Chapter 27: Multinational Financial Management
DIFFICULTY:
Difficulty: Easy
1. Multinational financial management requires that financial analysts consider the effects of changing currency values.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.02 – LO: 27-2
NATIONAL STANDARDS:
management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Multinational financial management
KEYWORDS:
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
2. Legal and economic differences among countries, although important, do NOT pose significant problems for most
multinational corporations when they coordinate and control worldwide operations of subsidiaries.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
HAS VARIABLES:
False
LEARNING OBJECTIVES:
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
KEYWORDS:
Bloom?s: Knowledge
DATE CREATED:
DATE MODIFIED:
1/9/2018 3:25 PM
3. Exchange rate quotations consist solely of direct quotations.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.03 – LO: 27-3
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
management
4. Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as
a base.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.03 – LO: 27-3
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Cross rates
KEYWORDS:
Bloom?s: Knowledge
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
5. When the value of the U.S. dollar appreciates against another country’s currency, we may purchase more of the foreign
currency with a dollar.
a.
True
b.
False
ANSWER:
True
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.03 – LO: 27-3
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Exchange rates
KEYWORDS:
Bloom?s: Knowledge
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
You can get 1/1.64, or 0.61 U.S. dollars for one Canadian dollar.
POINTS:
1
Difficulty: Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
6. If it takes $0.71 U.S. dollars to purchase one Swiss franc, how many Swiss francs can one U.S. dollar buy?
a.
0.50
b.
0.71
c.
1.00
d.
1.41
e.
2.81
ANSWER:
d
Dollars should sell for 1/0.71, or 1.41 Swiss francs per dollar.
POINTS:
1
DIFFICULTY:
Difficulty: Easy
Multiple Choice
HAS VARIABLES:
False
IFMG.DAVE.19.27.03 – LO: 27-3
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
management
LOCAL STANDARDS:
United States – OH – Default City – TBA
Exchange rates
KEYWORDS:
Bloom?s: Application
OTHER:
TYPE: Multiple Choice: Problem
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
7. If 1.64 Canadian dollars can purchase one U.S. dollar, how many U.S. dollars can you purchase for one Canadian
dollar?
a.
0.37
b.
0.61
c.
1.00
d.
1.64
e.
3.28
ANSWER:
b
TOPICS:
Currency appreciation
Bloom?s: Knowledge
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
POINTS:
1
DIFFICULTY:
Difficulty: Moderate
8. Suppose the exchange rate between U.S. dollars and Swiss francs is SF 1.41 = $1.00, and the exchange rate between the
U.S. dollar and the euro is $1.00 = 1.64 euros. What is the cross-rate of Swiss francs to euros?
a.
0.43
b.
0.86
c.
1.41
d.
1.64
e.
2.27
ANSWER:
b
RATIONALE:
SF/euro = (1.41/1) × (1/1.64) = 1.41/1.64 = 0.86 SF/euro.
POINTS:
1
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.03 – LO: 27-3
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Cross rates
KEYWORDS:
Bloom?s: Analysis
OTHER:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
9. Suppose that 1 British pound currently equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62 Swiss francs. What is the
cross exchange rate between the pound and the franc?
a.
b.
c.
d.
e.
ANSWER:
b
management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Exchange rates
KEYWORDS:
Bloom?s: Application
OTHER:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
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Page 5
10. If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.97 shekels per dollar,
then the forward rate for the Israeli shekel is selling at a ____ to the spot rate.
a.
premium of 8%
b.
premium of 18%
c.
discount of 18%
d.
discount of 8%
e.
premium of 16%
ANSWER:
d
1
DIFFICULTY:
Difficulty: Moderate
Multiple Choice
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.03 – LO: 27-3
United States – BUSPROG: Analytic
United States – OH – Default City – TBA
TOPICS:
Forward exchange rates?nonalgorithmic
Bloom?s: Analysis
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
11. In 1985, a given Japanese imported automobile sold for 1,476,000 yen, or $8,200. If the car still sold for the same
amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in U.S.
dollars?
a.
$5.964
b.
$8,200
c.
$10,250
d.
$12,628
Multiple Choice
HAS VARIABLES:
False
IFMG.DAVE.19.27.03 – LO: 27-3
United States – BUSPROG: Analytic
LOCAL STANDARDS:
United States – OH – Default City – TBA
Cross rates?nonalgorithmic
Bloom?s: Analysis
OTHER:
TYPE: Multiple Choice: Problem
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
Chapter 27: Multinational Financial Management
Copyright Cengage Learning. Powered by Cognero.
