Economics Chapter 21 2 Strengthened Against The Krona Weakened Against The

68. While shopping in the Mexican market, you find that limes cost 11 pesos each. You remember that

back in the U.S., they cost 80 cents each. If the purchasing power parity theory holds, the rate of exchange

is

69. Which of the following factors will NOT increase the value of a currency in foreign markets?

70. The interplay between interest rate differentials and exchange rates such that each adjusts until the

foreign exchange market and the money market reach equilibrium is called the

71. The value of a country’s currency may increase by

72. The belief that shifts in exchange rates result from increasing or decreasing demand for a country’s

exports (or the corresponding opposite movements in supply of a country’s imports) forms the basis for the

73. Which of the following statements about forward exchange rates is false?

74. The following are the prices in the foreign exchange market between the U.S. dollar and another local

currency (LC).

What was the approximate discount or premium on a three-month forward for LC?

75. The spot rate of the British pound to the dollar is $1.15. The 180-day forward rate is $1.17. Thus, the

approximate annualized forward premium is _________.

76. The Swiss franc is selling for $.9412 and the British pound is selling for $1.5119. The cross rate

between the franc and the pound (the number of Swiss francs that would buy one British pound) is

approximately:

77. Assume that you had U.S. dollar quotes for the Japanese yen and the British pound. If you want to

know the yen/pound exchange rate, you would rely on

78. Which of the following hedging strategies is not used to minimize transaction exposure?

79. Which of the following kinds of risk is NOT uniquely associated with multinational corporations (MNCs)?

80. The possibility of experiencing a drop in revenue or an increase in cost in an international transaction

due to a change in foreign exchange rates is called

81. Which of the following is not commonly used to minimize transaction exposure in foreign exchange

dealings?

82. A firm exposed to exchange rate risk can hedge its risk by

83. Which of the following hedging strategies involves a loan without a futures contract?

84. What has motivated American firms to move their operations to foreign countries?

85. Which of the following is not a reason for U.S. firms operating in foreign markets?

86. Which of the following statements about foreign affiliates is (are) true?

87. A portfolio of international stocks in comparison to purely U.S. stocks generally shows

88. Which of the following is an inducement for foreign investment in the United States?

89. To minimize exposure to political risk, a multinational firm may establish a joint venture with a local

entre preneura group of multinationals, or

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90. To minimize exposure to political risk, a multinational firm may:

91. The Overseas Private Investment Corporation (OPIC)

92. The Export-Import Bank (Eximbank)

93. In a parallel loan arrangement, an example would be where

94. A loan arrangement in which a parent company reduces its political risk by using an intermediary bank

rather than a direct transfer of funds to a subsidiary is called a(n)

95. Which of the following is not an advantage of borrowing in the Eurodollar market?

96. Eurodollars are

97. The Eurodollar market has a lower borrowing cost as compared to the U.S. because of

Topic: International transactions

98. In the Eurobond market,

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99. Which of the following statements is true about international equity (stock) markets?

100. An American Depository Receipt “ADR” is used to

101. The Eurobond market has which of the following characteristics?

102. A long-term debt issue sold simultaneously in several different national capital markets, but

denominated in a currency different from that of the national market where the issue occurred is called a(n)

103. Which of the following statements about the International Finance Corporation (IFC) is false?

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104. The International Finance Corporation (IFC) is

105. Which of the following events will NOT affect world markets?

106. Which of the following is NOT an example of a factor that can significantly influence exchange rates?

107. If a forward discount is prevalent in U.S. dollars to Swiss francs,

108. Which of the following is true of forward and spot rates?

109. Which of the following groups is NOT subject to foreign exchange risk?

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Chapter 21 Test Bank – Static Summary