Corporate governance is often narrowly defined as the prudent exercise

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The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company.

Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.

The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship.

Corporate governance is therefore about what the board of a company does and how it sets the values of the company, and it is to be distinguished from the day to day operational management of the company by full-time executives.

In the UK for listed companies corporate governance it is part of the legal system as the latest  UK Corporate Governance Code applies to accounting periods beginning on or after 1 January 2019 and,, applies to all companies with a premium listing of equity shares regardless of whether they are incorporated in the UK or elsewhere.

But good governance can have wider impacts to the non listed sector because it is fundamentally about improving transparency and accountability within existing systems. One of the interesting developments in the last few years has been the way in which the ‘corporate’ governance label has been used to describe governance and accountability issues beyond the corporate sector. This can be confusing and misleading as UK Corporate Governance has been built and developed to deal with the governance of listed company entities and not designed to cover all organisational types that may have different accountability structures.

Many academic studies conclude that well governed companies perform better in commercial terms.

Further reading

• Corporate governance codes and reports
• Corporate governance reviews and inquiries
• Articles and thought leadership on the principles of corporate governance

TEST BANK

Chapter 1 Introduction

1. Which of the following is the primary objective of a firm? A. employees' benefits B. satisfaction of customers C. satisfaction of suppliers D. prompt payment to creditors

• E. maximize stockholder wealth

1. Financial risk involves ___. A. fluctuation in exchange rates B. different interest and inflation rates C. balance of payments position D. A and B

• E. A, B, and C

1. Three sweeping changes include ___. A. the end of Cold War B. industrialization and growth of the developing world C. the creation of the North American Trade Agreement D. increased globalization

• E. A, B, and D

1. Managers are generally defined as ___. A. stockholders

• B. agents C. creditors D. suppliers E. customers

1. Which of the following is not one of seven principles of global finance? A. market imperfection B. risk-return tradeoff C. portfolio effect D. comparative advantage

• E. company advantage

1. Incentives for multinational company managers include the following except ___. A. stock options B. bonuses C. perquisites D. salary increases

• E. vacation

1. Corporate governance is often narrowly defined as the prudent exercise of ownership rights toward the goal of increased ___.

• A. shareholder value B. profit C. profit margin on sales D. asset turnover E. sales volume

1. The most common form of shareholder activism includes ___. A. a shareholder proposal for proxy fight B. direct negotiation with management C. public targeting of a corporation

• D A, B, and C E. A and C only

1. The OECD Principles of Corporate Governance covers ___. A. the rights of shareholders B. the equitable treatment of shareholders C. the responsibilities of the board D. disclosure and transparency

• E. all of the above

1. The political, regulatory, technological, and economic forces radically changing the global competitive environment include ___. A. the collapse of communism B. the privatization of state-owned enterprises around the world C. the revolution in information technologies D. a wave of mergers, leveraged buyouts, and takeovers

• E. all of the above

1. All of the following have played an important role in the globalization process of the world economy except ___. A. advances in information technologies

• B. increased tariffs C. reductions in trade barriers D. reduced transportation and communication costs E. reductions in technological barriers

1. Reductions in transportation and communication costs have ___. A. facilitated international production activities B. enlarged trading areas C. enabled companies to exploit international cost differentials D. reduced technological barriers

• E. all of the above

1. Reasons for management to focus on stockholder wealth maximization include ___. A. stockholders are the owners of the company B. stockholders provide the risk capital that protects the welfare of other constituents C. a high stock price provides the best defense against a hostile takeover D. enhanced shareholder value makes it easier for the company to attract additional equity capital

• E. all of the above

1. Which of the following statements about financial planning and control is not true? A. financial planning and control must be considered simultaneously B. the preparation of budgets is a planning function, but their administration is a controlling function C. budgets are used to compare actual performance with planned performance D. the foreign exchange market plays a key role in MNC financial planning and control

• E. all of the above statements are true

1. The role of the MNC financial manager has expanded in recent years to include ___.

• A. corporate strategy B. financial planning and control C. subsidiary performance D. multiple environments E. regulatory risks

1. The major forms of economic cooperation among countries do not include. A. a free trade area

• B. a consortium bank C. customs union D. economic union E. political union

1. Which of the following is a valid argument for protectionism? A. national security B. unfair competition C. domestic employment D. A and B

• E. A, B, and C

1. Which of the following is not a main objective of the free trade agreement between the United States and Canada?

• A. establish common external tariffs B. phase out tariffs between the two countries C. liberalize investment laws between the two countries D. grant "national treatment" with each other E. liberalize the trading relationships between the two countries

