share paid for the control block - the exchange price after the control transaction the exchange / price after the announcement of the control transaction
Morck, Shleifer, and Vishny (1988) studied the relationship between managerial ownership share and firm value for Fortune 500 U.S. companies. The results of their analysis suggested that the first turning point (the first vertical, dashed line between X and Y) is reached at ___ percent and the second turning point (the second vertical, dashed line between Y and Z) at about ___ percent, respectively. A: 5; 25. B: 15; 50. C: 50; 75. D: none of the options
A: 5; 25
The strongest protection for investors is provided by A: English common law countries, such as Canada, the United States, and the U.K. B: French civil law countries, such as Belgium, Italy, and Mexico. C: a weak board of directors. D: socialized firms.
A: English common law countries, such as Canada, the United States, and the U.K.
The Sarbanes-Oxley Act of 2002 A: has had the consequence that many foreign firms have de-listed in the U.S. exchanges and listed their shares on the London Stock Exchange and other European exchanges. B: has increased the pace of foreign firms listing their shares in the U.S. C: has increased the pace of foreign firms listing their shares in the U.S. and has also had the consequence that many foreign firms have de-listed in the U.S. exchanges and listed their shares on the London Stock Exchange and other European exchanges. D: all of the options
A: has had the consequence that many foreign firms have de-listed in the U.S. exchanges and listed their shares on the London Stock Exchange and other European exchanges.
A depreciation will begin to improve the trade balance immediately if A: imports and exports are responsive to the exchange rate changes. B: imports and exports are inelastic to the exchange rate changes. C: consumers exhibit brand loyalty and price inelasticity. D: imports and exports are inelastic to the exchange rate changes and consumers exhibit brand loyalty and price inelasticity.
A: imports and exports are responsive to the exchange rate changes.
In high-growth industries where companies' internally generated funds fall short of profitable investment opportunities, A: managers are less likely to waste funds in unprofitable projects. B: managers are more likely to waste funds in unprofitable projects.
A: managers are less likely to waste funds in unprofitable projects. Correct
The "J-curve effect" shows A: the initial deterioration and the eventual improvement of a country's trade balance following a currency depreciation. B: the initial improvement and the eventual depreciation of a country's trade balance following a currency depreciation. C: the trade balance's lack of responsiveness to the exchanges rate changes. D: none of the options
A: the initial deterioration and the eventual improvement of a country's trade balance following a currency depreciation.
Assume that the balance-of-payments accounts for a country are recorded correctly. Balance on the current account = BCA = $130 billion Balance on the capital account = BKA = −$86 billion Balance on the reserves account = BRA =? In a pure flexible exchange rate regime, a country's central banks will not need to maintain official reserves. Under this regime A: −BCA = BKA. B: BCA = −BRA = 0. C: BKA = −BRA. D: BSA = BCA.
A: −BCA = BKA.
The entries in the "current account" and the "capital account", combined, can be outlined (in alphabetic order) as: (i) direct investment (ii) factor income (iii) merchandise (iv) official transfer (v) other capital (vi) portfolio investment (vii) private transfer (viii) services Current account includes A: (i), (ii), and (iii) B: (ii), (iii), and (vii) C: (iv), (v), and (vii) D: (i), (v), and (vi)
B: (ii), (iii), and (vii) Correct (ii) factor income (iii) merchandise (vii) private transfer
One implication of the Sarbanes-Oxley Act is that companies must appoint independent "financial experts" to their committees. Which of the major components is associated with this objective? A: Accounting regulation B: Audit committee C: Internal control assessment D: Executive responsibility
B: Audit committee
The notation is Y = GNP = national income C = consumption I = private investment G = government spending X = exports M = imports T = taxes The current account balance is given by A: C + I + G + X + M B: X − M C: I + X + M D: M − X
B: X − M Correct X = exports MINUS M = imports
Free cash flow refers to A: a firm's cash reserve in excess of tax obligation. B: a firm's funds in excess of what's needed for undertaking all profitable projects. C: a firm's cash reserve in excess of interest and tax payments. D: a firm's income tax refund that is due to interest payments on borrowing.
B: a firm's funds in excess of what's needed for undertaking all profitable projects.
Suppose in order to defraud the shareholders, a manager sets up an independent company that he owns and buys one of the main company's inputs of production from this company. He would be tempted to set the transfer price A: below market prices. B: above market prices. C: at the market price. D: in accordance with GAAP.
B: above market prices. Correct
The capital account includes A: the export and import of goods and services. B: all purchases and sales of assets such as stocks, bonds, bank accounts, real estate, and businesses. C: all purchases and sales of international reserve assets such as dollars, foreign exchanges, gold, and special drawing rights (SDRs). D: none of the options
B: all purchases and sales of assets such as stocks, bonds, bank accounts, real estate, and businesses.
The cost of compliance with the Sarbanes-Oxley Act A: is a small amount, since most firms were playing by rules to begin with. B: disproportionately affects small firms. C: is paid for with tax credits for firms found to be in compliance. D: all of the options
B: disproportionately affects small firms.
If a country must make a net payment to foreigners because of a balance-of-payments deficit, the country should A: either increase its official reserve assets or borrow anew from foreigners. B: either run down its official reserve assets or borrow anew from foreigners. C: either run down its official reserve assets or lend more foreigners. D: none of the options
B: either run down its official reserve assets or borrow anew from foreigners.
