Fundamentals of Multinational Finance 3e Moffett.docx
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FundamentalsofMultinationalFinance3eMoffett
FundamentalsofMultinationalFinance,3e（Moffett）
Chapter12
GlobalCostandAvailabilityofCapital
12.1
MultipleChoiceandTrue/FalseQuestions
1）
Ifafirmlieswithinacountrywith________or________domesticcapitalmarkets,itcanachievelowerglobalcostandgreateravailabilityofcapitalwithaproperlydesignedandimplementedstrategytoparticipateininternationalcapitalmarkets.
A）
liquid;segmented
B）
liquid;large
C）
illiquid;segmented
D）
large;illiquid
Answer:
C
Topic:
IlliquidandSegmentedMarkets
Skill:
Recognition
2）
Otherthingsequal,afirmthatmustobtainitslong-termdebtandequityinahighlyilliquiddomesticsecuritiesmarketwillprobablyhavea________.
A）
relativelylowcostofcapital
B）
relativelyhighcostofcapital
C）
relativelyaveragecostofcapital
D）
costofcapitalthatwecannotestimatefromthisquestion
Answer:
B
Topic:
CostofCapital
Skill:
Recognition
3）
Relativelyhighcostsofcapitalaremorelikelytooccurin________.
A）
highlyilliquiddomesticsecuritiesmarkets
B）
highlyliquiddomesticsecuritiesmarkets
C）
unsegmenteddomesticsecuritiesmarkets
D）
noneoftheabove
Answer:
A
Topic:
CostofCapital
Skill:
Recognition
4）
Reasonsthatfirmsmayfindthemselveswithrelativelyhighcostsofcapitalinclude:
A）
Thefirmsresideinemergingcountrieswithundevelopedcapitalmarkets.
B）
Thefirmsaretoosmalltoeasilygainaccesstotheirownnationalsecuritiesmarket.
C）
Thefirmsarefamilyownedandtheychoosenottoaccesspublicmarketsandlosecontrolofthefirm.
D）
Alloftheabove.
Answer:
D
Topic:
ReasonsforaHighCostofCapital
Skill:
Recognition
5）
Anationalsecuritiesmarketissegmentediftherequiredrateofreturnonsecuritiesinthatmarketdiffersfromcomparablesecuritiestradedinother,unsegmentedmarkets.
Answer:
TRUE
Topic:
SegmentedMarkets
Skill:
Recognition
6）
WhichofthefollowingisNOTacontributingfactortothesegmentationofcapitalmarkets?
A）
excessiveregulatorycontrol
B）
perceivedpoliticalrisk
C）
anticipatedforeignexchangerisk
D）
Alloftheabovearecontributingfactors.
Answer:
D
Topic:
FactorsofSegmentedMarkets
Skill:
Recognition
7）
WhichofthefollowingisNOTacontributingfactortothesegmentationofcapitalmarkets?
A）
lackoftransparency
B）
asymmetricavailabilityofinformation
C）
insidertrading
D）
Alloftheabovearecontributingfactors.
Answer:
D
Topic:
FactorsofSegmentedMarkets
Skill:
Recognition
8）
WhichofthefollowingisNOTakeyvariableintheweightedaveragecostofcapital（WACC）equation?
A）
themarketvalueofequity
B）
themarketvalueofdebt
C）
therisk-freerateofreturn
D）
themarginaltaxrate
Answer:
C
Topic:
WACC
Skill:
Recognition
9）
Theweightedaveragecostofcapital（WACC）is
A）
therequiredrateofreturnforallofafirm'scapitalinvestmentprojects.
B）
therequiredrateofreturnforafirm'saverageriskprojects.
C）
notapplicableforusebyMNE.
D）
equalto13%.
Answer:
B
Topic:
WACC
Skill:
Recognition
10）
WhichofthefollowingisNOTakeyvariableintheweightedaveragecostofcapital（WACC）equation?
A）
thebeforetaxcostofdebt
B）
therisk-adjustedcostofequity
C）
thebetaofthemarketportfolio
D）
thetotalmarketvalueofthefirm'ssecurities
Answer:
C
Topic:
WACC
Skill:
Recognition
11）
Otherthingsequal,anincreaseinthefirm'staxratewillincreasetheWACCforafirmthathasbothdebtandequityfinancing.
Answer:
FALSE
Topic:
WACC
Skill:
Conceptual
12）
Thecapitalassetpricingmodel（CAPM）isanapproach
A）
todeterminethepriceofequitycapital.
B）
usedbymarketerstodeterminethepriceofsaleableproduct.
C）
canbeappliedonlytodomesticmarkets.
D）
noneoftheabove.
Answer:
A
Topic:
CAPM
Skill:
Conceptual
13）
WhichofthefollowingisNOTakeyvariableintheequationforthecapitalassetpricingmodel?
A）
therisk-freerateofinterest
B）
theexpectedrateofreturnonthemarketportfolio
C）
themarginaltaxrate
D）
AllareimportantcomponentsoftheCAPM.
Answer:
C
Topic:
CAPM
Skill:
Recognition
14）
________riskisafunctionofthevariabilityofexpectedreturnsofthefirm'sstockrelativetothemarketindexandthemeasureofcorrelationbetweentheexpectedreturnsofthefirmandthemarket.
A）
Systematic
B）
Unsystematic
C）
Total
D）
Diversifiable
Answer:
A
Topic:
SystematicRisk
Skill:
Recognition
15）
Systematicrisk
A）
isthestandarddeviationofasecuritiesreturns.
