Multinational Business Finance 15th Global Edition by David K. Eiteman test bank

Answer:  TRUE
Diff: 1
L.O.:  1.1 The Global Financial Marketplace
Skill:  Recognition
AACSB:  Application of knowledge
 
24) The theme dominating global financial markets today is the complexity of risks associated with financial globalization. List and explain examples of the complexity of risks affecting the leading and managing of multinational firms in the rapidly moving marketplace.
Answer:  The following is a sampling of this complexity of risks:  1) The international monetary system is under constant scrutiny. The rise of the Chinese renminbi is changing much of the world's outlook on currency exchange, reserve currencies, and the roles of the dollar and the euro. 2) Large fiscal deficits, including the current eurozone crisis, plague most of the major trading countries of the world, complicating fiscal and monetary policies, and ultimately, interest rates and exchange rates. 3) Many countries experience continuing balance of payments imbalances, and in some cases, dangerously large deficits and surpluses. 4) Ownership, control, and governance vary radically across the world. 5) Global capital markets that normally provide the means to lower a firm's cost of capital, and even more critically, increase the availability of capital, have in many ways shrunk in size and have become less open and accessible to many of the world's organizations. 6) Financial globalization has resulted in the ebb and flow of capital in and out of both industrial and emerging markets, greatly complicating financial management.
Diff: 1
L.O.:  1.1 The Global Financial Marketplace
Skill:  Conceptual
AACSB:  Application of knowledge
 

25) Business involves the interaction of individuals and individual organizations for the exchange of products, services, and capital through markets. The global capital markets are critical for the conduct of this exchange. The authors suggest that one way to characterize the global financial marketplace is through its assets, institutions, and linkages. Explain how each of the three dimensions characterize the global financial marketplace.
Answer:  1) The financial assets at the heart of the global capital markets are the debt securities issued by governments. These low-risk or risk-free assets (e.g., U.S. Treasury Bonds) form the foundation for the creation, trading, and pricing of other financial assets like bank loans, corporate bonds, and equities (stock). In recent years, a number of additional securities have been created from existing securities-derivatives, whose value is based on market value changes of the underlying securities. The health and security of the global financial system relies on the quality of these assets. 2) The institutions of global finance are the central banks, which create and control each country's money supply; the commercial banks, which take deposits and extend loans to businesses, both local and global; and the multitude of other financial institutions created to trade securities and derivatives. These institutions take many shapes and are subject to many different regulatory frameworks. The health and security of the global financial system relies on the stability of these financial institutions. 3) The links between the financial institutions, the actual fluid or medium for exchange, are the interbank networks using currency. The ready exchange of currencies in the global marketplace is the first and foremost necessary element for the conduct of financial trading, and the global currency markets are the largest markets in the world. The exchange of currencies, and the subsequent exchange of all other securities globally via currency, is the international interbank network.
Diff: 2
L.O.:  1.1 The Global Financial Marketplace
Skill:  Conceptual
AACSB:  Application of knowledge
 
1.2  The Theory of Comparative Advantage
 
1) The theory that suggests specialization by country can increase worldwide production is:
A) the theory of comparative advantage.
B) the theory of foreign direct investment.
C) the international Fisher effect.
D) the theory of working capital management.
Answer:  A
Diff: 1
L.O.:  1.2 The Theory of Comparative Advantage
Skill:  Recognition
AACSB:  Application of knowledge
 

2) Which of the following is NOT a reason governments interfere with comparative advantage?
A) Governments attempt to achieve full employment.
B) Governments promote economic development.
C) national self-sufficiency in defense-related industries
D) All are reasons governments interfere with comparative advantage.
Answer:  D
Diff: 1
L.O.:  1.2 The Theory of Comparative Advantage
Skill:  Recognition
AACSB:  Application of knowledge