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1) Your company expects to receive 5,000,000 Japanese yen 60 days from now. You
decide to hedge your position by selling Japanese yen forward. The current spot rate of
the yen is $.0089, while the forward rate is $.00 You expect the spot rate in 60 days to
be $.0090. How many dollars will you receive for the 5,000,000 yen 60 days from now
if you sell yen forward?
a. $44,500
b. $45,000
c. $526 million
d. $47,500
e. $556 million
2) New Hampshire Corp. has decided to issue three-year bonds denominated in
5,000,000 Russian rubles at par. The bonds have a coupon rate of 17%. If the ruble is
expected to appreciate from its current level of $.03 to $.032, $.034, and $.035 in years
1, 2,and 3, respectively, what is the financing cost of these bonds?
a. 17%
b. 23.18%
c. 22.36%
d. 23.39%
3) The most important cost-related motive for direct foreign investment is
diversification across product markets.
a. True
b. False
4) A money market hedge involves taking a money market position to cover a future
payables or receivables position.
a. True
b. False
5) When using factoring to finance international trade, a bank will provide a loan to the
exporter secured by an assignment of the account receivable.
a. True
b. False
6) If an investor who previously sold futures contracts wishes to liquidate his position,
he could sell futures contracts with the same maturity date.
a. True
b. False
7) An MNC may deviate from its target capital structure in each country where
financing is obtained, yet still achieve its target capital structure on a consolidated basis.
a. True
b. False
8) One reason an MNC may consider foreign financing is that the proceeds could be
used to offset a foreign net payables position.
a. True
b. False
9) If the forward rate for a currency is less than the spot rate for that currency, the
forward rate is said to exhibit a premium.
a. True
b. False
10) If purchasing power parity holds, then the Fisher effect must also hold.
a. True
b. False
11) Rockford Co. is a U.S. manufacturing firm that produces goods in the U.S. and sells
all products to retail stores in the U.K.; the goods are denominated in pounds. It
finances a small portion of its business with pound-denominated loans from British
banks. Which of the following is true? (Assume that the amount of products to be sold
is guaranteed by contracts.)
a. The dollar value of sales is higher if the pound depreciates against the dollar
b. The dollar value of sales is unaffected by the pound's exchange rate
c. A and B
d. None of the above
12) The exchange of goods between two parties without the use of any currency as a
medium of exchange is called factoring.
a. True
b. False
13) ____ is not a bank characteristic important to customers in need of foreign
exchange.
a. Quote competitiveness
b. Speed of execution
c. Forecasting advice
d. Advice about current market conditions
e. All of the above are important bank characteristics to customers in need of foreign
exchange
14) The commission earned by the bank for accepting a draft is reflected in the
all-in-rate.
a. True
b. False
15) The writer of a put option has a right, but not obligation, to buy the underlying
currency from the option buyer.
a. True
b. False
16) Currency swaps, whereby two parties exchange currencies at a specified point in
time for a specified price, are often used by MNCs to hedge against interest rate risk.
a. True
b. False
17) A firm may incorporate a country risk rating into the capital budgeting analysis by:
a. adjusting the NPV upward if the country risk rating has fallen (implying increased
risk) below a benchmark level
b. adjusting the discount rate upward as the country risk rating decreases (implying
increased risk)
c. A and B
d. none of the above
18) Assuming no credit risk, the interest rates among countries in the eurozone should
be similar.
a. True
b. False
19) Forward contracts are the best technique for managing exposure arising from
project bidding.
a. True
b. False
20) The stock price of a target may decrease if investors anticipate that the target will be
acquired, since they are aware that stock prices of targets fall abruptly after a bid by the
acquiring firm.
a. True
b. False
21) The Sarbanes-Oxley Act ensures a more transparent process for managers to report
on the productivity and financial condition of their firm.
a. True
b. False
22) An MNC expects to sell fixed assets it utilizes in Europe in the distant future. In
order to hedge the sale of these assets in the distant future, the MNC could create a(n)
____ that ____ the expected value of the assets in the future.
a. asset; matches
b. asset; exceeds
c. liability; matches
d. liability; is less than
23) Although direct foreign investment is sometimes conducted, benefits are rarely
realized.
a. True
b. False
24) A primary result of the Smithsonian Agreement was:
a. the establishment of the European Monetary System (EMS)
b. establishing that exchange rates of most major countries were to be allowed to
fluctuate 2.25% above or below their initially set values
c. establishing specific rules for when tariffs and quotas could be imposed by
governments
d. establishing that exchange rates of most major currencies were to be allowed to
fluctuate freely without boundaries (although the central banks did have the right to
intervene when necessary)
25) The ____ involves the collection of independent opinions on country risk without
group discussion by the assessors who provide these opinions.
a. checklist approach
b. discriminant analysis
c. regression analysis
d. Delphi technique
26) If the currency denominating a foreign bond depreciates against the firm's home
currency over the lifetime of the bond, the funds needed to make coupon payments will
increase.
a. True
b. False
27) Which of the following is not a way in which agency problems can be reduced
through corporate control?
a. executive compensation
b. threat of hostile takeover
c. acquisition of a foreign subsidiary
d. monitoring by large shareholders
28) To hedge a payable position with a currency option hedge, an MNC would write a
call option.
a. True
b. False
29) A fundamental forecast that uses multiple values of the influential factors is an
example of:
a. sensitivity analysis
b. discriminant analysis
c. technical analysis
d. factor analysis
30) There is much evidence to suggest that Japanese investors invest in U.S. Treasury
securities when U.S. interest rates are higher than Japanese interest rates. These
investors most likely believe in the international Fisher effect.
a. True
b. False
31) Countertrade represents foreign trade:
a. restrictions imposed by the government on imports from another country
b. restrictions imposed by the government on exports sent from the country
c. transactions that force the sales of goods of one country to be linked to the purchase
or exchange of goods from the country
d. financing provided to an exporter in exchange for goods provided to the creditor by
the exporter