Page 6
e.
$13,525
ANSWER:
c
1
DIFFICULTY:
Difficulty: Moderate
Multiple Choice
HAS VARIABLES:
False
IFMG.DAVE.19.27.03 – LO: 27-3
United States – BUSPROG: Analytic
LOCAL STANDARDS:
United States – OH – Default City – TBA
Exchange rates and asset value
KEYWORDS:
Bloom?s: Analysis
TYPE: Multiple Choice: Problem
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
12. If the United States is running a deficit trade balance with China, then in a free market we would expect the value of
the Chinese yuan to depreciate against the U.S. dollar.
a.
True
b.
False
ANSWER:
False
1
Difficulty: Easy
QUESTION TYPE:
True / False
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.05 – LO: 27-5
United States – BUSPROG: Reflective Thinking
United States – OH – Default City – TBA
TOPICS:
Trade deficit and depreciation
Bloom?s: Knowledge
DATE CREATED:
10/30/2017 8:17 PM
1/9/2018 3:25 PM
13. Suppose one U.S. dollar can purchase 144 yen today in the foreign exchange market. If the yen depreciates by 8.0%
tomorrow, how many yen could one U.S. dollar buy tomorrow?
a.
155.5 yen
b.
144.0 yen
c.
133.5 yen
d.
78.0 yen
Chapter 27: Multinational Financial Management
POINTS:
1
DIFFICULTY:
Difficulty: Easy
e.
72.0 yen
ANSWER:
a
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.05 – LO: 27-5
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Currency appreciation
KEYWORDS:
Bloom?s: Application
OTHER:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
14. The United States and most other major industrialized nations currently operate under a system of floating exchange
rates.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.05 – LO: 27-5
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Floating exchange rates
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
15. Exchange rate risk is the risk that the cash flows from a foreign project, when converted to the parent company’s
currency, will be worth less than was originally projected because of exchange rate changes.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
Multiple Choice
16. Individuals and corporations can buy or sell forward currencies to hedge their exchange rate exposure. Essentially, the
process involves simultaneously selling the currency expected to appreciate in value and buying the currency expected to
depreciate.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.08 – LO: 27-8
management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Forward market hedging transactions
KEYWORDS:
Bloom?s: Comprehension
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
17. If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the
British pound will
a.
Depreciate against the U.S. dollar.
b.
Remain unchanged against the U.S. dollar.
c.
Appreciate against other major currencies.
d.
Appreciate against the dollar and other major currencies.
e.
Appreciate against the U.S. dollar.
ANSWER:
e
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.13 – LO: 27-13
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Exchange rate risk
KEYWORDS:
Bloom?s: Knowledge
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
18. Suppose it takes 1.82 U.S. dollars today to purchase one British pound in the foreign exchange market, and currency
forecasters predict that the U.S. dollar will depreciate by 12.0% against the pound over the next 30 days. How many
dollars will a pound buy in 30 days?
a.
1.12
b.
1.63
c.
1.82
d.
2.04
e.
3.64
ANSWER:
d
POINTS:
1
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.05 – LO: 27-5
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Currency depreciation
KEYWORDS:
Bloom?s: Analysis
OTHER:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
19. A Eurodollar is a U.S. dollar deposited in a bank outside the United States.
a.
True
b.
False
ANSWER:
True
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.09 – LO: 27-9
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Currency depreciation
KEYWORDS:
Bloom?s: Comprehension
OTHER:
TYPE: Multiple Choice: Conceptual
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
HAS VARIABLES:
False
LEARNING OBJECTIVES:
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
management
LOCAL STANDARDS:
United States – OH – Default City – TBA
20. The Eurodollar market is essentially a long-term market; most loans and deposits in this market have maturities longer
than one year.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.12 – LO: 27-12
NATIONAL STANDARDS:
management
TOPICS:
Eurodollar market
KEYWORDS:
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
21. LIBOR is an acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks
to smaller U.S. corporations.
a.
True
b.
False
ANSWER:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.12 – LO: 27-12
NATIONAL STANDARDS:
management
LOCAL STANDARDS:
TOPICS:
Eurodollars
KEYWORDS:
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.01 – LO: 27-1
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Motivation for going global
KEYWORDS:
Bloom?s: Comprehension
DATE CREATED:
10/30/2017 8:17 PM
22. The interest rate paid on Eurodollar deposits depends on the particular bank’s lending rate and on rates available on
U.S. money market instruments.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
True / False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.12 – LO: 27-12
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Eurodollar interest rates
KEYWORDS:
Bloom?s: Comprehension
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
23. Which of the following is NOT a reason why companies move into international operations?
a.