1. Two loose trading blocs in Asia are ___. A. ASEAN and NAFTA B. ASEAN and EU

• C. ASEAN and APEC D. NAFTA and EU E. APEC and NAFTA

1. The Eclectic Theory, designed to explain a logical link between trade and investment theories, was developed by ___. A. Levy B. Snart C. Lessard D. Nehrt

• E. Dunning

1. Which of the following theories best describes a major motive for international trade?

• A. the theory of comparative advantage B. portfolio theory C. eclectic theory D. oligopoly model E. none of the above

1. Nehrt and Hogue suggested that companies invest abroad because of ___. A. new markets B. raw materials C. product efficiency D. new knowledge

• E. all of the above

1. Which of the following is not one of benefits of open trade?

• A. increased government spending B. comparative advantage C. increased competition D. increased productivity E. expanded menu of goods

1. Which of the following is not an example of trading bloc?

• A. African Union B. North American Free Trade Agreement C. Mercosur D. the Central American Common Market E. the Asian Pacific Economic Cooperation

1. Tariffs on imported goods can be imposed for the following reason(s). A. revenue B. national pride C. protection of domestic companies D. retaliation

• E. A, C, and D

1. Import quotas specify the amounts of certain products to be imported during a given period of time. A. minimum

• B. maximum C. unlimited D. small E. given

1. The portfolio theory of foreign investment relies on the following variable(s). A. risk B. technology C. return D. market share

• E. both A and C

1. Which of the flowing statements concerning economies of scale is false? A. it is a synergistic effect said to exist when the whole is worth more than the mere sum of its parts B. costs fall as outputs expand C. each country should specialize in a limited number of products in which it has a comparative advantage

• D. mass production and mass marketing deplete skills and technologies E. the functions of production, marketing and purchasing can be consolidated

1. The synergistic effect said to exist when the whole is worth more than the mere sum of its parts is called ___.

• A. economies of scale B. differences in taste C. the theory of factor endowments D. the product life-cycle theory E. the theory of comparative advantage

1. Antidumping duties are ___. A. imposed for technical and health regulations B. non-tariff barriers C. additional import duties imposed to offset an export subsidy by another country

• D. customs duties imposed on an imported product whose price is lower than that of the same product in the home market E. customs duties imposed on an imported product whose price is higher than that of the same product in the home market

Chapter 3 The Balance of Payments

1. The balance of payments on current account does not include the following items. A. merchandise exports B. invisible trade items (services) C. current transfer items

• D. foreign stocks and bonds E. merchandise imports

1. The financial account in the balance of payments does not include the following __. A. foreign direct investment

• B. gold C. foreign bank loans D. portfolio investment E. investment on foreign bonds

1. Official reserve assets do not include. A. gold B. convertible foreign exchange C. special drawing rights (SDRs) D. British pound

• E. Algerian dinars

1. Credit transactions in the balance of payments do not include ___. A. exports of goods and services

• B. investments and interest paid to foreign residents C. investment and interest earnings D. transfer receipts from foreign residents E. investments and loans from foreign residents

1. The general trend of the US service trade account has been. A. a stable deficit B. an increasing deficit C. a decreasing deficit D. a falling deficit

• E. a surplus

1. If a country imposes tariffs on imported goods, then that country's balance of payments will very likely.

• A. improve B. deteriorate C. stay the same D. cannot tell E. all of the above

1. Holding other things constant, an increase in the current account deficit of a country's balance of payments will most likely.

• A. weaken the value of its currency B. increase the value of its currency C. not affect the value of its currency D. all of the above E. none of the above

1. Interest and dividend incomes show up in the. A. merchandise account B. reserves and related items C. capital account

• D. current account E. financial account

1. The current account includes. A. merchandise exports and imports B. earnings from invisible trade C. unilateral transfer items D. A and B

• E. A, B, and C

1. Official reserve assets are composed of. A. gold B. convertible foreign exchanges C. special drawing rights (SDR)

• D. all of the above E. A and B

1. The balance of payments identify states that the combined balance of current account, capital account, financial account, net errors and omissions, and reserves and related items must be. A. greater than one (1) B. less than one (1)

• C. equal to zero (0) D. between -1 and + F. between 1 and 0

1. World output has grown _____ than world trade during the 1990s. A. faster

• B. slower C. ten times faster D. all of the above E. none of the above

1. The J-curve effect holds that a country's currency depreciation causes its trade balance to ____. A. deteriorate for a short time B. flatten out after an initial deterioration C. significantly improve in the long run

