1) The maximum one-day loss estimated using the value-at-risk (VAR) method is
independent of the confidence level used.
a. True
b. False
2) The capital asset pricing model (CAPM) suggests that the required return on a firm’s
stock is a positive function of the risk-free rate of interest and the market rate of return
and a negative function of the stock’s beta.
a. True
b. False
3) In a bilateral netting system, transactions between the parent and a subsidiary or
between two subsidiaries are consolidated over a specific period of time.
a. True
b. False
4) Other things being equal, a foreign subsidiary in China would more likely be
divested by the U.S. parent if new information caused the parent to suddenly anticipate
that:
a. the Chinese yuan would depreciate in the future
b. the Chinese yuan would appreciate in the future
c. the Chinese yuan would remain somewhat stable in the future
d. none of the above; the value of the Chinese yuan has no impact on the feasibility of a
divestiture
5) At any given point in time, a bank’s bid quote will be greater than its ask quote.
a. True
b. False
6) A quotation representing the value of a foreign currency in dollars is referred to as
a(n) ____ quotation; a quotation representing the number of units of a foreign currency
per dollar is referred to as a(n) ____ quotation.
a. direct; indirect
b. indirect; direct
c. direct; direct
d. indirect; indirect
e. cannot be answered without more information
7) Under FASB 52, consolidated earnings are sensitive to the functional currency’s
weighted average exchange rate.
a. True
b. False
8) A country with high unemployment could best increase its employment by:
a. encouraging foreign firms to establish subsidiaries that produce the same products
local firms produce
b. encouraging foreign firms to establish licensing arrangements for products local
firms produce
c. encouraging foreign firms to establish subsidiaries that produce products local firms
do not produce
d. none of the above would reduce employment
9) While a weak currency can reduce unemployment at home, it can also lead to higher
inflation, as local companies are better able to raise prices.
a. True
b. False
10) Assume that the spot rate of the Singapore dollar is $.664. The ADR of a Singapore
firm is convertible into 3 shares of stock. The price of an ADR is $20. What is the share
price of the firm in Singapore dollars?
a. 10
b. 13.28
c. 30.12
d. 39.84
11) Managers of MNCs may attempt to expand their divisions internationally if their
compensation may be increased as a result of expansion. This goal is consistent with the
goals of shareholders.
a. True
b. False
12) The ____ was established in 1934 with the intention to facilitate Soviet-American
trade.
a. Domestic International Sales Corporation (DISC)
b. Private Export Funding Corporation (PEFCO)
c. Export-Import Bank
d. Foreign Credit Insurance Association (FCIA)
13) A decentralized management style, where subsidiary managers make the relevant
decisions regarding their subsidiary, may result in better decision making, as subsidiary
managers are generally better informed about their subsidiary’s operations.
a. True
b. False
14) Which of the following is not an example of political risk?
a. Government may impose taxes on subsidiary
b. Government may impose barriers on subsidiary
c. Consumers may boycott the MNC
d. Consumers’ income levels will decrease, thus decreasing consumption.
15) To best reduce exposure to a host government takeover, a subsidiary could:
a. use a long-run profit perspective for business in that country
b. hire people from its own country (where the parent is located)
c. attempt to obtain supplies from its parent for which substitutes are not available
d. borrow funds from its parent rather than from the host country’s creditors
16) If inflation in New Zealand suddenly increased while U.S. inflation stayed the
same, there would be:
a. an inward shift in the demand schedule for NZ$ and an outward shift in the supply
schedule for NZ$
b. an outward shift in the demand schedule for NZ$ and an inward shift in the supply
schedule for NZ$
c. an outward shift in the demand schedule for NZ$ and an outward shift in the supply
schedule for NZ$
d. an inward shift in the demand schedule for NZ$ and an inward shift in the supply
schedule for NZ$
17) Acquirers may have different required rates of return because of differences in the
ability to use financial leverage.
a. True
b. False
18) If an MNC’s cash flows are more stable, it can probably handle more debt than an
MNC with erratic cash flows.
a. True
b. False
19) Direct foreign investment is normally completed first, and then capital budgeting
can be applied later.
a. True
b. False
20) A microeconomic perspective focuses on external forces such as economic
conditions that can affect the value of an MNC.
a. True
b. False
21) International money market transactions normally represent:
a. the equivalent of $1 million or more
b. the equivalent of $1,000 to $10,000
c. the equivalent of between $10,000 and $100,000
d. the equivalent of between $100,000 and $200,000
22) Translation exposure results when an MNC translates each subsidiary’s financial
data to its home currency for consolidated financial statements.
a. True
b. False
23) In a(n) ____ swap, the notional value is reduced over time.
a. accretion
b. amortizing
c. forward
d. zero-coupon
e. putable
24) Which of the following is not true regarding futures contracts?
a. Unlike forward contracts, they are generally traded on an exchange
b. Futures contracts are standardized with respect to delivery date and size of the
contract
c. There is an active over-the-counter market for currency futures contracts
d. Currency futures can be used by speculators who attempt to profit from exchange
rate movements
25) The impact of blocked funds on the net present value of a foreign project will be
greater if interest rates are ____ in the host country and there are ____ investment
opportunities in the host country.
a. very high; limited
b. very low; limited
c. very low; numerous
d. very high; numerous
26) A currency put option provides the right, but not the obligation, to buy a specific
currency at a specific price within a specific period of time.
a. True
b. False
27) Most MNCs do not perceive their foreign exchange management as a profit center.
Rather, their main responsibility is to assess potential exposure and determine how and
if the exposure should be hedged.
a. True
b. False
28) If interest rate parity exists, and the forward rate is an accurate estimator of the
future spot rate, the foreign financing rate will be ____ the home financing rate.
a. lower than
b. greater than
c. similar to
d. none of the above
29) Although MNCs may need to convert currencies occasionally, they do not face any
exchange rate risk, as exchange rates are stable over time.
a. True
b. False