If exchange markets were efficient, the deviation of the actual future quote and today’s
forward rate will be zero.
Technical analysis of exchange rates developed in part due to the forecasting
inadequacies of fundamental exchange rate theories.
Business risk can be measured through sensitivity analysis but from only the project
viewpoint.
Shareholders are LESS capable of diversifying currency risk than is the management of
the firm.
Today, the United States has been ejected from the International Monetary Fund for
refusal to pay annual dues.
Unexpected changes in exchange rates is never good news for a firm’s operating
income.
Transnationals are firms that have operations in more than one country and conduct
their business through branches, foreign subsidiaries, or joint ventures with host country
firms.
The stakeholder capitalism model (SCM) holds that total risk (operational and
financial) is more important than just systematic risk.
The primary objective of multinational tax planning is to minimize the firm’s worldwide
tax burden.
Historically, interest rate movements have shown less variability and greater stability
than exchange rate movements.
Translation gains or losses can be quite different from operating gains or losses not only
in magnitude but also in sign.
A strongly competitive home market tends to dull the competitive advantage relative to
firms located in less competitive home markets.
The authors identify a tip for understanding BOP accounting. They recommend that you
“follow the cash flow.”
An increase in GDP should lead to a decrease in imports.
ADRs are considered an effective way for firms to improve the liquidity of their stock,
especially if the home market is small and illiquid.
The bill of lading is issued to the exporter by a common carrier transporting the
merchandise. It serves three purposes: a receipt, a contract, and a document of title.
Like a balance sheet, the Balance of Payments adds up the value of all assets and
liabilities of a country on a specific date.
Longer-term capital flows reflect short-term interest rate differentials and exchange rate
expectations.
According to the authors, firms that employ proportional hedges increase the
percentage of forward-cover as the maturity of the exposure lengthens.
Under the terms of Bretton Woods, countries tried to maintain the value of their
currencies to within 1% of a hybrid security made up of the U.S. dollar, British pound,
and Japanese yen.
Although the contemporary international monetary system is typically referred to as a
“floating regime,” it is clearly not the case for the majority of the world’s nations.
The worldwide approach, also referred to as the residential or national approach to tax
policy, levies taxes on the income earned by firms that are incorporated in the host
country, regardless of where the income was earned (domestically or abroad).
The hedge ratio, β, is an individual exposure’s nominal amount covered by a financial
instrument such as a forward contract or currency option.
NDFs are traded and settled inside the country of the subject currency, and therefore are
within the control of the country’s government.
The theory of comparative advantage owes it origins to Ben Bernanke as described in
his book The Wealth of Bankers.
The domestic theory of optimal capital structure does not need to be modified for
MNEs.
Banker’s acceptances are used to finance only international trade receivables but not
domestic trade receivables.
The primary motive of foreign exchange activities by most central banks is profit.
The time value is asymmetric in value as you move away from the strike price (i.e., the
time value at two cents above the strike price is not necessarily the same as the time
value two cents below the strike price).
A eurodollar deposit is a demand deposit.
The commonly used 100% forward contract cover is a symmetric hedge.
Private equity funds appear to have a longer time horizon than traditional venture
capital funds.
It would be safe to make the statement that modern telecommunications now take
business activities to labor rather than moving labor to the places of business.
The five strategic motives driving the decision to invest abroad and become an MNE
(market seekers, raw material seekers, production efficiency seekers, knowledge
seekers, and political safety seekers) are mutually exclusive.
Portfolio diversification of domestic firms reduces risk because cash flows are not
perfectly correlated. The same reasoning is often argued for MNEs diversifying into
international markets.
A euroequity issue is an initial public offering of euro denominated securities.
: The current rate method and the temporal method are two basic methods for
translation that are employed worldwide
Operating cash flows may occur in different currencies and at different times, but
financing cash flows may occur only in a single currency.
Drafts that have been accepted by banks become:
A) clean drafts.
B) nonmarketable.
C) banker’s acceptances.
D) none of the above
Which of the following statements is NOT true about currency option pricing
sensitivities?
A) The higher the delta, the more likely the option will move in-the-money
B) Premiums rise with increases in volatility
C) Premiums are relatively insensitive during the first days
D) Increases in domestic interest rates cause decreasing call option premiums
The top three currency pairs traded with the U.S. dollar are:
A) U.K. pound, Chinese Yuan, Japanese yen.
B) Swiss franc, euro, Japanese yen.
C) U.K. pound, euro, Japanese yen.
D) euro, Chinese Yuan, Japanese yen.
Which of the following broad topics is NOT identified as an area to be established as
good corporate governance practice by the Organization for Economic Cooperation and
Development (OECD)?
A) protect the rights of shareholders
B) disclosure and transparency
C) the proper role of stakeholders in the governance of the firm
D) All of the above should be a concern of good corporate governance.
Which of the following statements is NOT true regarding beta?
A) Beta will have a value of less than 1.0 if the firm’s returns are less volatile than the
market.
B) Beta will have a value of greater than 1.0 if the firm’s returns are more volatile than
the market.
C) Beta will have a value of equal to 1.0 if the firm’s returns are of equal volatility to
the market.
