Multinational Business Finance 14th Edition

After completing the table below, answer the following questions. a. Which city in the table is truly the cheapest date? b. Which city in the table is the most expensive-cheap date? c. If the exchange rate in Moscow on the Russian ruble (RUB) was 0.04200, instead of 0.0283, what would be the

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. CHAPTER 1 MULTINATIONAL FINANCIAL MANAGEMENT: OPPORTUNITIES AND CHALLENGES 1. Globalization Risks in Business. What are some of the risks that come with the growing globalization of business? Exchange rates. The international

Spot rate, /$ 111.40/$ 30-day forward rate, /$ 111.00/$ 90-day forward rate, /$ 110.40/$ 180-day forward rate, /$ 109.20/$ Numata's WACC 8.850% BioTron Medical's WACC 9.200% Assumptions Values BioTron's 30-day account receivable, Japanese yen 12,500,000 Spot rate, /$ 111.40 30-day forward rate, /$ 111.00 90-day forward rate, /$ 110.40 180-day forward rate, /$ 109.20 Numata's WACC 8.850% BioTron

Current spot rate ($/) $1.4158 Credit Suisse 90-day forward rate ($/) $1.4172 Barclays 90-day forward rate ($/) $1.4195 Mattel Toys WACC ($) 9.600% 90-day eurodollar interest rate 4.000% 90-day euro interest rate 3.885% 90-day eurodollar borrowing rate 5.000% 90-day euro borrowing rate 5.000% Assumptions Values 90-day A/R () 30,000,000.00 Current spot rate ($/) $1.4158 Credit Suisse 90-day forward rate ($/) $1.4172 Barclays

2016 Pearson Education, Inc. CHAPTER 10 TRANSACTION EXPOSURE 1. Foreign Exchange Exposure. Define the three types of foreign exchange exposure. The three main types of foreign exchange exposure are transaction, translation, and operating: Transaction exposure measures changes in the value of outstanding financial obligations

Translated Translated Euros Exchange Rate Accounts Exchange Rate Accounts Assets Statement (US$/euro) US dollars (US$/euro) US dollars Cash 1,600,000 1.2000 1,920,000$ 0.9000 1,440,000$ Accounts receivable 3,200,000 1.2000 3,840,000 0.9000 2,880,000 Inventory 2,400,000 1.2000 2,880,000 0.9000 2,160,000 Net plant & equipment 4,800,000 1.2000 5,760,000 0.9000 4,320,000 Total 12,000,000 14,400,000$ 10,800,000$ Liabilities & Net

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. CHAPTER 11 TRANSLATION EXPOSURE 1. Translation. What does the word translation mean? Why is translation exposure called an accounting exposure? Translation exposure arises because financial statements of foreign subsidiarieswhich are stated in foreign

a. How much should Mauna Loa borrow in yen? Mauna Loa receives cash collections of one hundred million yen per month. This is the source of repayment of any balance sheet hedge. If Mauna Loa wants to be covered for one year at a time, it would need to borrow one year's cash

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. CHAPTER 12 OPERATING EXPOSURE 1. Exposure Definitions. Define operating exposure, economic exposure, and competitive exposure. Can you provide any insights into what may be behind the use of the different terms? All

a. Ganado's cost of equity b. Ganado's cost of debt c. Ganado's weighted average cost of capital Domestic International Assumptions CAPM ICAPM Ganado's beta, 1.05 0.85 Risk-free rate of interest, krf 3.60% 3.60% Company credit risk premium 4.40% 4.40% Cost of debt, before tax, kd 8.00% 8.00% Corporate income tax rate, t 35% 35% General return on market

2016 Pearson Education, Inc. CHAPTER 13 THE GLOBAL COST AND AVAILABILITY OF CAPITAL 1. Segmented Market. What are the most common challenges a firm resident in a segmented market faces in regards to its access to capital? An illiquid market is one in which it is difficult

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. CHAPTER 14 RAISING EQUITY AND DEBT GLOBALLY CHAPTER 14 RAISING EQUITY AND DEBT GLOBALLY CHAPTER 14 RAISING EQUITY AND DEBT GLOBALLY 1. Equity Sourcing Strategy. Why does the strategic path to sourcing equity