B）
ismeasuredwithbeta.
C）
ismeasuredwithstandarddeviation.
D）
noneoftheabove.
Answer:
B
Topic:
SystematicRisk
Skill:
Recognition
16）
Ifafirm'sexpectedreturnsaremorevolatilethantheexpectedreturnforthemarketportfolio,itwillhaveabetalessthan1.0.
Answer:
FALSE
Topic:
Beta
Skill:
Conceptual
17）
Whichofthefollowingisgenerallyunnecessaryinmeasuringthecostofdebt?
A）
aforecastoffutureinterestrates
B）
theproportionsofthevariousclassesofdebtafirmproposestouse
C）
thecorporateincometaxrate
D）
Alloftheabovearenecessaryformeasuringthecostofdebt.
Answer:
D
Topic:
CostofDebt
Skill:
Recognition
18）
Theafter-taxcostofdebtisfoundby
A）
dividingthebefore-taxcostofdebtby（1-thecorporatetaxrate）.
B）
subtracting（1-thecorporatetaxrate）fromthebefore-taxcostofdebt.
C）
multiplyingthebefore-taxcostofdebtby（1-thecorporatetaxrate）.
D）
subtractingthecorporatetaxratefromthebefore-taxcostofdebt.
Answer:
C
Topic:
CostofDebt
Skill:
Conceptual
19）
TheWACCisusuallyusedastherisk-adjustedrequiredrateofreturnfornewprojectsthatareofthesameaverageriskasthefirm'sexistingprojects.
Answer:
TRUE
Topic:
WACC
Skill:
Conceptual
20）
Afirmwhoseequityhasabetaof1.0
A）
hasgreatersystematicriskthanthemarketportfolio.
B）
standslittlechanceofsurvivingintheinternationalfinancialmarketplace.
C）
haslesssystematicriskthanthemarketportfolio.
D）
Noneoftheaboveistrue.
Answer:
D
Topic:
Beta
Skill:
Conceptual
21）
Oneoftheelegantbeautiesofinternationalequitymarketsisthatoverthelast100orsoyears,theaveragemarketriskpremiumisalmostidenticalacrossmajorindustrialcountries.
Answer:
FALSE
Topic:
MarketRiskPremium
Skill:
Recognition
22）
Thedifferencebetweentheexpected（orrequired）returnforthemarketportfolioandtherisk-freerateofreturnisreferredtoas________.
A）
beta
B）
thegeometricmean
C）
themarketriskpremium
D）
thearithmeticmean
Answer:
C
Topic:
TheMarketRiskPremium
Skill:
Recognition
23）
Ingeneralthegeometricmeanwillbe________thearithmeticmeanforaseriesofreturns.
A）
lessthan
B）
greaterthan
C）
equalto
D）
greaterthanorequalto
Answer:
A
Topic:
GeometricandArithmeticMean
Skill:
Recognition
24）
Thebeginningsharepriceforasecurityoverathree-yearperiodwas$50.Subsequentyear-endpriceswere$62,$58and$64.Thearithmeticaverageannualrateofreturnandthegeometricaverageannualrateofreturnforthisstockwas
A）
9.30%and8.78%respectively.
B）
9.30%and7.89%respectively.
C）
9.30%and7.03%respectively.
D）
9.30%and6.37%respectively.
Answer:
D
Topic:
ArithmeticandGeometricAverageReturns
Skill:
Analytical
25）
Ifacompanyfailstoaccuratelypredictit'scostofequity,then
A）
thefirm'swaccwillalsobeinaccurate.
B）
thefirmmaynotbeusingtheproperinterestratetoestimateNPV.
C）
thefirmmyincorrectlyacceptorrejectprojectsbasedondecisionsmadeusingthecostofcapitalcomputedwithanincorrectcostofequity.
D）
alloftheabovearetrue.
Answer:
D
Topic:
CostofEquity
Skill:
Conceptual
26）
Theprimarygoalofbothdomesticandinternationalportfoliomanagersis
A）
tomaximizereturnforagivenlevelofrisk,orminimizeriskforagivenlevelofreturn.
B）
minimizethenumberofuniquesecuritiesheldintheirportfolio.
C）
maximizetheirwacc.
D）
alloftheabove.
Answer:
A
Topic:
InvestmentObjectives
Skill:
Conceptual
27）
Internationallydiversifiedportfoliosoftenhavealowerrateofreturnandalmostalwayshaveahigherlevelofportfolioriskthantheirdomesticcounterparts.
Answer:
FALSE
Topic:
PortfolioDiversification
Skill:
Conceptual
28）
WhichofthefollowingisNOTaportfoliodiversificationtechniqueusedbyportfoliomanagers?
A）
diversifybytypeofsecurity
B）
diversifybythesizeofcapitalizationofthesecuritiesheld
C）
diversifybycountry
D）
Alloftheabovearediversificationtechniques.
Answer:
D
Topic:
PortfolioDiversification
Skill:
Recognition
29）
Ifallcapitalmarketsarefullyintegrated,securitiesofcomparableexpectedreturnandriskshouldhavethesamerequiredrateofreturnineachnationalmarketafteradjustingfor________.
A）
timeofdayandlanguagerequirements
B）
politicalriskandtimelags
C）
foreignexchangeriskandpoliticalrisk
D）
foreignexchangeriskandthespotrate
Answer:
C
Topic:
MarketSegmentation
Skill:
Recognition
30）
Capi
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