Chapter 21 – International Financial Management
69. The belief that shifts in exchange rates result from increasing or decreasing demand for a
country’s exports (or the corresponding opposite movements in supply of a country’s imports)
form the basis for the
70. Which of the following statements about forward exchange rates is false?
71. The following are the prices in the foreign exchange market between the U.S. dollar and
another local currency (LC).
What was the discount or premium on 3-month forward for LC?
Chapter 21 – International Financial Management
72. The spot rate of the British pound to the dollar is 1.15 (). The 180 day forward rate is
$1.17, the annualized forward premium is:
73. The Swiss franc is selling for $.9412 and the British pound is selling for $1.5119. The
cross rate between the franc and the pound is:
Chapter 21 – International Financial Management
74. Assume that you had dollar quotes for the Japanese Yen and the British Pound. If you
want to know the Yen/Pound exchange rate, you would rely on
75. Which of the following hedging strategies is not used to minimize transaction exposure?
76. Which of the following kinds of risk is NOT uniquely associated with MNC’s?
Chapter 21 – International Financial Management
77. The possibility of experiencing a drop in revenue or an increase in cost in an international
transaction due to a change in foreign exchange rates is called
78. Which of the following is not commonly used to minimize transaction exposure in foreign
exchange dealings?
79. A firm exposed to exchange rate risk can hedge its risk by
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80. Which of the following hedging strategies involves a loan without a futures contract?
81. What has motivated American firms to move their operations to foreign countries?
82. Which of the following is not a reason for U.S. firms operating in foreign markets?
Chapter 21 – International Financial Management
83. Which of the following statements about foreign affiliates is (are) true?
84. A portfolio of international stocks in comparison to purely U.S. stocks generally shows:
85. Which of the following is an inducement for foreign investment in the United States?
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86. To minimize exposure to political risk, a multinational firm may establish a joint venture
with a local entrepreneur, establish a joint venture with a group of multinationals, or
87. The Overseas Private Investment Corporation (OPIC)
88. The Export-Import Bank (Eximbank)
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89. In a parallel loan arrangement
90. A loan arrangement in which a parent company reduces its political risk by using an
intermediary bank rather than a direct transfer of funds to a subsidiary is called a (an)
91. Which of the following is not an advantage of borrowing in the Eurodollar market?
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92. Eurodollars are
93. The lower borrowing costs in the Eurodollar market as compared to the U.S. are often
attributed to:
94. In the Eurobond market:
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95. Which of the following statements is true about international equity (stock) markets?
96. The Eurobond market has which of the following characteristics?
97. A long-term debt issue sold simultaneously in several different national capital markets,
but denominated in a currency different from that of the national market where the issue
occurs is called a(n)
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98. Which of the following statements about the International Finance Corporation is not
true?
99. The International Finance Corporation (IFC) is:
100. The following events can affect world markets except:
Chapter 21 – International Financial Management
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101. The following are examples of factors that significantly influence exchange rates except:
102. If a forward discount is prevalent in U.S. dollars to Swiss Francs:
103. Which of the following is true of forward and spot rates?
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104. All of the following groups are subject to foreign exchange risk except:
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105. Match the following to the items below:
1. balance of
The relationship between the values of two
The interplay between interest rate differentials and
An arrangement in which a U.S. firm lends dollars to
a foreign affiliate in the U.S. while that affiliate’s parent
company lends its own currency to the U.S. firm’s
A firm which does business across its national
5. foreign exchange
A written promise made by an IMPORTER’S bank
6. translation
Net income forwarded from the foreign affiliate to
7. currency futures
A system of government accounts that catalogs the
flow of economic transactions between the residents of
An instrument which may be used to protect against
9. repatriation of
The possibility of experiencing a drop in revenue or
increase in cost in an international transaction due to a
10. transaction
Losses and gains on the balance sheet of an MNC as
11. Purchasing Power
Currency exchange rates tend to vary inversely with
their respective purchasing powers in order to provide
12. multinational
A parent company’s loan to its foreign subsidiary
13. foreign exchange
A government takeover of a foreign subsidiary’s
14. Interest Rate
Foreign exchange gains or losses resulting from
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106. Match the following to the items below:
A federal government agency which sells
The relationship between two foreign currencies
3. American Depository
A private association of approximately 60 U.S.
firms which provides assurance to exporters that
should the foreign customers default on payments,
The rate at which the currency is traded for
A valuable source of short-term loans in U.S.
dollars for many multinational firms and their
6. Foreign Credit
Insurance Association
Long-term debt issues sold simultaneously in
several different national capital markets, but
denominated in a currency different from that of the
A rate that reflects the future value of a currency
8. Overseas Private
Investment Corporation
A means of making foreign stock issues available
9. Export-Import Bank
An entity owned by members of the World Bank
which buys equity shares of multinational businesses
and/or provides long-term loans up to a total of 25%
10. London Interbank
The interest rate for large deposits in the
11. International Finance
An agency of the U.S. government which
facilitates the financing of U.S. exports through one
The relationship between the value of two or
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107. The Daily Planet has a wholly owned foreign subsidiary in Brazil. The subsidiary earns
30 million reals per year before taxes in Brazil. The foreign income tax rate is 30%. The
subsidiary repatriates the entire after-tax profits in the form of dividends to the Daily Planet.
The U.S. corporate tax rate is 40% of foreign earnings before taxes.
a) Compute after-tax cash flow to the Daily Planet from this investment (in reals). Use the
table below.
b) If the exchange rate is .56 ($/reals), what is the after-tax cash flow in dollars?
c) Depreciation related cash flow is 2 million reals per year for five years for another Daily
Planet investment in Brazil. The exchange rate is expected to be .59 ($/reals). The Daily
Planet applies a 15% discount rate to foreign cash flows. What is the present value (in dollars)
of the depreciation related cash flow?
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108. Suppose a Swedish krona sells for $0.1309 and a British pound sells for $1.5119. What
is the exchange rate (cross rate) of the Swedish krona to the British pound? That is, how many
Swedish kronas are equal to a British pound?
Chapter 21 – International Financial Management
109. Assume the following spot and forward rates for the New Zealand dollar ($/NZD).
a) What is the U.S. dollar value of one New Zealand dollar in the spot market?
b) Suppose you issued a 90-day forward contract to exchange 100,000 New Zealand dollars
into U.S. dollars. How many U.S. dollars are involved?
c) How many New Zealand dollars can you get for one U.S. dollar in the spot market?
d) What is the 120-day forward premium?