Baseline Values Case 1 Case 2 a Foreign corporate income tax rate 28% 45% b U.S. corporate income tax rate 35% 35% c Foreign dividend witholding tax rate 15% 0% d U.S. ownership in foreign firm 100% 100% e Dividend payout rate of foreign firm 100% 100% Foreign Subsidiary Tax Computation1 Taxable income of foreign subsidiary

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. CHAPTER 15 MULTINATIONAL TAX MANAGEMENT 1. Primary Objective. What is the primary objective of multinational tax planning? The primary objective of multinational tax planning is to pay the lowest global effective tax rate.

Assumptions Values Face amount of sale 700,000 Maturity, days 90 Trade acceptance fee, per annum 1.000% Discount rate on sale of acceptance, per annum 4.000% All-in-Cost of Trade Acceptance Face amount of the receivable 700,000 Less trade acceptance fee (1,750) (amount financed x acceptance fee x (days/360) ) Less discount on the sale of acceptance (7,000)

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. CHAPTER 16 INTERNATIONAL TRADE FINANCE 1. Unaffiliated Buyers. Why might different documentation be used for an export to a nonaffiliated foreign buyer who is a new customer, as compared with an export to a

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. CHAPTER 17 FOREIGN DIRECT INVESTMENT AND POLITICAL RISK 1. Evolving into Multinationalism. As a firm evolves from purely domestic into a true multinational enterprise, it must consider (1) its competitive advantages, (2) its production

Assumptions Values Expected free cash flow in 2003 13,000,000 Expected growth rate in free cash flow 8.00% Assumed sale multiple of FCF in year 3 10 Spot exchange rate, Lempiras/$ (2002) 14.80 US dollar inflation rate 2.0% Honduran lempira inflation rate 16.0% Slinger Wayne required return (annual rate) 20.0% 0 1 2 3 a) Carambola's value

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. Chapter 18 MULTINATIONAL CAPITAL BUDGETING AND CROSS-BORDER ACQUISITIONS MULTINATIONAL CAPITAL BUDGETING AND CROSS-BORDER ACQUISITIONS MULTINATIONAL CAPITAL BUDGETING AND CROSS-BORDER ACQUISITIONS 1. Capital Budgeting Theoretical Framework. Capital budgeting for a foreign project uses the same

Assumptions Values Buy a US dollar in Brussels for (/$) 0.7600 Which is equivalent, the reciprocal ($/) $1.3158 Buy a euro in NY for ($/) $1.3200 Which is equivalent, the reciprocal (/$) 0.7576 There is an obvious minor difference between the two currency quotes. Problem 2.1 Chantal DuBois in Brussels Chantal DuBois lives

Australia's Current Account Australia's Current Account Use the following data from the International Monetary Fund to answer questions 3.1 through 3.4. Assumptions (million US$) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 3.1 What is Australia's balance on goods? 3.2 What is Australia's balance on services? Goods, credit (exports)

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. CHAPTER 3 THE BALANCE OF PAYMENTS 1. Balance of Payments Defined. What is the balance of payments? The measurement of all international economic transactions between the residents of a country and foreign

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. CHAPTER 4 FINANCIAL GOALS AND CORPORATE GOVERNANCE 1. Business Ownership. What are the predominant ownership forms in global business? Business ownership can first be divided between state ownership and private ownership. State

Spot rate on the GTQ/ cross rate GTQ 10.5799/ Spot rate on the /reais cross rate 0.4462/R$ Assumptions Values Amount of reais from parents 4,500.00 Spot rate (R$/) 10.5799 Spot rate (/GTQ) 0.4462 a. What is the R$/GTQ cross rate? Cross rate (R$/GTQ) 4.72 Reais/GTQ = R$/ x /GTQ b. How many quetzals will he

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. CHAPTER 5 THE FOREIGN EXCHANGE MARKET 1. Definitions. Define the following terms: a. Foreign exchange market. The foreign exchange market provides the physical and institutional structure through which the money of one

