1. For most firms, the cost of capital decreases to a low point as the firm ________ debt financing. At some point beyond this optimal level, the cost of capital increases as the amount of debt ________.
a. increases; increases
b. decreases; decreases
c. increases; decreases
d. decreases, increases
2. A large U.S. MNE is looking to raise capital in Europe. The company wishes to avoid many of the regulatory constraints found in an issue of debt in the U.S. markets, wants to attract foreign investors, but also wants the issue to be denominated in dollars. The firm should issue a ________.
a. foreign bond
b. Eurodollar
c. domestic bond
d. Eurobond
3. Obtaining local currency debt obligations is particularly attractive to a MNE if the subsidiary has
a. substantial accounts payable in the local currency.
b. substantial accounts receivable in the local currency.
c. substantial financial obligations in foreign currency units.
d. All of the above.
4. An Islamic bank cannot charge interest under Islamic law, but they can pay interest to depositors who are Muslim.
a. true
b. false
5. In theory, the MNE should support ________ debt ratios than a purely domestic firm because their cash flows are ________.
a. higher; less stable due to international diversification
b. lower; less stable due to international diversification
c. lower; more stable due to international diversification
d. higher; more stable due to international diversification
6. MNEs situated in countries with small illiquid and segmented markets are most like
a. large U.S. MNEs in that they are all MNEs and have worldwide markets and sources of financing.
b. small domestic U.S. firms in that they have a strong niche market in the U.S.
c. small domestic U.S. firms in that they must rely on internally generated funds and bank borrowing.
d. None of the above is true.
7. Islamic banking institutions commonly enter into the following types of agreements with Muslim home purchasers.
a. The bank buys the house and rents to the 'buyer' who pays the taxes too.
b. The bank purchases the house that has been chosen by the buyer, and then sells the house to the buyer at a higher price.
c. The buyer borrows the money from the bank at an interest rate of 0% and then agrees to repay the face value of the loan plus voluntary bonus payments monthly.
d. None of the above.
8. A recent study of carve-outs by McKinsey found that approximately ________ of carve outs raised the parent firm's share price by more than 12%. Furthermore, in the two-years following the carve-out, most carve-outs ________ shareholder value.
a. 10%; increased
b. 35%; decreased
c. 35%; increased
d. 10%; decreased
9. A ________ is a bond underwritten by a syndicate from a single country, sold within that country, denominated in that country's currency, but the issuer is from outside that country.
a. domestic bond
b. Eurobond
c. foreign bond
d. None of the above.
10. The primary problem with equity carve-outs appears to be the basic conflict between giving the subsidiary adequate independence versus the potential competitive conflicts between subsidiaries and parents.
a. true
b. false