Jordan Quiz 1

1. Which of the following is generally NOT considered to be a viable operational goal for a firm?

        Maintaining a strong local currency.
        Maximization of after-tax income.
        Minimization of the firm's effective global tax burden.
        Correct positioning of the firm's income, cash flows and available funds as to country and currency.

Question 2.2. Balance of payment (BOP) data may be important for any of the following reasons:

        BOP data helps to forecast a country's market potential, especially in the short run.
        The BOP is an important indicator of a country's foreign exchange rate.
        Changes in a country's BOP may signal a change in controls over payment of dividends and interest.
        All of the above.

Question 3.3. The BOP must be in balance but the current account need not be.

True
False

Question 4.4. The authors describe the multinational phase of globalization for a firm as one characterized by the

        ownership of assets and enterprises in foreign countries.
        potential for international competitors or suppliers even though all accounts are with domestic firms and are denominated in dollars.
        imports from foreign suppliers and exports to foreign buyers.
        requirement that all employees be multilingual.

Question 5.5. Which of the following are critical to a firm trying to reach the top of the "firm value pyramid"?

        An open market place.
        High quality strategic management.
        Access to capital.
        All of the above.

Question 6.6. In the decade since 2000, the U.S. has experienced its largest bilateral trade deficits with the countries of China and Japan.

True
False

Question 7.7. The twin agency problems limiting financial globalization are caused by these two groups acting in their own self-interests rather than the interests of the firm.

        Rulers of sovereign states and unsavory customs officials.
        Corporate insiders and attorneys.
        Corporate insiders and rulers of sovereign states.
        Attorneys and unsavory customs officials.

Question 8.8. Which of the following is a reason why managers act to maximize shareholder wealth in Anglo-American markets?

        The use of stock options to align the goals of shareholders and managers.
        The market for corporate control that allows for outside takeover of the firm.
        Performance based compensation for executive management.
        All of the above.

Question 9.9. The balance of payments as applied to a course in international finance may be defined as:

        the amount still owed by an exporting firm after making an initial down payment.
        the amount still owed by governments to the International Monetary Fund.
        the measurement of all international economic transactions between the residents of a country and foreign residents.
        the amount of a country's merchandise trade deficit or surplus.

Question 10.10. The authors discuss the concept of the "Impossible Trinity" or the inability to achieve simultaneously the goals of exchange rate stability, full financial integration, and monetary independence. If a country chooses to have a pure float exchange rate regime, which two of the three goals is a country most able to achieve?

        Monetary independence and exchange rate stability.
        Exchange rate stability and full financial integration.
        Full financial integration and monetary independence.
        A country cannot attain any of the exchange rate goals with a pure float exchange rate regime.

Question 11.11. In 2007 the United States posted a current account deficit of -$731 billion. The bulk of the negative value came from

        a net transfer deficit.
        an income balance deficit.
        a goods trade deficit.
        an income trade deficit.

Question 12.12. Which of the following led to the eventual demise of the fixed currency exchange rate regime worked out at Bretton Woods?

        Widely divergent national monetary and fiscal policies among member nations.
        Differential rates of inflation across member nations.
        Several unexpected economic shocks to member nations.
        All of the above.

Question 13.13. Which of the following broad topics is NOT identified as an area to be established as good corporate governance practice by the Organization for Economic Cooperation and Development (OECD)?

        Protect the rights of shareholders.
        Disclosure and transparency.
        The proper role of stakeholders in the governance of the firm.
        All of the above should be a concern of good corporate governance.

Question 14.14. The primary operational goal for the firm is to

        maximize after-tax profits in each country where the firm is operating.
        minimize the total financial risk to the firm.
        maximize the consolidated after-tax profits of the firm.
        maximize the total risk to the firm.

Question 15.15. The financial account consists COMPLETELY of which three components?

        Stock investment, bond investment, and mutual fund investment.
        Direct investment, stock investment, and bond investment.
        Direct investment, portfolio investment, and other asset investment.
        Mutual fund investment, portfolio investment, and stock investment.

Question 16.16. A well-established, large, Brazil-based MNE will probably be most adversely affected by which of the following elements of firm value?

        An open marketplace.
        High-quality strategic management.
        Access to capital.
        Access to qualified labor pool.

Question 17.17. Significant amounts of United States Treasury issues are purchased by foreign investors, therefore the U.S. must earn foreign currency to repay this debt.

True
False

Question 18.18. Comparative advantage in the 21st century is based more on services and their cross border facilitation by telecommunications and the Internet.

True
False

Question 19.19. A small economy country whose GDP is heavily dependent on trade with the United States could use a (an) ________ exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate.

        pegged exchange rate with the United States
        pegged exchange rate with the Euro
        independent floating
        managed float

Question 20.20. The Stakeholder Capitalism Model

        clearly places shareholders as the primary stakeholder.
        combines the interests and inputs of shareholders, creditors, management, employees, and society.
        has financial profit as its goal and is often termed impatient capital.
        is the Anglo-American model of corporate governance.

Question 21.21. Describe the management objectives of a firm governed by the shareholder wealth maximization model and one governed by the stakeholder wealth maximization model. Give an example of how these two models may lead to different decision-making by executive management. (Points : 4)

The Stakeholders’ wealth maximization is much harder to satisfy since stakeholders consist of different groups (shareholders, creditors, employees…etc) These two models may lead to different decision-making by executives because for example, it might be in the shareholders best interest to undertake a risky investment that promises a higher return while this decision might be in conflict with the firm’s bankers interest.

Question 22.22. Define and then discuss the various aspects of the Special Drawing Right (SDR) of the IMF (Points : 3)

The Special Drawing Right is defined as “an international reserve asset created by the IMF to supplement existing foreign exchange reserves”.

This international reserve serves as a “unit of account” for the International Monetary Funds as well as organizations – regional and international while also serving as a benchmark or a base to which some countries peg the exchange rates for their currencies.

The reserve has initially been established in terms of gold but is currently the “weighted value of currencies of the five major IMF members” having the highest exports of goods and services.

Question 23.23. What is a country's balance of (merchandise) trade and why is it so widely reported in the financial and popular press? (Points : 3)

The Balance of (merchandise) Trade is the difference between a countries imports and exports over a specified period of time.

It is widely reported in the financial and popular press because it is fairly easy to understand; the BOT simply shows whether a country has a deficit or a surplus. If a country’s exports is more than its imports, it would have a surplus, and the opposite is true.

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