1) which will reduce the number of foreign exchange transaction the most for a mnc?
a.multilateral netting
b.bilateral netting
c.fish netting
d.none of the above
2) 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. the bond equivalent yield that the
exporter pays in discounting the b/a is:
a.3.05%
b.3.01%
c.3.07%
d.none of the above
3) consider the following international investment opportunity. it involves a gold mine
that can be opened at a cost, then produces a positive cash flow, but then requires
environmental clean-up:
the current exchange rate is $1.60 = 1.00. the inflation rate in the u.s. is 6 percent and in
the euro zone 2 percent. the appropriate cost of capital to a u.s.-based firm for a
domestic project of this risk is 8 percent.
what is the dollar-denominated irr of this project?
4) suppose the inbev corporation (a non-u.s. mnc) buys the anheuser-busch corporation,
paying the u.s. shareholders cash.
a.payment by inbev will be recorded as a debit
b.the deposit of the funds by the sellers will be recorded as a debit
c.payment by inbev will be recorded as a credit
d.the deposit of the funds by the buyer will be credit
5) a 5-year swap contract can be viewed as a portfolio of 5 forward contracts with
maturities of 1, 2, 3, 4 and 5 years. one important exception is that
a.the forward price is the same for the swap contract but not for the forward contracts
b.the swap contract will have daily resettlement
c.the forward contracts will have resettlement risk
d.none of the above
6) floating-rate notes
a.are a form of adjustable rate bond
b.have contractually specified coupon payments, therefore they are fixed rate bonds
c.always trade at par value
d.both a and c
7) dealers in an otc market
a.stand ready to buy at the bid and sell at the ask price
b.set their own bid and ask prices
c.do not charge commissions
d.all of the above
8) find the net exposure of the mnc with the following intra affiliate transactions shown.
a.$55
b.$65
c.$800
d.none of the above
9) advantages of cross-listing include:
a.this decision provides their shareholders with a higher degree of protection than may
be available in the home country
b.this decision can be a signal of the company’s commitment to shareholder rights
c.this may make investors both at home and abroad more willing to provide capital and
to increase the value of the pre-existing shares
d.all of the above
10) suppose you start with $100 and buy stock for £50 when the exchange rate is £1 =
$2. one year later, the stock rises to £60. you are happy with your 20 percent return on
the stock, but when you sell the stock and exchange your £60 for dollars, you only get
$45 since the pound has fallen to £1 = $0.75. this loss of value is an example of
a.exchange rate risk
b.political risk
c.market imperfections
d.weakness in the dollar
11) your firm’s interaffiliate cash receipts and disbursements matrix is shown below
($000):
find the net cash flow in (out of) the canadian affiliate.
a.$55,000 in
b.$15,000 out
c.$0 in or out
d.$40,000 out
e.none of the above
12) which of the following statements is true about product life cycle theory?
a.the theory was developed in the 1960s when the u.s. was the leader in r&d
b.the international system of production is becoming too complicated to be explained
by a simple version of the product life cycle theory
c.it predicts that over time the u.s. switches from an exporting country of new products
to an importing country
d.all of the above
13) countries differ in how they tax foreign-source income of their domestic mncs.
a.therefore, different forms of structuring a multinational organization within a country
can result in different tax liabilities for the firm
b.however, due to tax treaties and foreign tax credits, this is not an issue for a u.s.-based
mnc
c.but all countries tax domestic income of their domestic mncs in the same way
d.all of the above
14) u.s. security regulations require yankee bonds and u.s. corporate bonds sold to u.s.
citizens to be
a.municipal bonds
b.registered bonds
c.bearer bonds
d.none of the above