Value Krone Equivalent Arbitrage funds available $3,000,000 18,093,600 Spot exchange rate (Nok/$) 6.0312 3-month forward rate (Nok/$) 6.0186 U.S. dollar 3-month interest rate 5.000% Norwegian krone 3-month interest rate 4.450% Difference in interest rates ( i Nok - i $) -0.550%Forward premium on the krone 0.835%CIA profit 0.285%Norwegian krone interest rate (3-month)4.450%18,093,600.00 1.0111250

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. CHAPTER 6 INTERNATIONAL PARITY CONDITIONS 1. Law of One Price. Define the law of one price carefully, noting its fundamental assumptions. Why are these assumptions so difficult to find in the real world

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. CHAPTER 7 FOREIGN CURRENCY DERIVATIVES: FUTURES AND OPTIONS 1. Foreign Currency Futures. What is a foreign currency future? A future is an exchange-traded contract calling for future delivery of a standard amount

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. CHAPTER 8 INTEREST RATE RISK AND SWAPS 1. Reference Rates. What is an interest reference rate, and how is it used to set rates for individual borrowers? A reference ratefor example, U.S.

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. CHAPTER 9 FOREIGN EXCHANGE RATE DETERMINATION 1. Exchange Rate Determination. What are the three basic theoretical approaches to exchange rate determination? The three major schools of thought are (1) purchasing power parity,

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 1 Multinational Financial Management: Opportunities and Challenges 1.1 Financial Globalization and Risk Chapter 1 Multinational Financial Management: Opportunities and Challenges 1.1 Financial Globalization and Risk Chapter

10 Copyright 2016 Pearson Education, Inc. 10 Copyright 2016 Pearson Education, Inc. 10 Copyright 2016 Pearson Education, Inc. 1.4 What Is Different About International Financial Management? 1) Which of the following domestic financial instruments have NOT been modified for use in international financial management? A) currency options and futures

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 10 Transaction Exposure 10.1 Types of Foreign Exchange Exposure 1) ________ exposure deals with cash flows that result from existing contractual obligations. A) Operating

10 Copyright 2016 Pearson Education, Inc. 10 Copyright 2016 Pearson Education, Inc. 10 Copyright 2016 Pearson Education, Inc. 3) Refer to Instruction 10.1. CVT chooses to hedge its transaction exposure in the forward market at the available forward rate. The required amount in dollars to pay off the accounts

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 11 Translation Exposure 11.1 Overview of Translation 1) Translation exposure may also be called ________ exposure. A) transaction B) operating C) accounting D) currency

9 Copyright 2016 Pearson Education, Inc. 9 Copyright 2016 Pearson Education, Inc. 9 Copyright 2016 Pearson Education, Inc. 12) The temporal rate method is the most prevalent method today for the translation of financial statements. Answer: FALSE Diff: 1 L.O.: 11.2 Translation Methods Skill: Recognition AACSB: Application of knowledge Answer:

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 12 Operating Exposure 12.1 A Multinationals Operating Exposure 1) Another name for operating exposure is ________ exposure. A) economic B) competitive C) strategic D)

10 Copyright 2016 Pearson Education, Inc. 10 Copyright 2016 Pearson Education, Inc. 10 Copyright 2016 Pearson Education, Inc. 2) Which one of the following management techniques is likely to best offset the risk of long-run exposure to receivables denominated in a particular foreign currency? A) Borrow money in the foreign

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 13 The Global Cost and Availability of Capital 13.1 Financial Globalization and Strategy 1) If a firm lies within a country with ________ or

11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 10) Refer to Instruction 13.1. At the end of the year the investor sells his stock that now has an average price per share of 57. What is the investor's average rate

17 Copyright 2016 Pearson Education, Inc. 17 Copyright 2016 Pearson Education, Inc. 17 Copyright 2016 Pearson Education, Inc. 11) Internationally diversified portfolios often have a lower rate of return and almost always have a higher level of portfolio risk than their domestic counterparts. Answer: FALSE Diff: 2 L.O.: 13.3 The

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 14 Raising Equity and Debt Globally 14.1 Designing a Strategy to Source Capital Globally 1) The choice of when and how to source capital

11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 3) Strategic alliances are normally formed by firms that expect to gain synergies from which of the following? A) economies of scale B) economies of scope C) complementary marketing D) all of

