1) a u.s. parent firm, as result of its business activities in germany, has a net exposure of
1,000,000. the consolidated reports were prepared at the year-end for the last two
successive years. if the exchange rates on these reporting dates changed from $1.00 =
1.10 to $1.00 = 1.00, then the translation exposure report will indicate a “reporting
currency imbalance” of
a.$90,910
b.$0
c.-$90,910
d.none of the above
2) factors of production include land, labor, capital, and entrepreneurial ability. of all
the factor markets, the most imperfect is the
a.labor market
b.capital market
c.real estate market
d.market for entrepreneurial ability
3) why do firms locate production overseas rather than exporting finished goods?
a.shipping costs
b.firms seek to extend corporate control overseas
c.imperfect factor markets
d.all of the above
4) the market capitalization of the developed world
a.is about 90 percent of the market capitalization of the entire world
b.is about 80 percent of the market capitalization of the entire world
c.is about 70 percent of the market capitalization of the entire world
d.is about 60 percent of the market capitalization of the entire world
5) fasb 8
a.required taking foreign exchange gains or losses through the income statement
b.caused reported earnings to fluctuate substantially from year to year
c.ran into acceptance problems from the accounting profession and mncs
d.all of the above
6) the agency problem refers to the possible conflicts of interest between
a.self-interested managers as principals and shareholders of the firm who are the agents
b.altruistic managers as agents and shareholders of the firm who are the principals
c.self-interested managers as agents and shareholders of the firm who are the principals
d.dutiful managers as principals and shareholders of the firm who are the agents
7) your firm is an italian exporter of bicycles. you have sold an order to a swiss firm for
sfr. 2,000,000 worth of bicycles. payment from the customer (in swiss francs) is due in
12 months. use a money market hedge to redenominate this one-year franc denominated
receivable into a euro-denominated receivable with a one-year maturity.
the following were computed without rounding. select the answer closest to yours.
a.1,116,826.92
b.1,250,000
c.1,134,122.29
d.1,156,804.73
8) global bond issues
a.can save u.s. issuers 20 basis points relative to domestic bonds, all else equal
b.tend to have increased liquidity relative to eurobonds or domestic bonds
c.have been partially facilitated by rule 144a
d.all of the above
9) the ford motor company recently acquired mazda, a japanese auto maker, and jaguar,
a british auto maker.
a.this is an example of cross-border m&a
b.this was a greenfield investment
c.both a and b
d.none of the above
10) currently, international reserve assets are comprised of
a.gold, platinum, foreign exchanges, and special drawing rights (sdrs)
b.gold, foreign exchanges, special drawing rights (sdrs), and reserve positions in the
international monetary fund (imf)
c.gold, diamonds, foreign exchanges, and special drawing rights (sdrs)
d.reserve positions in the international monetary fund (imf), only
11) capital export neutrality
a.is a goal based on worldwide economic efficiency
b.is an example of mercantilism
c.is based on host country economic efficiency
d.is based on mnc home country economic efficiency
12) the lower the transfer price
a.the higher the net profit reported by the mnc
b.the lower the gross profit of the transferring division relative to the receiving division
c.the higher the gross profit of the receiving division relative to the transferring division
d.none of the above
13) the eximbank helps u.s. exporters develop and expand their overseas sales by
a.working capital guarantees
b.direct loans to foreign borrowers
c.loan guarantees
d.credit insurance
e.all of the above
14) some of the risks that a u.s. based mnc can encounter in its foreign investments are:
(i) – an increase in the cost of borrowing due to a rise in interest rates
(ii) – increase in inflation rates
(iii) – dumping
(iv) – unfair competition by local companies
(v) – inconvertibility of foreign currencies
(vi) – expropriation
(vii) – destruction of properties due to war, revolution, and other violent political events
in foreign countries
(viii) – loss of business income due to political violence
in the u.s., the overseas private investment corporation (opic) offers insurance against
which of the above:
a.(i), (ii), (iii), and (iv)
b.(v), (vi), (vii), and (viii)
c.a and b
d.none of the above
15) a country like north korea
a.probably rejects the notion of increased opportunity presented by free trade
b.engages in free trade
c.lies on a production possibilities curve superior to south korea, since north korea
protects its domestic producers
d.none of the above
16) suppose your firm issues a 100,000,000 one-year bond with a coupon rate of 8
percent per annum. the underwriting spread is 2 percent. your actual cost of this debt is
a.8 percent
b.10 percent
c.10.2 percent
d.none of the above
17) coca-cola has invested in bottling plants all over the world rather than licensing
local firms
a.because the foreigners can’t be trusted to follow the secret recipe
b.because coca-cola wanted to protect the formula for its famous soft drink
c.because of the internalization theory of fdi
d.both b and c