International Financial Management mcq set 1

1. Recently, the UK experienced an annual balance of trade representing a ___
A. large surplus (exceeding £100 billion)
B. level of zero
C. small surplus
D. deficit

Answer

D. deficit

2. An increase in the current account deficit will place ___ pressure on the homecurrency value, other things equal.
A. upward
B. downward
C. no
D. upward or downward (depending on the size of the deficit)

Answer

B. downward

3. The North American Free Trade Agreement (NAFTA) increased restrictions on:
A. trade between Canada and Mexico.
B. trade between Canada and the U.S.
C. direct foreign investment in Mexico by U.S. firms.
D. none of the above.

Answer

D. none of the above.

4. The primary component of the current account is the:
A. balance of trade.
B. balance of capital market flows.
C. balance of money market flows.
D. unilateral transfers.

Answer

A. balance of trade.

5. A General Agreement on Tariffs and Trade (GATT) accord in 1993 called for:
A. increased trade restrictions outside of North America.
B. lower trade restrictions around the world.
C. uniform environmental standards around the wor

Answer

B. lower trade restrictions around the world.

6. ___ is (are) income received by investors on foreign investments infinancial assets (securities).
A. Portfolio income
B. Unilateral transfers
C. Direct foreign income
D. Factor income

Answer

D. Factor income

7. Based on the text, it should be obvious that markets are ___ in reality, and consequently, monopolistic advantages ___ be exploited.
A. Perfect; may possibly
B. Perfect; cannot
C. Imperfect; may possibly
D. Imperfect; cannot

Answer

C. Imperfect; may possibly

8. If countries are highly influential upon each other, the correlations of their economic growth levels would likely be ___ A firm would benefit ___ by diversifying sales among these countries relative to another set of countries that were not influential upon each other.
A. high and positive; more
B. high and positive; less
C. close to zero; more
D. close to zero; less

Answer

C. close to zero; more

9. Which of the following is a reason to consider international business?
A. economies of scale.
B. exploit monopolistic advantages.
C. diversification.
D. all of the above

Answer

D. all of the above

10. Assume a U.S. firm initiates direct foreign investment in the U.K. If the British pound is expected to appreciate against the dollar, the dollar value of earnings remitted to the parent should ___ The parent may request that the subsidiary ___ in order to benefit from the expectation about the pound.
A. increase; postpone remitting earnings until the pound strengthens
B. decrease; postpone remitting earnings until the pound strengthens
C. decrease; remit earnings immediately before the pound strengthens
D. increase; remit earnings immediately before the pound strengthens

Answer

A. increase; postpone remitting earnings until the pound strengthens

11. A country with high unemployment could best increase its employment by:
A. encouraging foreign firms to establish subsidiaries that produce the same products local firms produce.
B. encouraging foreign firms to establish licensing arrangements for products local firms produce.
C. encouraging foreign firms to establish subsidiaries that produce products local firms do not produce.
D. none of the above would reduce employment.

Answer

C. encouraging foreign firms to establish subsidiaries that produce products local firms do not produce.

12. Which of the following is not true regarding host government attitudes towards foreigndirect investment (FDI)?
A. Host governments may offer incentives to MNCs in the form of subsidies in certain circumstances.
B. Host governments generally perceive FDI as a remedy to eliminate a country’s political problems.
C. The ability of a host government to attract FDI is dependent on the country’s markets and resources.
D. Some types of FDI will be more attractive to some governments than to others.

Answer

B. Host governments generally perceive FDI as a remedy to eliminate a country’s political problems.

13. When a firm perceives that a foreign currency is ___ , the firm may attempt direct foreign investment in that country, as the initial outlay should be relatively ___
A. overvalued; high
B. overvalued; low
C. undervalued; high
D. undervalued; low

Answer

D. undervalued; low

14. To enter markets where superior profits are possible, an MNC should:
A. acquire a competitor that has controlled its local market.
B. establish a subsidiary or acquire a competitor in a new market.
C. establish a subsidiary in a market where tougher trade restriction will adversely affect the firm’s export volume.
D. establish subsidiaries in markets whose business cycles differ from those where existing subsidiaries are based.

Answer

A. acquire a competitor that has controlled its local market.

15. When economic conditions of two countries are ___ , then a firm would ___ its risk by operating in both countries instead of concentrating just in one.
A. highly correlated; reduce
B. not highly correlated; reduce
C. not highly correlated; not reduce
D. none of the above

Answer

C. not highly correlated; not reduce

16. Consider an exporter that sells its accounts receivables off to another firm that becomes responsible for obtaining cash from the various importers. This reflects:
A. accounts receivable financing.
B. consignment.
C. factoring.
D. a letter of credit.

Answer

C. factoring.

17. Consider an exporter that is willing to send goods to the importer without a guaranteed payment by the bank. The bank provides a loan to the exporter that is backed by the value of the exported goods. This reflects:.
A. accounts receivable financing.
B. forfaiting.
C. factoring.
D. a letter of credit.

Answer

A. accounts receivable financing.

18. A ___ provides a summary of freight charges and conveys title to the merchandise.
A. letter of credit
B. banker’s acceptance
C. bill of lading
D. bill of exchange

Answer

C. bill of lading

19. With ___ , the exporter ships the goods to the importer while still retaining actualtitle to the merchandise.
A. a letter of credit arrangement
B. an open account arrangement
C. a draft arrangement
D. a consignment arrangement

Answer

D. a consignment arrangement

20. A bill of exchange requesting the bank to pay the face amount upon presentation ofdocuments is a:
A. banker’s acceptance.
B. time draft.
C. letter of credit.
D. sight draft.