19 Copyright 2016 Pearson Education, Inc. 19 Copyright 2016 Pearson Education, Inc. 19 Copyright 2016 Pearson Education, Inc. 5) Private equity funds appear to have a longer time horizon than traditional venture capital funds. Answer: TRUE Diff: 1 L.O.: 14.6 Private Placement Skill: Recognition AACSB: Application of knowledge Answer: TRUE

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 15 Multinational Tax Management 15.1 Tax Principles 1) The issue of ethics in the reporting of income and the payment of taxes is a

9 Copyright 2016 Pearson Education, Inc. 9 Copyright 2016 Pearson Education, Inc. 9 Copyright 2016 Pearson Education, Inc. 2) Refer to Table 15.1. The additional U.S. taxes due on the repatriation of income from the Ukraine to the United States, alone, assuming a 50% payout rate, is: A) excess foreign

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 16 International Trade Finance 16.1 The Trade Relationship 1) The exporter-importer relationship to a corporation of a foreign importer that has not previously conducted

11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 21) A revocable L/C is intended to serve as a means of arranging payment but not as a guarantee of payment. Answer: TRUE Diff: 1 L.O.: 16.3 Key Documents Skill: Recognition AACSB:

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 17 Foreign Direct Investment and Political Risk 17.1 Sustaining and Transferring Competitive Advantage 1) An example of economies of scale in financing include: A)

11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 11) MNEs typically used licensing with independent firms rather than with their own foreign subsidiaries. Answer: FALSE Diff: 1 L.O.: 17.4 Modes of Foreign Involvement Skill: Conceptual AACSB: Application of knowledge Answer:

18 Copyright 2016 Pearson Education, Inc. 18 Copyright 2016 Pearson Education, Inc. 18 Copyright 2016 Pearson Education, Inc. 2) Which of the following is NOT one of the stages at which MNEs can react to the potential for blocked funds? A) prior to investing B) during operations C) reinvesting in

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 18 Multinational Capital Budgeting and Cross-Border Acquisitions 18.1 Complexities of Budgeting for a Foreign Project 1) The traditional financial analysis applied to foreign or

10 Copyright 2016 Pearson Education, Inc. 10 Copyright 2016 Pearson Education, Inc. 10 Copyright 2016 Pearson Education, Inc. 13) When estimating a firm's cost of equity capital using the CAPM, you need to estimate: A) the risk-free rate of return. B) the expected return on the market portfolio. C)

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 2 The International Monetary System 2.1 History of the International Monetary System 1) Under the gold standard of currency exchange that existed from 1879

10 Copyright 2016 Pearson Education, Inc. 10 Copyright 2016 Pearson Education, Inc. 10 Copyright 2016 Pearson Education, Inc. 10) List and explain the three attributes (often referred as the impossible trinity) an ideal currency would possess if existed in today's world. Answer: If the ideal currency existed in today's world,

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 3 The Balance of Payments 3.1 Fundamentals of BOP Accounting 1) Which of the following is NOT a major subaccount of the Balance of

11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 17) Consider the following: A foreign automobile company builds a manufacturing plant in Tennessee and European investors buy U.S. Treasury Bonds. A) Both activities would be considered direct investment. B) Both activities

18 Copyright 2016 Pearson Education, Inc. 18 Copyright 2016 Pearson Education, Inc. 18 Copyright 2016 Pearson Education, Inc. 8) The effect of an imbalance in the BOP is the same for countries on a fixed exchange rate regime as for those on a floating exchange rate regime. Answer: FALSE Diff:

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 4 Financial Goals and Corporate Governance 4.1 Who Owns the Business? 1) Foreign stock markets are frequently characterized by controlling shareholders for the individual

10 Copyright 2016 Pearson Education, Inc. 10 Copyright 2016 Pearson Education, Inc. 10 Copyright 2016 Pearson Education, Inc. 23) Patient Capitalism is characterized by short-term focus by both management and investors. Answer: FALSE Diff: 1 L.O.: 4.2 The Goal of Management Skill: Conceptual AACSB: Application of knowledge Answer: FALSE Diff:

