1) suppose you observe the following exchange rates: 1 = $1.50; ¥120 = $1.00.
calculate the euro-pound exchange rate.
a.¥133.33 = 1.00
b.1.00 = ¥180
c.¥80 = 1.00
d.1 = £2.50
2) the key factors that are important in a firm’s decision to invest overseas are
a.trade barriers, imperfect labor market, and intangible assets
b.vertical integration, product life cycle, and shareholder diversification services
c.profit maximization, global prestige, and competition
d.both a and b
3) 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.$5,000 in
b.$5,000 out
c.$30,000 in
d.$30,000 out
e.none of the above
4) a country with a current account surplus
a.acquires ious from foreigners, thereby increasing its net foreign wealth
b.must borrow from foreigners or draw down on its previously accumulated foreign
wealth
c.will experience a reduction in the country’s net foreign wealth
d.both b and c
5) the objective of corporate governance should be what?
a.strengthen the protection of outside investors from expropriation by managers
b.strengthen the protection of outside investors from expropriation by controlling
insiders
c.both a and b
d.none of the above
6) a firm’s operating exposure is
a.defined as the extent to which the firm’s operating cash flows would be affected by the
random changes in exchange rates
b.determined by the structure of the markets in which the firm sources its inputs, such
as labor and materials, and sells its products
c.determined by the firm’s ability to mitigate the effect of exchange rate changes by
adjusting its markets, product mix, and sourcing
d.all of the above
7) a domestic bank that becomes a multinational bank to prevent erosion by foreign
banks of the traveler’s checks, touring, and foreign business market
a.is playing the role of the desperate housewife in this relationship
b.is pursuing a wholesale defensive strategy
c.is pursuing a retail defensive strategy
d.none of the above
8) assume the time from acceptance to maturity on a $4,000,000 banker’s acceptance is
180 days. further assume that the importing bank’s acceptance commission is 1.25
percent and that the market rate for 90-day b/as is 6.0 percent. calculate the amount the
exporter will receive if he holds it to maturity.
a.$3,993,750
b.$3,999,375
c.$3,975,000
d.$3,009,375
9) under the current/noncurrent method
a.a foreign subsidiary with current assets in excess of current liabilities will cause a
translation gain (loss) if the local currency appreciates (depreciates)
b.a foreign subsidiary with current assets in excess of current liabilities will cause a
translation loss (gain) if the local currency appreciates (depreciates)
c.a foreign subsidiary with current assets in excess of current liabilities will cause a
translation gain (loss) if the local currency depreciates (appreciates)
d.both b and c
10) investment in r&d activities can allow the firm to maintain and strengthen its
competitive position in the face of adverse exchange rate movements. the mechanism
for this includes
a.successful r&d efforts allow the firm to cut costs and enhance productivity
b.r&d efforts can lead to the introduction of new and unique products for which
competitors offer no close substitutessince the demand for unique products tends to be
highly inelastic the firm would be less exposed to exchange risk
c.successful r&d efforts can create a perception among consumers that its product is
indeed different from those offered by competitors. once the firm’s product acquires a
unique identity, its demand is less likely to be price-sensitive
d.all of the above
11) assume that you have invested $100,000 in japanese equities. when purchased the
stock’s price and the exchange rate were ¥100 and ¥100/$1.00 respectively. at selling
time, one year after purchase, they were ¥110 and ¥110/$1.00. the dollar rate of return
would be:
a.0%
b.4.32%
c.28.00%
d.-9.09%
12) underwriters for a domestic bond issue will commit their own capital to buy the
issue from the borrower at a discount from the issue price. the discount, or underwriting
spread, is typically
a.in the 1 to 1.5 percent range
b.in the 2 to 2.5 percent range
c.in the 3 to 3.5 percent range
d.in the 4 to 4.5 percent range