Answer

D. sight draft.

21. Countertrade represents foreign trade:
A. restrictions imposed by the government on imports from another country.
B. restrictions imposed by the government on exports sent from the country.
C. transactions that force the sales of goods of one country to be linked to the purchase or exchange of goods from the country.
D. financing provided to an exporter in exchange for goods provided to the creditor by the exporter.

Answer

C. transactions that force the sales of goods of one country to be linked to the purchase or exchange of goods from the country.

22. Which of the following is not a payment method used for international trade?
A. consignment.
B. open account.
C. factoring.
D. draft.

Answer

C. factoring.

23. Which of the following is not true regarding letters of credit?
A. They are issued by banks on behalf of the importer promising to pay the exporter.
B. A revocable letter of credit can be cancelled or revoked at any time without prior notification to the beneficiary.
C. They guarantee that the goods shipped are the goods purchas

Answer

C. They guarantee that the goods shipped are the goods purchas

24. A banker’s acceptance is a draft drawn on and accepted by a(n) ___
A. bank
B. importer
C. exporter
D. none of the above

Answer

A. bank

25. A(n) ___ is an unconditional promise drawn by one party, instructing the buyer to pay the face amount upon presentation.
A. draft
B. bill of lading
C. trade acceptance
D. letter of credit

Answer

A. draft

<br/>

26. In balance of payments accounting, a credit entry for the home country is
A. an international transaction in which foreigners make payments to residents of the home country
B. one in which residents of the home country make payments for foreigners
C. one which results from an import of goods into the home country
D. one which results from an outflow of capital from the home country to a foreign country

Answer

A. an international transaction in which foreigners make payments to residents of the home country

27. If the value of exports for a country is $35,500,000 and the value of imports is $35,000,000, the balance of trade can be described as
A. in surplus but unfavorable
B. showing a gain in real goods but in deficit
C. in deficit and favorable
D. in surplus, favorable and +$500,000

Answer

D. in surplus, favorable and +$500,000

28. All of the following statements are explanations of the reason for short-term capital transfers from Country X to Country Y EXCEPT
A. Political instability in Country X
B. Lower interest rates in Country X
C. Lower interest rates in Country Y
D. Country X has made it known that it is considering devaluation of its currency

Answer

C. Lower interest rates in Country Y

29. Multinational firms face exposure to many different types of international risk. Which of the following is not a type of exposure?
A. diversifiable risk
B. political risk
C. foreign economies
D. exchange rate movements

Answer

C. foreign economies

30. A firms expects to receive $20,000 from domestic operations and 20,000 British pounds (£) from a business in England. If the pound’s value is $1.25, the expected total dollar cash flows are:
A. $40,000
B. $36,000
C. $45,000
D. $20,000

Answer

C. $45,000

31. When a country realizes a deficit on its current account:
A. Its net foreign investment position becomes positive
B. It becomes a net demander of funds from other countries
C. It realizes an excess of imports over exports on goods and services
D. It becomes a net supplier of funds to other countries

Answer

B. It becomes a net demander of funds from other countries

32. Reducing a current account deficit requires a country to:
A. Increase private saving relative to investment
B. Increase private consumption relative to saving
C. Increase private investment relative to consumption
D. Increase private investment relative to saving

Answer

A. Increase private saving relative to investment

33. Reducing a current account deficit requires a country to:
A. Increase the government’s deficit and increase private investment relative to saving
B. Increase the government’s deficit and decrease private investment relative to saving
C. Decrease the government’s deficit increase private investment relative to saving
D. Decrease the government’s deficit and decrease private investment relative to saving

Answer

D. Decrease the government’s deficit and decrease private investment relative to saving

34. Reducing a current account surplus requires a country to:
A. Increase the government’s deficit and increase private investment relative to saving
B. Increase the government’s deficit and decrease private investment relative to saving
C. Decrease the government’s deficit and increase private investment relative to saving
D. Decrease the government’s deficit and decrease private investment relative to saving

Answer

A. Increase the government’s deficit and increase private investment relative to saving

35. Concerning a country’s business cycle, rapid growth of production and employment is commonly associated with:
A. Large or growing trade deficits and current account deficits
B. Large or growing trade deficits and current account surpluses
C. Small or shrinking trade deficits and current account deficits
D. Small or shrinking trade deficits and current account surpluses

Answer

A. Large or growing trade deficits and current account deficits

36. The burden of a current account deficit would be the least if a nation uses what it borrowsto finance:
A. Unemployment compensation benefits
B. Social Security benefits
C. Expenditures on food and recreation
D. Investment on plant and equipment

Answer

D. Investment on plant and equipment

37. On the balance-of-payments statements, merchandise imports are classified in the:
A. Current account
B. Capital account
C. Unilateral transfer account
D. Official settlements account

Answer

A. Current account

38. The balance of international indebtedness is a record of a country’s international:
A. Investment position over a period of time
B. Investment position at a fixed point in time
C. Trade position over a period of time
D. Trade position at a fixed point in time

Answer

B. Investment position at a fixed point in time

39. Which of the following exchange rate policies uses a target exchange rate, but allows the target to change?
A. fixed exchange rate
B. flexible exchange rate
C. crawling peg
D. moving target

Answer

C. crawling peg

40. A firm that buys foreign exchange in order to take advantage of higher foreign interestrates is
A. speculating.
B. demonstrating purchasing power parity.
C. engaging in interest rate arbitrage.
D. responding to fluctuations in the business cycle.

Answer

B. demonstrating purchasing power parity.