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 5 The Foreign Exchange Market 5.1 Functions of the Foreign Exchange Market 1) Which of the following is NOT true regarding the market for

11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 13) A contract to deliver dollars for euros in six months is both "buying euros forward for dollars" and "selling dollars forward for euros." Answer: TRUE Diff: 2 L.O.: 5.3 Transactions in

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 6 International Parity Conditions 6.1 Prices and Exchange Rates 1) If an identical product can be sold in two different markets, and no restrictions

11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 6) According to the international Fisher Effect, if an investor purchases a five-year U.S. bond that has an annual interest rate of 5% rather than a comparable British bond that has an

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 7 Foreign Currency Derivatives: Futures and Options 7.1 Foreign Currency Futures 1) Financial derivatives are powerful tools that can be used by management for

11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 11 Copyright 2016 Pearson Education, Inc. 16) A call option on euros is written with a strike price of $1.30/euro. Which spot price maximizes your profit if you choose to exercise the option before maturity? A) $1.20/euro

18 Copyright 2016 Pearson Education, Inc. 18 Copyright 2016 Pearson Education, Inc. 18 Copyright 2016 Pearson Education, Inc. 9) For a $1.50/ call option with an initial premium of $0.033/ and a phi value of -0.2, after an increase in the foreign interest (the pound sterling rate) rate from 8%

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 8 Interest Risk and Swaps 8.1 Interest Rate Derivatives 1) ________ is the possibility that the borrower's creditworthiness is reclassified by the lender at

8 Copyright 2016 Pearson Education, Inc. 8 Copyright 2016 Pearson Education, Inc. 8 Copyright 2016 Pearson Education, Inc. 4) If a financial manager with an interest liability on a future date were to sell Futures and interest rates end up going up, the position outcome would be: A) Futures price

1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. 1 Copyright 2016 Pearson Education, Inc. Multinational Business Finance, 14e (Eiteman) Chapter 9 Foreign Exchange Rate Determination 9.1 Exchange Rate Determination: The Theoretical Thread 1) An important thing to remember about foreign exchange rate determination is

10 Copyright 2016 Pearson Education, Inc. 10 Copyright 2016 Pearson Education, Inc. 10 Copyright 2016 Pearson Education, Inc. 9.3 Disequilibrium: Exchange Rates in Emerging Markets 1) Which of the following was NOT an international currency crisis in the 1990s and early 2000s? A) the Asian Crisis B) the Canadian

Counterparty risk is greater for exchange-traded derivatives than for over-the-counter derivatives. FALSE FALSE FALSE Increasing the number of securities in a portfolio reduces the unsystematic risk but not the systematic risk. TRUE TRUE TRUE Many MNE s manage foreign exchange exposure centrally, thus gains or losses are always matched with the country

Comparative advantage in the 21st century is based more on services and their cross border facilitation by telecommunications and the Internet. TRUE TRUE TRUE In recent years the trend has been for markets to increasing focus on the global stakeholders. FALSE FALSE FALSE If exchange markets were not efficient, it would pay

If the financial statements of the foreign subsidiary are maintained in the local currency and the U.S. dollar is the functional currency, they are remeasured by the temporal method. TRUE TRUE TRUE Private equity funds are best known for buying control of private owned firms, taking them publicly, improving management, and

If exchange markets were efficient, the deviation of the actual future quote and today's forward rate will be zero. FALSE FALSE FALSE Technical analysis of exchange rates developed in part due to the forecasting inadequacies of fundamental exchange rate theories. TRUE TRUE TRUE Business risk can be measured through sensitivity analysis but

In a typical international trade transaction, the order of activity would be which of the following? A) The foreign buyer places an order; The domestic manufacturer ships to the buyer; The manufacturer's bank presents a draft and documents to the buyer's bank for acceptance; The buyer's bank submits payment to the

This was an era dominated by industrialized nation economies that were dependent on gold convertibility to maintain confidence in the system. A) The Gold Standard, 1860-1914 B) The Interwar Years , 1914-1945 C) The Bretton Woods Era, 1945-1971 D) The Floating Era, 1971-1997 A A A Project evaluation from the ________ viewpoint serves some useful

