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1. An asset whose value is derived from the value of some other underlying real or financial asset best escribes a(n)
Financial instrument.
Property, plant, and equipment.
Derivative security.
Current assets.

2. Which of the following best characterizes globalization?
Increases competition and global economic efficiency, thereby having the potential to increase the standard of living in both developing nations and highly industrialized countries.

Can threaten the economic independence of nations and their cultural traditions.

Is largely regulated by treaties and other multilateral agreements under the direction of the United Nations’ project on transnational corporations.

Only statements a and b are correct.

3. If the inflation rate in the United States is greater than the inflation rate in Canada, other things held constant, the Canadian dollar will
Appreciate against the U.S. dollar.

Depreciate against the U.S. dollar.

Remain unchanged against the U.S. dollar.

Appreciate against other major currencies.

4. What is the common currency of the EMU?
U.S. dollar.
British pound.
Euro.

French franc.

5. As a counterargument against the prevailing theory of international trade in the late 18th century, Adam Smith expounded a new theory that today we call
The theory of comparative advantage.

The theory of mercantilism.

The theory of absolute advantage.

The theory of product life cycles.

6. If a country decides to locate facilities in a country like Bermuda, what is its most likely motive?
Seeking political safety.

Seeking production efficiency.

Seeking input resources.
Seeking markets.

7. Last year, Moss Receiving Inc. had positive net cash flow, yet cash on the balance sheet decreased. Which of the following could explain the company’s financial performance?
The company issued new common stock.

The company issued new long-term debt.

The company paid off some of its assets.

The company purchased a lot of new fixed assets.

8. Which of the following statements is most correct?
Holding foreign stocks in one’s portfolio affords greater diversification potential because the stock market returns in different countries are not perfectly correlated.

Exchange rate risk could be a significant issue if a portfolio is internationally diversified, particularly when shares from only a few countries are held.

A world market index and a global risk-free rate should be used to evaluate internationally diversified portfolios. These can be proxied by using the Morgan Stanley Capital International global index and the required return on long-term United Nations bonds.

Only statements a and b are correct.

9. Regarding translation methodologies, which of the following statements are correct?
The current spot exchange rate is always used to translate monetary assets and liabilities in all permitted translation methods.

Equity accounts are always translated at a weighted average historical exchange rate in all permitted translation methods.

The current rate method for translating financial statements almost always results in a net asset exposure.

All of the statements above are correct.

10. Eurobonds differ from foreign bonds in all the following ways except
Eurobonds are traded in international capital markets but foreign bonds are traded in domestic capital markets.

Eurobonds are denominated in a currency other than the one used as a money unit in the countries in which it is traded but a foreign bond must be denominated in the money unit of the country in which it is issued
Both eurobonds and foreign bonds are underwritten by international consortia of investment banks from the countries in which they are traded.

Eurobonds are international in many different ways but the only thing “foreign” about foreign bonds is the nationality of the borrower.

11. Carsten Motors has just paid a dividend of $1.50. If the expected long-run constant growth rate for this stock is 7 percent, and if investors require an 11 percent rate of return, what is the price of the stock?
$37.50
$40.13
$42.59

$44.81

12. Thomas Furniture is expected to pay a dividend of $1.75 next year. If the expected long-run constant growth rate for this stock is 5 percent, and if the current market price is $43.75, what rate of return do investors require for the stock?
8%
9%
10%
11%

13. Which of the following statements is correct?
A company wi