The Dodd-Frank Act was passed A: in 1933. B: in 2010. C: in 1933 and repealed in 2010. D: none of the options
B: in 2010.
Transactions in currency, bank deposits and so forth A: tend to be insensitive to both changes in relative interest rates and the anticipated change in exchange rate. B: tend to be sensitive to both changes in relative interest rates and the anticipated change in exchange rate. C: tend to be sensitive to changes in relative interest rates but insensitive to the anticipated change in exchange rate. D: tend to be insensitive to changes in relative interest rates but sensitive to the anticipated change in exchange rate.
B: tend to be sensitive to both changes in relative interest rates and the anticipated change in exchange rate.
In many countries with concentrated ownership A: the conflicts of interest between shareholders and managers are worse than in countries with diffuse ownership of firms. B: the conflicts of interest are greater between large controlling shareholders and small outside shareholders than between managers and shareholders. C: the conflicts of interest are greater between managers and shareholders than between large controlling shareholders and small outside shareholders. D: corporate forms of business organization with concentrated ownership are rare.
B: the conflicts of interest are greater between large controlling shareholders and small outside shareholders than between managers and shareholders.
If the central banks of the world chose to diversify their foreign-exchange reserves away from the dollar and into the euro, A: this would have the result of a strengthening of the value of the dollar. B: this have the result of a weakening in the value of the dollar. C: this would not have much impact, as the information would be lost in the day-to-day volatility of exchange rates. D: none of the options
B: this have the result of a weakening in the value of the dollar.
When the balance-of-payments accounts are recorded correctly, the combined balance of the current account, the capital account, and the reserves account must be A: equal in magnitude to the country's national debt. B: zero. C: equal in magnitude to the Trade Deficit or Surplus. D: none of the options
B: zero.
Suppose Mr. Lee and his relatives hold 30 percent of shares outstanding of Samsung Life, which in turn holds 20 percent of Samsung Electronics. What is the cash flow right of the Lee family in Samsung Electronics? A: 50 percent B: 10 percent C: 20 percent D: 6 percent
D: 6 percent
Which of the following is most indicative of the pressure that a country's currency faces for depreciation or appreciation? A: The current account B: The capital account C: The statistical discrepancies D: The official settlement balance
D: The official settlement balance
Benetton, an Italian clothier, is listed on the New York Stock Exchange. A: This decision provides their shareholders with a higher degree of protection than is available in Italy. B: This decision can be a signal of the company's commitment to shareholder rights. C: This may make investors both in Italy and abroad more willing to provide capital and to increase the value of the pre-existing shares. D: all of the options
D: all of the options
Financial development can contribute to economic growth in what way(s)? A: Financial development enhances savings. B: Financial development channels savings toward real investments in productive capacities. C: Financial development enhances the efficiency of investment allocation through the monitoring and signaling functions of capital markets. D: all of the options
D: all of the options
Following the adoption of the Cadbury Code of Best Practice, A: joint CEO/COB (chief executive officer and chairman of the board) positions declined. B: there has been a significant impact on the internal governance mechanisms of U.K. companies. C: CEOs have become more sensitive to company performance, strengthening managerial accountability and weakening managerial entrenchment. D: all of the options
D: all of the options
In the United States, A: boards of directors are legally responsible for representing the interests of the shareholders. B: due to the diffused ownership structure of the public company, management often gets to choose board members who are likely to be friendly to management. C: there is a correlation between underperforming firms and boards of directors who are not fully independent. D: all of the options
D: all of the options
The Sarbanes-Oxley Act of 2002 stipulates that A: a public accounting oversight board be created. B: the company should appoint independent financial experts to its audit committee. C: both CEO and CFO sign off on the company's financial statements. D: all of the options
D: all of the options
With regard to the capital account, A: the capital account balance measures the difference between U.S. sales of assets to foreigners and U.S. purchases of foreign assets. B: U.S. sales (or exports) of assets are recorded as credits, as they result in capital inflow. C: U.S. purchases (imports) of foreign assets are recorded as debits, as they lead to capital outflow. D: all of the options
D: all of the options
The goal of greater accounting transparency A: is to impose more rules and harsher penalties for their violation. B: is to reduce the information asymmetry between corporate insiders and the public. C: is to discourage managerial self-dealings. D: is to reduce the information asymmetry between corporate insiders and the public, as well as discourage managerial self-dealings.
D: is to reduce the information asymmetry between corporate insiders and the public, as well as discourage managerial self-dealings.
As of 2011, gold accounted for A: 90 percent of the total reserve assets held by IMF member countries. B: 70 percent of the total reserve assets held by IMF member countries. C: approximately 50 percent of the total reserve assets held by IMF member countries. D: less than one percent of the total reserve assets held by IMF member countries.
D: less than one percent of the total reserve assets held by IMF member countries.
The public corporation has a key weakness which is A: the conflicts of interest between bondholders and shareholders. B: the conflicts of interest between managers and bondholders. C: the conflicts of interest between stakeholders and shareholders. D: the conflicts of interest between managers and shareholders.
D: the conflicts of interest between managers and shareholders.