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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
Project evaluation from the ________ viewpoint serves some useful purposes and/but
should ________ the ________ viewpoint.
A) local; be subordinated to; parent's
B) local; not be subordinated to; parent's
C) parent's; be subordinated to; local
D) none of the above
MNE cash flows may be sensitive to changes in which of the following?
A) exchange rates
B) interest rates
C) commodity prices
D) all of the above
The post WWII international monetary agreement that was developed in 1944 is known
as the:
A) United Nations.
B) League of Nations.
C) Yalta Agreement.
D) Bretton Woods Agreement.
If a financial manager earning interest on a future date were to buy Futures and interest
rates end up going up, the position outcome would be:
A) Futures price falls; short earns a profit.
B) Futures price rises; short earns a loss.
C) Future price falls; long earns a loss.
D) Futures price rises; long earns a profit.
The price elasticity of demand for DVD players manufactured by Sony of Japan is
greater than one. If the Japanese yen appreciates against the U.S. dollar by 10% and the
price of the Sony DVD players in the U.S also rises by 10%, then other things equal,
the total dollar sales revenues of Sony DVDs would:
A) decline.
B) increase.
C) stay the same.
D) insufficient information
Critics of the balance of payments approach to exchange rate determination point to the
emphasis on ________ of currency and capital rather than ________ of money or
financial assets.
A) flows; stocks
B) stocks; flows
C) import; export
D) export; import
A major U.S. multinational firm has forecast the euro/dollar rate to be €1.10/$ one year
hence, and an exchange rate of $1.40 for the British pound (£) in the same time period.
What does this imply the company's expected rate for the euro per pound to be in one
year?
A) €1.40/£
B) £1.40/€
C) £1.54/€
D) €1.54/£
Which of the following is NOT a typical characteristic of a fronting loan made to an
international subsidiary?
A) The parent makes a deposit equal to the size of the desired loan into a large
commercial bank.
B) The bank lends to the subsidiary firm an amount equal to the parent deposit at a
slightly higher interest rate.
C) The lending bank is located in the subsidiary's country.
D) All of the above are typical characteristics of a fronting loan.
Other things equal, and assuming efficient markets, if a Honda Accord costs $24,682 in
the U.S., then at an exchange rate of $1.57/£, the Honda Accord should cost ________
in Great Britain.
A) £24,682
B) £38,751
C) £10,795
D) £15,721
According to your authors, diversifying cash flows internationally may help MNEs
reduce the variability of cash flows because:
A) of a lack of competition among international firms.
B) of an offset to cash flow variability caused by exchange rate variability.
C) returns are not perfectly correlated between countries.
D) none of the above
Which of the following did NOT contribute to the exchange rate collapse in emerging
markets in the 1990s?
A) infrastructure weaknesses
B) speculation on the part of market participants
C) the sharp reduction of cross-border foreign direct investment
D) All of the above contributed to the emerging markets exchange rate collapse of the
1990s.
Under a fixed exchange rate system, the government bears the responsibility to ensure
that the BOP is near zero. If the sum of the current and capital accounts do not
approximate zero, the government is expected to intervene in the foreign exchange
market by buying or selling official foreign exchange reserves. If the sum of the first
two accounts is GREATER THAN ZERO, a ________ demand for the domestic
currency exists in the world. To preserve the fixed exchange rate, the government must
then intervene in the foreign exchange market and ________ domestic currency for
foreign currencies or gold so as to bring the BOP back near zero.
A) surplus; sell
B) surplus; buy
C) deficit; sell
D) deficit; buy
The U.S. dollar suddenly changes in value against the euro moving from an exchange
rate of 0.8909/€ to $0.8709/€. Thus, the dollar has ________ by ________.
A) appreciated; 2.30%
B) depreciated; 2.30%
C) appreciated; 2.24%
D) depreciated; 2.24%
An internationally diversified portfolio:
A) should result in a portfolio with a lower beta than a purely domestic portfolio.
B) has the same overall risk shape as a purely domestic portfolio.
C) is only about 12% as risky as the typical individual stock.
D) all of the above
Investment banking services include which of the following?
A) advising when a security should be cross-listed
B) preparation of stock prospectuses
C) help to determine the price of the issue
D) all of the above
________ are agents who facilitate trading between dealers without themselves
becoming principals in the transaction.
A) Central banks
B) Foreign exchange brokers
C) Arbitrageurs
D) Foreign exchange dealers
A tax that is a form of social redistribution of income is defined as a/an ________ tax.
