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1) national neutrality
a.is the criterion that an ideal tax should be effective in raising revenue of the
government and not have any negative effects on the economic decision-making
process of the taxpayer
b.requires that taxable income is taxed in the same manner by the taxpayer's national
tax authority regardless of where in the world it is earned
c.implies that the tax burden a host country imposes on the foreign subsidiary of the
mnc should be the same regardless of which country the mnc is incorporated and the
same as that placed on domestic firms
d.none of the above
2) if the $/ bid and ask prices are $1.50/ and $1.51/, respectively, the corresponding /$
bid and ask prices are
a.0.6667 and 0.6623
b.$1.51 and $1.50
c.0.6623 and 0.6667
d.cannot be determined with the information given
3) advantages of investing in u.s.-based international mutual funds include
a.lower transactions costs relative to direct investing
b.circumvention of many legal and institution barriers to direct portfolio investment in
many foreign markets
c.professional management, potentially expertise in security selection, definitely
record-keeping
d.all of the above
4) mncs have invested in china
a.by lower material costs
b.by lower labor costs
c.by a desire to preempt the entry of rivals into china's potentially huge market
d.all of the above
5) on average, worldwide daily trading of foreign exchange is closest to
a.impossible to estimate
b.$15 billion
c.$504 billion
d.$3.21 trillion
6) foreign direct investment (fdi) occurs
a.when an investor acquires a measure of control of a foreign business
b.when there is an acquisition, by a foreign entity in the u.s., of 10 percent or more of
the voting shares of a business
c.with sales and purchases of foreign stocks and bonds that do not involve a transfer of
control
d.both a and b
7) counties a and b currently consume 400 units of food and 400 units of textiles each
and currently do not trade with one another. the citizens of country a have to give up
one unit of food to gain two units of textiles, while the citizens of country b have to
give up one unit of textiles to gain two units of food. their production possibilities
curves are shown.
under the theory of comparative advantage, if free trade is allowed, the market clearing
price (or exchange rate if you will) between food and textiles will be
a.one unit of food for one unit of textiles
b.somewhere between one unit of food for two units of textiles and two units of food
for one unit of textiles
c.one unit of food for two units of textiles
d.two units of food for one unit of textiles
8) in modern times, it is not a country per se but rather a controller of capital and
know-how that gives the country in which it is domiciled a comparative advantage over
another country. these controllers of capital and technology are
a.the state
b.the multinational corporations (mncs)
c.portfolio managers of international mutual funds
d.none of the above
9) to avoid currency crisis in the face of fully integrated capital markets, a country can
have a
a.floating exchange rate
b.fixed exchange rate
c.fixed exchange rate that adjusts
d.a and b can both help to avoid currency crises
10) it can be argued that, while financial hedging can be used to stabilize a firm's cash
flows,
a.it is not a substitute for long-term operational hedging
b.it is therefore a substitute for long-term operational hedging
c.it is inferior to money market hedging
d.none of the above
11) consider the dollar- and euro-based borrowing opportunities of companies a and b.
a is a u.s.-based mnc with aaa credit; b is an italian firm with aaa credit. firm a wants to
borrow 1,000,000 for one year and b wants to borrow $2,000,000 for one year. the spot
exchange rate is $2.00 = 1.00 and the one-year forward rate is given by irp as $2.00
(1.08)/1.00 (1.06) = $2.0377/1.
is there a mutually beneficial swap?
a.no, qsd = 0
b.yes, qsd = 2% = (7% - 6%) - (8% - 9%) = 1% - (-1%)
c.yes, qsd = [7% - 6%] $2.00/1.00 - ($8% - $9%) = $2% + $1% = $3%
d.yes, qsd = [7% - 6%] - ($8% - $9%) 1.00/$2.00 = 1%
