IFM - Chap 1 QUIZ q's

Negotiation of the terms of Brexit with Eu include which of the following key agreements? List 3

- an end to free movement of ppl

- no hard border between Northern Ireland and the Republic of Ireland

- A customs union between the UK and the EU should be in place until an alternative long-term relationship can be established

Deregulation of world's financial markets has

- provided a natural environment for financial innovations, like currency futures and options

- has promoted competition among market participants

- has encouraged developing countries like Chile, Mexico, and Korea to liberalize by allowing foreigners to directly invest in their financial markets

In David Ricardo's theory of comparative advantage,,,,,what happens

The liberalization of international trade will enhance the welfare of the world's citizens

The Ultimate guardians of shareholder interest in a corporation are the

Board of directors

while the corporate governance problem is not confined to the US,,,,

it can be a much more serious problem in other parts of the world, where the legal protection of shareholders is weak or non-existent

What happens when Corporate governance breaks down

- Managers may be tempted to enrich themselves at shareholder expense

- The board of directors is not doing its job

- shareholder are unlikely to receive fair returns on their investments

Financial Managers of multinational corporations should do (list 3)

- Learn how to manage foreign exchange and political risks using proper tools and instruments

- benefit from expanded investment and financing opportunities

- deal with ( and take advantage of) market imperfections

A true multinational corporation, with operations in dozens of different countries

- must effectively manage foreign exchange risk

A multinational corporation may gain from its global presence by (List 3)

- spreading R&D expenditures and advertising costs over their global sales

- pooling global purchasing power over supplies

- utilizing their technological and managing know-how globally with min aditional costs

MNC stands for

multinational corporation

privatization has

spurred a tremendous increase in cross-border investment

In NOV 2018, 3 member countries of NAFTA signed a new accord called the

US-Mexico-Canada Agreement

International Trade is

an "Increasing - sum" game at which all players can become winners

*Suppose Mexico is a major export market for ur US-based company and the Mexican Peso appreciates drastically against the US dollar. This means

Your firm will be able to charge more in dollar terms while keeping peso prices stable nd your domestic competitors will enjoy a period of facing lessened price competition from Mexican imports

*Suppose that Great Britain is a major export market for your firm, US-based multinational corporation. If the British pound depreciates against the US dollar

your firm may be priced out of the UK market, to the extent that your dollar costs stay constant and your pound prices will rise, and to protect UK market share, ur firm may have to cut the dollar price if ur goods to keep the pound price the same

The Japanese automobile company Honda established production facilities in Ohio, mainly to

circumvent trade barriers

The Nestle corporation, a well-known Swiss multinational corporation, used to issue two different classes of common stock, bearer shares and registered shares, and foreign investors were allowed to hold only

bearer shares

What major attribute(s) set(s) apart international finance from domestic finance? list 3

- market imperfections

- foreign exchange and political risks

- expanded opp set

Suppose Mexico is a major export market for your US-based company and the Mexican peso depreciates drastically against the US dollar, as it did in December 1994. This means that

Your company's products can be priced out of the Mexican market, as the peso price of American imports will rise following the peso's fall

Privatization refers to the process of

a country divesting itself of the ownership and operation of a business venture by turning it over to the free market system

The Euro,,,,,,list 3

- is divisible into 100 cents, just like the US dollar

- may eventually have a transaction domain larger than the US dollar

- is the common currency of the European Union

In countries like France and Germany,

managers have often viewed shareholders as one of the "stakeholders" of the firm, others being employees, customers, suppliers, banks an so forth

A multinational corporation can

- increase economic efficiency

- be a factor that increases the opportunities of the citizens of less developed countries

- be a factor that increases the opp set of domestic investors

The World Trade Organization (WTO)

has the power to enforce the rules of international trade

Most sovereign (community that goverens their own community) nations make it difficult for ppl to cross their borders illegally. This barrier to the free movement of labor is an example of

a market imperfection

Suppose that you are a U.S. producer of a commodity good competing with foreign producers. Your inputs of production are priced in dollars and you sell your output in dollars. If the U.S. currency depreciates against the currencies of our trading partners,

ur competitive position is likely improved

Deregulated financial markets and heightened competition in financial services provided an environment for financial innovations that resulted in the introduction of various instruments. These innovative instruments include

currency futures and options, foreign stock index futures and options, multicurrency bonds, international mutual funds, country funds, and exchange traded funds.

Recently, financial markets have become highly integrated. This development

allows investors to diversify their portfolios internationally

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

exchange rate risk