A) un-American
B) transfer
C) flat
D) none of the above
An MNE has a contract for a relatively predictable long-term inflow of Japanese yen
that the firm chooses to hedge by seeking out potential suppliers in Japan. This hedging
strategy is referred to as:
A) a natural hedge.
B) currency-switching.
C) matching.
D) diversification.
The Asian Currency crisis appeared to begin in:
A) South Korea.
B) Taiwan.
C) Thailand.
D) Japan.
Instruction 15.1:
Use the information to answer the following question(s).
Green Valley Exporters USA has $100,000 of before tax foreign income. The host
country has a corporate income tax rate of 25% and the U.S. has a corporate income tax
rate of 35%.
Refer to Instruction 15.1. If the U.S. treated the taxes paid on income earned in the host
country as a tax-deductible expense, then Green Valley's total U.S. corporate tax on the
foreign earnings would be:
A) $10,000.
B) $26,250.
C) $35,000.
D) $51,250.
The asset market approach to forecasting assumes that whether foreigners are willing to
hold claims in monetary form depends on an extensive set of investment considerations.
These include all but which of the following choices?
A) relative real interest rates
B) capital market liquidity
C) political safety
D) All of the above are considered by investors in their decision process.
To become a negotiable instrument, a draft must conform to the following requirements
EXCEPT:
A) it must be in writing and signed by the maker or drawer
B) it must be payable to order or to bearer
C) it must be written in English
D) it must be payable on demand or at a fixed or determinable future date
A/An ________ would be an example of an internalization advantage for an MNE.
A) patent
B) economy of scale
C) unique source of raw materials
D) possession of proprietary information
Which of the following is NOT a reason given for international mergers and
acquisitions?
A) gaining access to strategic proprietary assets
B) gaining market power and dominance
C) diversifying and spreading their risks wider
D) All of the above are commonly cited reasons for international mergers and
acquisitions.
The modern eurocurrency market was born shortly after:
A) World War II
B) World War I
C) Korean War
D) Bosnian War
Which of the following is NOT an advantage of ADRs to U.S. shareholders?
A) Transfer of ownership is done in the U.S. in accordance with U.S. laws.
B) In the event of the death of the shareholder, the estate does not go through a foreign
court.
C) Settlement for trading is generally faster in the United States.
D) All of the above are advantages of ADRs.
The price at which an option can be exercised is called the:
A) premium.
B) spot rate.
C) strike price.
D) commission.
Tax-haven subsidiaries are typically established in a country that can meet the following
requirements:
A) a low tax on foreign investment or sales income earned by resident corporations and
a low dividend withholding tax on dividends paid to the parent firm.
B) the facilities to support financial services, for example, good communications,
professional qualified office workers, and reputable banking services.
C) a stable government that encourages the establishment of foreign-owned financial
and service facilities within its borders.
D) all of the above
The authors describe an application of uncovered interest arbitrage (UIA) known as
"yen carry trade." Define UIA and describe the example of yen carry trade. Why would
an investor engage in the practice of yen carry trade and is there any risk of loss or
lesser profit from this investment strategy?
Which of the following is NOT an example of a tax incentive policy?
A) The federal government gives a tax credit to MNEs that make domestic capital
improvements but not foreign capital improvements.
B) Corporations are allowed to take a direct tax credit for each dollar of matching
donations they make to institutions of higher education.
C) A tax law is passed that makes interest on property non tax-deductible, but interest
payments on durable goods are.
D) All are examples of a tax incentive policy.
Which of the following is NOT a part of the Current Account of BOP?
A) net export/import of goods
B) balance of trade
C) net portfolio investment
D) net export/import of services
Jasper Pernik is a currency speculator who enjoys "betting" on changes in the foreign
currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$
and the 6-month forward rate is ¥128.53/$. Jasper thinks the yen will move to
¥128.00/$ in the next six months. Jasper should ________ at ________ to profit from
changing currency values.
A) buy yen; the forward rate
B) buy dollars; the forward rate
C) sell yen; the forward rate
D) There is not enough information to answer this question.
In general the geometric mean will be ________ the arithmetic mean for a series of
returns.
A) less than
B) greater than
C) equal to
D) greater than or equal to
The Sarbanes-Oxley Act, passed by the U.S. Congress in July 2002, was designed to:
A) reinstitute heavy tariffs on international trade.
B) reform corporate governance.
C) limit the Federal Reserve Board's ability to engage in the buying and selling of gold.
D) limit trade with countries deemed lenient on terrorism.