D) All of the statements above are true.
Which of the following is NOT a form of FDI?
A) wholly-owned affiliate
B) joint venture
C) exporting
D) greenfield investment
Given the following exchange rates, which of the multiple-choice choices represents a
potentially profitable intermarket arbitrage opportunity?
¥129.87/$
€1.1226/$
€0.00864/¥
A) ¥115.69/€
B) ¥114.96/€
C) $0.8908/€
D) $0.0077/¥
Despite the theoretical elegance of this hypothesis, empirical studies have come to the
opposite conclusion.Despite the favorable effect of international diversification of cash
flows, bankruptcy risk was only about the same for MNEs as for domestic firms.
However, MNEs faced higher costs for each of the following EXCEPT:
A) agency costs.
B) political risk.
C) asymmetric information.
D) In fact, each of these costs were higher for the MNE than for the domestic firm.
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.
The rapid evolution of corporate inversions for U.S.-based multinationals over the past
20 years has been attributed to all of the following EXCEPT:
A) lack of foreign tax credits
B) relatively high U.S. corporate tax rate
C) U.S. lack of global competitiveness
D) the worldwide tax principles
For a firm that competes internationally to sell its products, a depreciation of its
domestic currency relative to markets where the firm exports goods, should eventually
result in ________ sales at home and ________ sales abroad, other things equal.
A) fewer; greater
B) fewer; fewer
C) greater; greater
D) greater; fewer
Which of the following factors of production DO NOT flow freely between countries?
A) raw materials
B) financial capital
C) (non-military) technology
D) All of the above factors of production flow freely among countries.
Real option analysis allows managers to analyze all of the following EXCEPT:
A) the option to defer
B) the option to abandon
C) the option to alter capacity
D) All of the above may be analyzed using real option analysis.
The Big Mac is considered a good candidate for the application of the law of one price
and measurement of under or overvaluation of a currency. Develop an argument as to
why this is a good idea.
An important thing to remember about foreign exchange rate determination is that
parity conditions, asset approach, and balance of payments approaches are ________
theories rather than ________ theories.
A) competing; complementary
B) competing; contemporary
C) complementary; contiguous
D) complementary; competing
The ________ is the Argentine currency unit.
A) peso
B) dollar
C) real
D) peseta
The theory of ________ states that the difference in the national interest rates for
securities of similar risk and maturity should be equal to but opposite in sign to the
forward rate discount or premium for the foreign currency, except for transaction costs.
A) international Fisher Effect
B) absolute PPP
C) interest rate parity
D) the law of one price
The balance of payments as applied to a course in international finance may be defined
as:
A) the amount still owed by an exporting firm after making an initial down payment.
B) the amount still owed by governments to the International Monetary Fund.
C) the measurement of all international economic transactions between the residents of
a country and foreign residents.
D) the amount of a country’s merchandise trade deficit or surplus.
Traders who believe volatilities will fall significantly in the near-term will:
A) sell futures now.
B) buy options now.
C) sell options now.
D) buy futures now.
A firm with variable-rate debt that expects interest rates to rise may engage in a swap
agreement to:
A) pay fixed-rate interest and receive floating rate interest.
B) pay floating rate and receive fixed rate.
C) pay fixed rate and receive fixed rate.
D) pay floating rate and receive floating rate.
________ industries are NOT typically “protected” by government policy.
A) Textiles
B) Defense
C) Agriculture
D) “Infant” industries
________ is the pricing of goods, services, and technology between related companies.
A) Among pricing
B) Retail pricing
C) Transfer pricing
D) Wholesale pricing
A ________ transaction in the foreign exchange market requires delivery of foreign
exchange at some future date.
A) spot
B) forward
C) swap
D) currency
ADRs that are created at the request of a foreign firm wanting its shares traded in the
United States are:
A) facilitated.
B) unfacilitated.
C) sponsored.
D) unsponsored.
Of the following, which would NOT be considered a way that government interferes
with comparative advantage?
A) tariffs
B) managerial skills
C) quotas
D) other non-tariff restrictions
The concept of absolute comparative advantage’s origins lie in:
A) Adam Smith’s work of 1776
B) David Ricardo’s work of 1776
C) The Wealth of Nations book, published in 1887
D) On the Principles of Political Economy and Taxation book, published in 1817
A country’s currency that strengthened relative to another country’s currency by more
than that justified by the differential in inflation is said to be ________ in terms of PPP.
A) overvalued
B) over compensating
C) undervalued
D) under compensating
Which of the following is NOT part of the balance of payments account?
A) the current account
B) the financial/capital account
C) the official reserves account
D) All of the above are BOP accounts.
Of the following, which was NOT mentioned by the authors as an increase in the
demands of financial management services due to increased globalization by the firm?
A) evaluation of the credit quality of foreign buyers and sellers
B) foreign consumer method of payment preferences
C) credit risk management
D) evaluation of foreign exchange risk
The risk of default on the part of the importer – risk of noncompletion – is present as
soon as:
A) a price quote is given.
B) goods are received.
C) the export contract is signed.
D) the financing period begins.