When discussing the structure of corporate governance, the authors distinguish between internal and external factors. ________ is an example of an internal factor, and ________ is an example of an external factor. A) Equity markets; executive management B) Debt markets; board of directors C) Executive management; auditors D) Auditors; regulators C C C Given a current

The person or company initiating the draft or bill of exchange is known as the: A) maker. B) drawer. C) originator. D) any of the above D D D ________ is the ability to exercise effective control over a foreign subsidiary within a country's legal and political environment. A) Political risk B) Portfolio risk C) Interest rate risk D)

Moody's rates international bonds at the request of the issuer with the stipulation that Moody's will publish the ratings even if the ratings are unfavorable. FALSE FALSE FALSE TRANSACTION exposure measures gains or losses that arise from the settlement of existing financial obligations whose terms are stated in a foreign currency. TRUE

Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of gold cost $20.67 in U.S. dollars and 4.2474 in British pounds. Therefore, the exchange rate of pounds per dollar under this fixed exchange regime was: A) 4.8665/$. B) 0.2055/$. C) always changing because the price of

In part because of access to global markets, MNEs are better able than their domestic counterparts to maintain their desired debt ratio even when raising new capital. TRUE TRUE TRUE Direct intervention for currency valuation involves limiting the ability to exchange domestic currency for foreign currency. FALSE FALSE FALSE The Tokyo exchange

Imports have the potential to lower a country's inflation rate. In particular, imports of HIGHER-priced goods and services place a limit on what domestic competitors charge for comparable goods and services. FALSE FALSE FALSE Most swap dealers arrange swaps so that each firm that is a party to the transaction knows

One of the elegant beauties of international equity markets is that over the last 100 or so years, the average market risk premium is almost identical across major industrial countries. FALSE FALSE FALSE A country with a managed float that wishes to WEAKEN its currency may choose to raise domestic interest rates

A trader who is purchasing a call option on foreign currency should do so before the domestic interest rate rises. TRUE TRUE TRUE Historical volatility is the correct method for the calculation of the option volatility. FALSE FALSE FALSE Consider the price elasticity of demand. If a product has price elasticity less

________ states that nominal interest rates in each country are equal to the required real rate of return plus compensation for expected inflation. A) Absolute PPP B) Relative PPP C) The Law of One Price D) The Fisher Effect D D D Jasper Pernik is a currency speculator who enjoys "betting" on changes in the foreign

Some of the world's largest and most financially sound firms may borrow at variable rates less than LIBOR. TRUE TRUE TRUE For purposes of international capital budgeting, parent cash flows often depend on the form of financing. Thus, we cannot clearly separate cash flows from financing decisions, as we can in

________ are NOT one of the three categories reported for foreign exchange. A) Spot transactions B) Swap transactions C) Strip transactions D) Futures transactions C C C Which of the following were NOT identified by the authors as an alternative instrument to source equity in global markets? A) sale of a directed public share issue to investors

The choice of when and how to source capital globally is usually aided early on by the advice of: A) an investment banker. B) your stock broker. C) a commercial banker. D) an underwriter. A A A If the current exchange rate is 113 Japanese yen per U.S. dollar, the price of a Big Mac

A/An ________ subsidiary is one in which the firm operates as an extension of the parent company with cash flows highly interrelated with the parent. A) self-sustaining foreign B) integrated foreign entity C) foreign D) none of the above B B B A ________ is a bond underwritten by a syndicate from a single country,

BRICs is a term used in international finance to represent assets that are considered to be inexpensive and sturdy, but fundamentally unsound and and incapable of coping with the upheavals now apparent in international financial markets. FALSE FALSE FALSE Currency risk is a concern for any international merger and acquisition activity.

Typically, a firm in its domestic stage of globalization has all financial transactions in its domestic currency. TRUE TRUE TRUE Both covered and uncovered interest arbitrage are risky operations in the sense that even without default in the securities, the returns are unknown until all transactions are complete. FALSE FALSE FALSE Patient

The effectiveness of a hedge is determined to what degree the change in spot asset's value is correlated with the equal change in the hedge asset's value to a change in the underlying spot exchange rate. FALSE FALSE FALSE From the time of its creation through July 2012, the euro peaked