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
________ 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) Governance risk
The after-tax cost of debt is found by:
A) dividing the before-tax cost of debt by (1 – the corporate tax rate).
B) subtracting (1 – the corporate tax rate) from the before-tax cost of debt.
C) multiplying the before-tax cost of debt by (1 – the corporate tax rate).
D) subtracting the corporate tax rate from the before-tax cost of debt.
In determining why a firm becomes multinational there are many reasons. One reason is
that the firm is a raw material seeker. Which of the following is NOT a reason why raw
material seeker extract raw materials in foreign countries?
A) They extract raw materials wherever they can be found to export from the host
country.
B) They extract raw materials wherever they can be found for sale in the host country.
C) They extract raw materials wherever they can be found for further processing in the
host country.
D) All of the above.
In theory, the MNE should support ________ debt ratios than a purely domestic firm
because their cash flows are ________.
A) lower; more stable due to international diversification
B) lower; less stable due to international diversification
C) higher; more stable due to international diversification
D) higher; less stable due to international diversification
________ gains and losses are “realized” whereas ________ gains and losses are only
“paper.”
A) Translation; transaction
B) Transaction; translation
C) Translation; operating
D) none of the above
A fully diversified domestic portfolio has a beta of:
A) 0.0.
B) 1.0.
C) -1.0.
D) There is not enough information to answer this question.
________ exposure deals with cash flows that result from existing contractual
obligations.
A) Operating
B) Transaction
C) Translation
D) Economic
Arbitragers applying Covered Interest Arbitrage drive the international currency and
money markets toward the equilibrium described by:
A) the effective exchange rate index.
B) the purchasing power parity.
C) the nominal effective exchange rate index.
D) the interest rate parity.
The Board of Directors:
A) consists exclusively of the officers of the corporation.
B) is the legal body which is accountable for the governance of the corporation.
C) are not subject to the external forces of the marketplace.
D) is appointed by the Securities and Exchange Commission (SEC).
Since 2009 the IMF’s exchange rate regime classification system uses a “de facto
classification” methodology. Under this system, countries with “fixed exchange rates”
are considered to have:
A) a residual agreement.
B) soft pegs.
C) hard pegs.
D) floating arrangements.
A ________ hedge refers to an offsetting operating cash flow such as a payable arising
from the conduct of business.
A) financial
B) natural
C) contractual
D) futures
Which of the following is a characteristic of an euroequity issue?
A) an initial public offering of euro denominated securities
B) the issuers are located in Europe
C) the investors are located in Europe
D) is an offering on multiple exchanges in multiple countries at the same time
Instruction 16.1:
Use the information to answer the following question(s).
Cypress Systems Inc., of Florida, agrees to sell specialized hydroponic growing
equipment to Landcaster’s of Australia. Because the two companies have never done
business with each other, Cypress requires a banker’s acceptance as payment for the
$1,000,000 order. The banker’s acceptance carries a 1.4% commission per annum and
payment is to be received in 6 months. If Cypress Inc. chooses to discount or sell the
bankers acceptance to its bank, the discount rate is 1.00% per annum.
Refer to Instruction 16.1. What is the size of the discount (not including the commission
fee) Cypress must take for receiving the proceeds of the sale today rather than waiting
for six months?
A) $7,000
B) $5,000
C) $12,000
D) $14.000
A/An ________ would be an example of an owner-specific advantage for an MNE.
A) patent
B) economy of scale
C) economy of scope
D) all of the above
Which of the following operational goals for the international firm may be incompatible
with the others?
A) maintaining a strong local currency
B) maximization of after-tax income
C) minimization of the firm’s effective global tax burden
D) Each of these goals may be incompatible with one or more of the others.
In deciding whether to invest abroad, management must first determine whether the
firm has a sustainable competitive advantage that enables it to compete effectively in
the home market. The competitive advantage must be:
A) firm specific.
B) not easily copied.
C) in a transferable form.
D) all of the above
With licensing the ________ is likely to be lower than with FDI because of lower
profits; however, the ________ is likely to be higher due to a greater return per dollar
invested.
