1. 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.
2. Deregulation of world financial markets
a) provided a natural environment for financial innovations, like currency futures and options.
b) has promoted competition among market participants.
c) has encouraged developing countries such as Chile, Mexico, and Korea to liberalize by allowing foreigners to directly invest in their
d) financial markets.
e) all of the above
3. The Nestlé Corporation, a well-known Swiss MNC, used to issue two different classes of common stock, bearer shares and registered shares, and foreigners were allowed to hold only
a) registered shares.
b) bearer shares.
c) voting shares.
d) convertible shares.
4. Suppose that you are a U.S. producer of a commodity good competing with foreign producers. Your inputs of production are priced in dollars and you sell your output in dollars. If the U.S. currency depreciates against the currencies of our trading partners,
a) your competitive position is likely improved.
b) your competitive position is likely worsened.
c) your competitive position is unchanged.
5. The massive privatization that is currently taking place in formerly socialist countries, will likely
a) eventually enhance the standard of living to these countries' citizens.
b) depend on private investment.
c) increase the opportunity set facing these countries' citizens.
d) all of the above
6. Most governments at least try to make it difficult for people to cross their borders illegally. This barrier to the free movement of labor is an example of
a) information asymmetry.
b) excessive transactions costs.
c) racial discrimination.
d) a market imperfection.
7. The owners of a business are the
a) taxpayers.
b) workers.
c) suppliers.
d) shareholders.
8. Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso depreciates drastically against the U.S. dollar, as it did in December 1994. This means
a) your company's products can be priced out of the Mexican market, as the peso price of American imports will rise following the peso's fall.
b) your firm will be able to charge more in dollar terms while keeping peso prices stable.
c) your domestic competitors will enjoy a period of facing little price competition from Mexican imports.
d) both b) and c) are correct