1) If managers of foreign subsidiaries make decisions that maximize the values of their
respective subsidiaries, they automatically maximize the value of the entire corporation.
a. True
b. False
2) Which of the following is not mentioned in the text as an additional risk resulting
from international business?
a. exchange rate fluctuations
b. political risk
c. interest rate risk
d. exposure to foreign economies
3) If the currency of a foreign currency-denominated bond ____, the funds needed to
make coupon payments will ____.
a. appreciates; increase
b. depreciates; decrease
c. appreciates; decrease
d. depreciates; increase
e. A and B
4) Assume that interest rate parity holds. The U.S. five-year interest rate is 5%
annualized, and the Mexican five-year interest rate is 8% annualized. Today’s spot rate
of the Mexican peso is $.20. What is the approximate five-year forecast of the peso’s
spot rate if the five-year forward rate is used as a forecast?
a. $.131
b. $.226
c. $.262
d. $.140
e. $.174
5) A micro-assessment of country risk involves consideration of all variables that affect
country risk except for those unique to a particular firm or industry.
a. True
b. False
6) A put option is the amount or percentage by which the existing spot rate exceeds the
forward rate.
a. True
b. False
7) The World Bank was established to:
a. enhance development solely in Asia through grants
b. enhance economic development through non-subsidized loans (at market interest
rates)
c. enhance economic development through low-interest rate loans (below-market rates)
d. enhance economic development of the private sector through investment in stock of
corporations
8) Jenco Co. imports raw materials from Japan, invoiced in U.S. dollars. The price it
pays is not expected to change for the next several years. If the Japanese yen
appreciates, its imports from Japan will probably ____ and if the Japanese yen
depreciates, its imports from Japan will probably ____.
a. increase; decrease
b. decrease; increase
c. increase; stay the same
d. stay the same; stay the same
9) The MNC’s value depends on all of the following, except:
a. MNC’s required rate of return
b. Amount of MNC’s cash flows in particular currency
c. The exchange rate at which cash flows are converted to dollars
d. The value of MNC depends on all of the above factors
10) Samson Inc. needs 1,000,000 in 30 days. Samson can earn 5 percent annualized on
a German security. The current spot rate for the euro is $1.00. Samson can borrow funds
in the U.S. at an annualized interest rate of 6 percent. If Samson uses a money market
hedge, how much should it borrow in the U.S.?
a. $952,381
b. $995,851
c. $943,396
d. $995,025
11) The International Development Association was established to:
a. enhance development solely in Asia through grants
b. enhance economic development through non-subsidized loans (at market interest
rates)
c. enhance economic development through low-interest rate loans (below-market rates)
d. enhance economic development of the private sector through investment in stock of
corporations
12) Market-based forecasting is based on fundamental relationships between economic
variables and exchange rates.
a. True
b. False
13) With ____, a bank purchases a receivable without recourse to the exporter.
a. accounts receivable financing
b. factoring
c. a banker’s acceptance
d. a letter of credit
14) The forward rate of the Swiss franc is $.50. The spot rate of the Swiss franc is $.48.
The following interest rates exist:
You need to purchase SF200,000 in 360 days. If you use a money market hedge, the
amount of dollars you need in 360 days is:
a. $101,904
b. $101,923
c. $98,770
d. $96,914
e. $92,307
15) When MNCs pursue international projects that have a high potential for return, but
also increase their risk, this increases the return to the bondholders that provided credit
to the MNCs.
a. True
b. False
16) Under a letter of credit, the exporter will not ship the goods until the buyer has
remitted payment to the exporter.
a. True
b. False
17) As mentioned in the text, the most common maturities for forward rates are:
a. one, three, six, and twelve months
b. one, three, six, and twelve years
c. two, three, and five years
d. two, three, and five weeks
18) Constraints pertaining to taxes, currency convertibility, earnings remittance, and
employee rights are best described as:
a. ethical differences
b. regulatory barriers
c. quota barriers
d. “Red Tape” barriers
19) Which of the following is not true regarding economic exposure?
a. Even purely domestic firms can be affected by economic exposure
b. In general, depreciation of the firm’s local currency causes a decrease in both cash
inflows and outflows
c. The degree of economic exposure will likely be much greater for a firm involved in
international business than for a purely domestic firm
d. The impact of a change in the local currency on inflow and outflow variables can
sometimes be indirect and therefore different from what is expected
e. All of the above are true
20) When a currency call option is classified as “in the money,” this indicates that
a. the spot rate of the currency is less than the exercise price of the option
b. the spot rate of the currency is greater than the exercise price of the option
c. the buyer of the option would generate a profit; that is, the spot rate would exceed the
sum of the exercise price and the premium paid
d. the buyer of the option would generate a profit; that is, the exercise price would
exceed the sum of the spot rate and the premium paid
21) The capital asset pricing theory is based on the premise that:
a. only unsystematic variability in cash flows is relevant
b. only systematic variability in cash flows is relevant
c. both systematic and unsystematic variability in cash flows are relevant
d. neither systematic nor unsystematic variability in cash flows is relevant
22) If one foreign currency will appreciate against the dollar, then all foreign currencies
will appreciate against the dollar but by different degrees.
a. True
b. False
23) Managers of MNCs are typically expected to use currency derivatives for
speculation in order to improve profits.
a. True
b. False
24) When an MNC assesses targets among countries, it would prefer a country where
the growth potential for its industry is ____ and the competition within the industry is
____.
a. low; not excessive
b. high; excessive
c. high; not excessive
d. low; excessive
25) The ask quote is the price for which a bank offers to sell a currency.
a. True
b. False
26) To exploit monopolistic advantages, an MNC should:
a. acquire a competitor that has controlled its local market
b. establish a subsidiary or acquire a competitor in a new market
c. establish a subsidiary in a market where tougher trade restrictions will adversely
affect the firm’s export volume
d. establish subsidiaries in markets where competitors are unable to produce the
identical product
27) Euronotes are underwritten by:
a. European central banks
b. commercial banks
c. the International Monetary Fund
d. the Federal Reserve System