Chapter 1 Practice Questions and Answer Keys

Lecture #1 – Practice Questions – International Financial Management

Chapter 1 – Globalization and the Multinational Firm

1. What major dimension sets apart international finance from domestic finance?

A. Foreign exchange and political risks B. Market imperfections C. Expanded opportunity set D. All of the above

2. An example of a political risk is

A. expropriation of assets. B. adverse change in tax rules.

C. the opposition party being elected. D. both answers a) and b) are correct.

3. Recently, financial markets have become highly integrated. This development

A. allows investors to diversify their portfolios internationally. B. allows minority investors to buy and sell stocks. C. has increased the cost of capital for firms. D. answers a) and c) are both correct.

4. Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate is $1.25 =

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