To develop new markets for the firm’s products.
b.
To better serve their primary customers.
c.
Because important raw materials are located abroad.
d.
To increase their inventory levels.
e.
To take advantage of lower production costs in regions where labor costs are relatively low.
ANSWER:
d
KEYWORDS:
Bloom?s: Knowledge
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
Multiple Choice
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.01 – LO: 27-1
United States – BUSPROG: Analytic
management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Eurobonds versus domestic bonds
24. Which of the following statements is NOT CORRECT?
a.
Foreign bonds and Eurobonds are two important types of international bonds.
b.
Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which
the issue is sold.
c.
The term Eurobond applies only to foreign bonds denominated in U.S. currency.
d.
A foreign bond might pay a higher nominal interest rate than a U.S. bond.
e.
Any bond sold outside the country of the borrower is called an international bond.
ANSWER:
c
POINTS:
1
Difficulty: Moderate
QUESTION TYPE:
Multiple Choice
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.12 – LO: 27-12
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
United States – OH – Default City – TBA
TOPICS:
International bond markets
KEYWORDS:
Bloom?s: Analysis
TYPE: Multiple Choice: Conceptual
DATE CREATED:
10/30/2017 8:17 PM
1/9/2018 3:25 PM
25. Suppose a foreign investor who holds tax-exempt Eurobonds paying 9% is considering investing in an equivalent-risk
domestic bond in a country with a 28% withholding tax on interest paid to foreigners. If 9% after-tax is the investor’s
required return, what before-tax rate would the domestic bond need to pay to provide the required after-tax return?
a.
9.00%
b.
10.20%
c.
11.28%
d.
12.50%
e.
13.57%
ANSWER:
d
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Page 13
26. A U.S.-based company, Stewart, Inc., arranged a 2-year, $1,000,000 loan to fund a project in Mexico. The loan is
denominated in Mexican pesos, carries a 10.0% nominal rate, and requires equal semiannual payments. The exchange rate
at the time of the loan was 5.75 pesos per dollar, but it dropped to 5.10 pesos per dollar before the first payment came due.
The loan was not hedged in the foreign exchange market. Thus, Stewart must convert U.S. funds to Mexican pesos to
make its payments. If the exchange rate remains at 5.10 pesos per dollar through the end of the loan period, what effective
interest rate will Stewart end up paying on the loan?
a.
10.36%
b.
11.50%
c.
17.44%
d.
20.00%
e.
21.79%
ANSWER:
POINTS:
1
Difficulty: Challenging
QUESTION TYPE:
Multiple Choice
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.03 – LO: 27-3
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
United States – OH – Default City – TBA
TOPICS:
EAR on foreign debt
KEYWORDS:
Bloom?s: Analysis
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:17 PM
1/9/2018 3:25 PM
27. Because political risk is seldom negotiable, it cannot be explicitly addressed in multinational corporate financial
KEYWORDS:
Bloom?s: Application
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
Chapter 27: Multinational Financial Management
Copyright Cengage Learning. Powered by Cognero.
Page 14
analysis.
a.
True
b.
False
ANSWER:
False
1
DIFFICULTY:
Difficulty: Easy
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.13 – LO: 27-13
United States – BUSPROG: Reflective Thinking
management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Political risk
Bloom?s: Knowledge
DATE CREATED:
10/30/2017 8:17 PM
1/9/2018 3:25 PM
28. The cash flows relevant for a foreign investment should, from the parent company’s perspective, include the financial
cash flows that the subsidiary can legally send back to the parent company plus the cash flows that must remain in the
foreign country.
a.
True
b.
False
ANSWER:
False
POINTS:
1
Difficulty: Moderate
QUESTION TYPE:
True / False
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.27.13 – LO: 27-13
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
United States – OH – Default City – TBA
TOPICS:
Relevant investment cash flows
Bloom?s: Comprehension
DATE CREATED:
10/30/2017 8:17 PM
DATE MODIFIED:
1/9/2018 3:25 PM
29. The cost of capital may be different for a foreign project than for an equivalent domestic project because foreign
projects may be more or less risky.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Difficulty: Moderate