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1) the international fisher effect suggests that
a.any forward premium or discount is equal to the expected change in the exchange rate
b.any forward premium or discount is equal to the actual change in the exchange rate
c.the nominal interest rate differential reflects the expected change in the exchange rate
d.an increase (decrease) in the expected inflation rate in a country will cause a
proportionate increase (decrease) in the interest rate in the country
2) studies show that the quality of law enforcement, as measured by the rule of law
index, will tend to be
a.higher in french civil law countries than in english common law countries
b.higher in english common law countries than in scandinavian civil law countries
c.highest in scandinavian civil law countries and german civil law countries
d.highest in english common law countries
3) the most important international reserve asset, comprising 94 percent of the total
reserve assets held by imf member countries is
a.gold
b.foreign exchanges
c.special drawing rights (sdrs)
d.reserve positions in the international monetary fund (imf)
4) find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of .
a.1
b.2
c.3
d.4
e.5
5) "investment grade" ratings are in the following categories:
a.moody's: aaa to bbb - s&p's: aaa to baa
b.moody's: aaa to baa - s&p's: aaa to bbb
c.moody's: aaa to a - s&p's: aaa to a
d.moody's: aaa to a - s&p's: aaa to a
6) calculate the increase in annual after-tax profits if the higher transfer price of $1,250
per unit is used.
assume that y pays a tax deductible tariff of 7 percent on imported merchandise.
calculate the increase in annual after-tax profits if the higher transfer price of $1,250 per
unit is used.
a.$50,000
b.$100,000
c.$125,000
d.$250,000
7) severe imperfections in the labor market arise from immobility of workers due to
immigration barriers. as a response, firms should consider
a.moving to the workers
b.moving to countries where labor services are the lowest in absolute terms
c.moving to countries where labor services are underpriced relative to productivity
d.hiring illegal immigrants
8) a foreign branch bank
a.is a small service facility staffed by parent bank personnel that is designed to assist
mnc clients of the parent bank in dealings with the bank's correspondents
b.operates like a local bank, but legally is a part of the parent bank
c.is subject to domestic regulation only
d.all of the above
9) suppose that the exchange rate is 1.25 = £1.00.
options (calls and puts) are available on the philadelphia exchange in units of 10,000
with strike prices of $1.60/1.00.
options (calls and puts) are available on the philadelphia exchange in units of £10,000
with strike prices of $2.00/£1.00.
for a u.s. firm to hedge a 100,000 receivable,
a.buy 10 call options on the euro with a strike in dollars
b.buy 10 put options on the pound with a strike in dollars
c.sell 10 call options on the euro with a strike in dollars
d.sell 8 put options on the pound with a strike in dollars
e.both a and b
f.both c and d
10) in a forfaiting transaction, the forfait
a.buys the notes at a discount from face value from the importer
b.buys the notes at a discount from face value from the exporter
c.redeems the notes at a face value to the exporter
d.none of the above
11) the boomerang effect
a.the possibility that if the secret formula of coca-cola were leaked, that other firms
would come up with similar products and hurt coca-cola's sales
b.the possibility that fdi in an undeveloped nation will lead to a group of workers who
have enough money to afford the firm's products, leading to an increase of sales and
increase of workers and so on
c.the possibility that fdi in an undeveloped nation will lead to a group of domestic
workers no longer have enough money to afford the firm's products, leading to an
decrease of sales
d.none of the above
12) the underlying principle of the current/noncurrent method is that assets and
liabilities should be translated based on their maturity.
a.current assets and liabilities are converted at the current exchange rate in effect when
the cash flow associated with the asset or liability actually occurred. non-current assets
and liabilities are translated at the historical exchange rate that prevailed when the asset
was recognized
b.current assets and liabilities, which by definition have a maturity of one year or less,
are converted at the current exchange rate. non-current assets and liabilities are
translated at the historical exchange rate
c.all assets and liabilities are converted at the current exchange rate
d.none of the above
13) when the choice of financing a foreign subsidiary is between external debt and
equity financing
a.many host governments tolerate the repatriation of funds in the form of interest much
better than dividends
b.debt financing is generally secured from the world bank, but only in developed
countries
c.many host governments tolerate the repatriation of funds in the form of dividends
much better than interest
d.none of the above
14) it is common practice among currency traders worldwide to both price and trade
currencies against the u.s. dollar. in fact, 2007 bis statistics indicate that about ______
percent of currency trading in the world involves the u.s. dollar on one side of the
transaction.
a.86 percent
b.75 percent
c.45 percent
d.15 percent
15) assume the time from acceptance to maturity on a $10,000,000 banker's acceptance
is 90 days. further assume that the importing bank's acceptance commission is 1 percent
and that the market rate for 90-day b/as is 3.0 percent. calculate the amount the banker
will receive if the exporter discounts the b/a with the importer's bank.
a.$200,000
b.$100,000
c.$25,000
d.$75,000
16) consider a u.s. mnc with operations in great britain. which of the following are
potential risks following a strengthening of the dollar?
a.a pound sterling depreciation may affect operating cash flow in pounds by altering the
firm's competitive position in the marketplace
b.a given operating cash flow in pounds will be converted into a lower dollar amount
after the pound depreciation
c.both a and b
d.none of the above
17) one potential drawback of the gold standard is that
a.the world economy can be subject to deflationary pressure due to the limited supply of
monetary gold
b.the world economy can be subject to inflationary pressure without changes in the
supply of monetary gold
c.gold is scarce
d.all of the above
