International Financial Management MCQs and Notes

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📊 International Financial Management
Q. Which of the following is a correct method of adjusting for inflation when calculating net present value?
  • (A) Estimate the future cash flows by multiplying by the specific inflation of each cash inflow and outflow item, and then discount using the real rate of return.
  • (B) Estimate the cash flows in real terms and use a real discount rate.
  • (C) Estimate the cash flows in money terms and use a real discount rate.
  • (D) Estimate the cash flows in real terms and use a money discount rate.
💬 Discuss
✅ Correct Answer: (B) Estimate the cash flows in real terms and use a real discount rate.
📊 International Financial Management
Q. The profitability index is:
  • (A) Net present value/Initial outlay.
  • (B) Initial outlay/Gross present value.
  • (C) Gross present volume/Initial outlay.
  • (D) Gross present value/Net present value.
💬 Discuss
✅ Correct Answer: (C) Gross present volume/Initial outlay.
📊 International Financial Management
Q. The lower a project's beta, the _______ is the project's _________ risk.
  • (A) lower; systematic
  • (B) lower; unsystematic
  • (C) higher; systematic
  • (D) higher; unsystematic
💬 Discuss
✅ Correct Answer: (A) lower; systematic
📊 International Financial Management
Q. To the extent that individual economies are ______ each other, net cash flows from a portfolio of subsidiaries should exhibit ______ variability, which may reduce the probability of bankruptcy.
  • (A) dependent on; less
  • (B) independent of; less
  • (C) dependent on; more
  • (D) independent of; more
💬 Discuss
✅ Correct Answer: (C) dependent on; more
📊 International Financial Management
Q. In general, MNCs probably prefer to use ____________ foreign debt when their foreign subsidiaries are subject to potentially ___________ local currencies.
  • (A) more; strong
  • (B) more; weak
  • (C) less; strong
  • (D) less; weak
💬 Discuss
✅ Correct Answer: (B) more; weak
📊 International Financial Management
Q. MNC Corporation has a beta of 2.0. The risk-free rate of interest is 5%, and the return on the stock market overall is expected to be 13%. What is the required rate of return on MNC stock?
  • (A) 21%.
  • (B) 41%.
  • (C) 16%.
  • (D) 13%.
💬 Discuss
✅ Correct Answer: (A) 21%.
📊 International Financial Management
Q. Which of the following is not a factor that favorably affects an MNC's cost of capital, according to your text?
  • (A) exchange rate risk.
  • (B) size.
  • (C) access to international capital markets.
  • (D) international diversification.
💬 Discuss
✅ Correct Answer: (A) exchange rate risk.
📊 International Financial Management
Q. According to the text:
  • (A) the cost of debt for each country is somewhat stable over time.
  • (B) the cost of debt for countries change over time, and these changes are negatively correlated.
  • (C) ---
  • (D) ---
💬 Discuss
✅ Correct Answer: (the cost o)
📊 International Financial Management
Q. Other things being equal, countries with relatively _______ populations and _______ inflation are more likely to have a low cost of capital.
  • (A) young; high
  • (B) old; high
  • (C) old; low
  • (D) young; low
💬 Discuss
✅ Correct Answer: (C) old; low
📊 International Financial Management
Q. One argument for why subsidiaries should be wholly-owned by the parent is that:
  • (A) the potential conflict of interests between the MNC's managers and shareholders is avoided.
  • (B) the potential conflict of interests between the MNC's majority shareholders and minority shareholders is avoided.
  • (C) ---
  • (D) ---
💬 Discuss
✅ Correct Answer: (the potent)

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