• D. A, B, and C D. A and B only

1. To reduce its trade deficit, a country should do all of the following but ____. A. deflate the economy B. devalue the currency C. adopt foreign exchange controls D. institute trade controls

• E. increase money supply

1. All of the following statements concerning a country’s balance of payments are true except ___. A. it is commonly defined as the record of transactions between the country’s residents and foreign residents over a specific period B. the recorded transactions include exports and imports of goods and services

• C. it records only the transactions of business firms D. it is used to analyze a country’s competitive position E. it is used to forecast the direction of exchange rates

Chapter 4 The International Monetary System

1. Which of the following is not one of advantages for a flexible exchange rate system? A. countries can maintain independent monetary policy

• B. exchange rates under a flexible system are unstable C. countries can maintain independent fiscal policy D. flexible exchange rates permit a smooth adjustment to external shocks E. Central banks do not need to maintain large reserves

1. Under the purely fluctuating exchange rate system, the balance of payments imbalances are automatically corrected by the following mechanism. A. speculation B. government intervention C. interest rate changes

• D. supply and demand in exchange markets E. none of the above

1. Which of the following is not directly related to the Bretton Woods system? A. 1944 B. the fixed exchange rate system

• C. the bank of England D. the International Monetary Fund E. the World Bank

1. Which of the following is not directly attributable to the collapse of the fixed exchange rate system? A. U. balance of payments deficits B. the decrease in the U. dollar value C. the decline of international reserves

• D. Japan's trade surplus E. none of the above

1. The Group of Ten got together at the Smithsonian Institution to agree on a wider band system so that exchange rates can fluctuate. A. 5% above and below the central rate

• B. 2% above and below the central rate C. 2% above and below the central rate D. 4% above and below the central rate E. 10% above and below the central rate

1. The Jamaican Agreement was held to amend the Bretton Woods Agreement of the fixed exchange rate system in. A. 1973 B. 1975

• C. 1976 D. 1978 E. 1979

1. Factors that cause demand and supply schedules for foreign exchange to shift do not include : A. relative inflation rates B. relative interest rates

• C. different welfare systems D. relative income levels E. government intervention

1. The July 1993 currency crisis in Europe caused the European Monetary System to widen the bands within which member currencies could fluctuate against other member currencies, to of a central value. A. 14%

• B. 15% C. 16% D. 17% E. 18%

1. The objectives of the International Monetary Fund (IMF) are. A. to promote international monetary cooperation B. to promote exchange stability C. to create standby reserves

• D. all of the above E. none of the above

1. The reserve tranche of the International Monetary Fund (IMF) means that by exchanging their own currencies for convertible currencies, a member country may draw % of its quota. A. 25 B. 50 C. 75 D. 80

• E. 100

1. The September 1992 currency crisis in Europe was mainly attributable to. A. the British currency action

• B. the increase in German interest rate C. the Danish election D. the French currency policy E. all of the above

1. The proposal under which a par value of a currency is adjusted intermittently is referred to as a. A. wide band B. narrow band

• C. crawling peg D. crawling band E. gliding band

1. The quota allotted to a member country of the IMF, which it can borrow at will, is known as tranche. A. gold B. basic C. member D. credit

• E. reserve

1. Economists regard the creation of the Euro as a new European currency in the international monetary system as the most important development since. A. 1953 B. 1963

• C. 1973 D. 1983 E. 1993

1. A country may link its exchange rate to the value of a major currency, often the US dollar. This is called. A. a currency par

• B. a currency peg C. a currency composite D. a currency basket E. none of the above

1. If and when the value of the Japanese yen against the US dollar goes up 15%, it affects the following items. A. the price of imported Japanese cars B. the price of Japanese cameras C. the price of Japanese pearls sold in Troy, Ohio D. the price of a Sharp copier in Detroit

• E. all of the above

1. Which of the following currencies is directly linked to the value of gold? A. US dollar B. Japanese yen C. euro D. British pound

• E. none of the above

1. A foreign exchange rate ___. A. is the par value B. is an exchange rate which does not fluctuate C. can involve a single currency

• D. is the price of one currency expressed in terms of another currency E. fluctuates according to market forces

1. A fixed exchange rate ___. A. is an exchange rate which does not fluctuate or which changes within a predetermined band B. will have a par value C. requires central banks to absorb currency surpluses and eliminate currency deficiencies D. B and C

• E. all of the above

1. A currency board ___. A. is a monetary institution that only issues currency to the extent it is fully backed by foreign reserves B. is an extreme form of the fixed exchange rate system C. involves an exchange rate fixed by law D. B and C

• E. all of the above

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