A) IRR; NPV
B) NPV; IRR
C) cost of capital; NPV
D) IRR; cost of capital
Jaguar has full manufacturing costs of their S-type sedan of £22,803. They sell the
S-type in the UK with a 20% margin for a price of £27,363. Today these cars are
available in the US for $55,000 which is the UK price multiplied by the current
exchange rate of $2.01/£. Jaguar has committed to keeping the US price at $55,000 for
the next six months. If the UK pound appreciates against the USD to an exchange rate
of $2.15/£, and Jaguar has not hedged against currency changes, what is the amount the
company will receive in pounds at the new exchange rate?
A) £22,803
B) £25,581
C) £27,363
D) £55,000
Which of the following is not always understood by MNE management?
A) Culture, history, and institutions
B) Political risk
C) Foreign exchange risk
D) Financial instruments
If the parent firm and all subsidiaries denominate all exposed assets and liabilities in the
parent’s reporting currency this will ________ exposure but each subsidiary would have
________ exposure.
A) maximize translation; no transaction
B) eliminate translation; transaction
C) maximize transaction; no translation
D) eliminate transaction; translation
In finance, an efficient market is one in which:
A) prices are assumed to be correct.
B) prices adjust quickly and accurately to new information.
C) prices are the best allocators of capital in the macro economy.
D) all of the above
Jasper Pernik is a currency speculator who enjoys “betting” on changes in the foreign
currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$
and the 6-month forward rate is ¥128.53/$. Jasper thinks the yen will move to
¥128.00/$ in the next six months. If Jasper’s expectations are correct, then he could
profit in the forward market by ________ and then ________.
A) buying yen for ¥128.00/$; selling yen at ¥128.53/$
B) buying yen for ¥128.53/$; selling yen at ¥128.00/$
C) There is not enough information to answer this question.
D) He could not profit in the forward market.
In 2010 the United States posted a current account deficit of -$471 billion. The bulk of
the negative value came from:
A) a net transfer deficit.
B) an income balance deficit.
C) a goods trade deficit.
D) an income trade deficit.
Which of the following is NOT an acceptable hedging technique to reduce risk caused
by a relatively predictable long-term foreign currency inflow of Japanese yen?
A) Import raw materials from Japan denominated in yen to substitute for domestic
suppliers.
B) Pay suppliers from other countries in yen.
C) Import raw materials from Japan denominated in dollars.
D) Acquire debt denominated in yen.
Most foreign exchange transactions are through the U.S. dollar. If the transaction is
expressed as the foreign currency per dollar this known as ________ whereas ________
are expressed as dollars per foreign unit.
A) European terms; indirect
B) American terms; direct
C) American terms; European terms
D) European terms; American terms
In September 2009 a U.S. investor chooses to invest $500,000 in German equity
securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is
$1.35/euro.
Refer to Instruction 13.1. How many euros will the U.S. investor acquire with his initial
$500,000 investment?
A) €650,000
B) €370,370
C) €500,000
D) €384,615
Signed into law on July 30, 2002, the ________ Act requires CEOs of publicly traded
companies to vouch for the veracity of the firm’s published financial statements.
A) Smoot-Hawley
B) Humphrey-Hawkins
C) McCain-Merrill
D) Sarbanes-Oxley
Which of the following is NOT one of classic trade-off confronting gloabl challengers
according to the Boston Consulting Group?
A) Growth versus market share
B) Volume versus margin
C) Rapid expansion versus low leverage
D) Growth versus dividends
The authors did NOT identify which of the following as a root of the Asian currency
crisis?
A) the collapse of some Asian currencies
B) the rate of inflation in the United States
C) corporate socialism
D) banking stability and management
________ is NOT one of the three main country-specific risks as outlined by your
authors.
A) Transfer risk
B) Cultural differences
C) Thin equity base
D) Protectionism
Which of the following is an advantage to exporting goods to reach international
markets rather than entering into some form of FDI?
A) fewer agency costs
B) fewer direct advantages from research and development
C) a greater risk of losing markets to copycat goods producers
D) an inability to exploit R&D as effectively as if also invested abroad
The reference rate of interest in the eurocurrency market is the:
A) London Interbank Offered Rate
B) Prima rate
C) Federal funds rate
D) Treasury rate
Which of the following versions of PPP is thought to be the most relevant to possibly
explaining what drives exchange rate values?
A) The Law of One Price
B) Absolute Purchasing Power Parity
C) Relative Purchasing Power Parity
D) The International Fisher Effect