A/An ________ subsidiary is one in which the firm operates as an extension of the
parent company with cash flows highly interrelated with the parent.
A) self-sustaining foreign
B) integrated foreign entity
C) foreign
D) none of the above
A ________ is a bond underwritten by a syndicate from a single country, sold within in
that country, denominated in that country’s currency, but the issuer is from outside that
country.
A) foreign bond
B) Eurobond
C) domestic bond
D) none of the above
For a $1.50/£ call option with an initial premium of $0.033/£ and a phi value of -0.2,
after an increase in the foreign interest (the pound sterling rate) rate from 8% to 9% –
the new optiom premium would be:
A) $0.035/£.
B) $1.48/£.
C) $0.031/£.
D) $0.032/£.
________ risks are those that affect the MNE at the local or project level, but originate
at the country level.
A) Country-specific
B) Firm-specific
C) Global-specific
D) none of the above
The “tequila effect” is a slang term used to describe a form of financial panic called:
A) run on the market.
B) speculation.
C) contrary investing.
D) contagion.
Generally speaking, a firm wants to receive cash flows from a currency that is
________ relative to their own, and pay out in currencies that are ________ relative to
their home currency.
A) appreciating; depreciating
B) depreciating; depreciating
C) appreciating; appreciating
D) depreciating; appreciating
The capital asset pricing model (CAPM) is an approach:
A) to determine the price of equity capital.
B) used by marketers to determine the price of saleable product.
C) that can be applied only to domestic markets.
D) none of the above
One of the innovations introduced by Bretton Woods was the creation of the Special
Drawing Right or SDR. The SDR is an international reserve asset created by the:
A) U.S. Department of the Treasury
B) International Bank of Reconstruction and Development (IBRD)
C) World Bank (WB)
D) International Monetary Fund (IMF)
The Delta of an option is defined as:
A) expected change in the option premium for a small change in time to expiration.
B) expected change in the option premium for a small change in volatility.
C) expected change in the option premium for a small change in the spot rate.
D) expected change in the option premium for a small change in the domestic interest
rate.
The forward rate is calculated from all the following observable data items EXCEPT:
A) the forecast of the future spot exchange rate
B) the home currency deposit rate
C) the foreign currency deposit rate
D) the spot exchange rate
The maximum gain for the purchaser of a call option contract is ________ while the
maximum loss is ________.
A) unlimited; the premium paid.
B) the premium paid; unlimited.
C) unlimited; unlimited.
D) unlimited; the value of the underlying asset.
If a financial manager earning interest on a future date were to buy Futures and interest
rates end up going down, the position outcome would be:
A) Futures price falls; short earns a profit.
B) Futures price rises; short earns a loss.
C) Future price falls; long earns a loss.
D) Futures price rises; long earns a profit.
Which of the following were NOT identified by the authors as a variable that needs to
be modified in the domestic theory of optimal financial structures to accommodate the
case of the multinational enterprise.
A) Financial Distress
B) Availability of capital
C) Diversification of cash flows
D) Foreign exchange risk
Based on the premise that, other things equal, countries would prefer a fixed exchange
rate, which of the following statements is NOT true?
A) Fixed rates provide stability in international prices for the conduct of trade.
B) Fixed exchange rate regimes necessitate that central banks maintain large quantities
of international reserves for use in the occasional defense of the fixed rate.
C) Fixed rates are inherently inflationary in that they require the country to follow loose
monetary and fiscal policies.
D) Stable prices aid in the growth of international trade and lessen exchange rate risks
for businesses.
From a financial management perspective, all of the following are primary risks
associated with an international trade transaction EXCEPT:
A) currency risk
B) default risk
C) noncompletion risk
D) interest rate risk
According to your authors, MNEs can anticipate government regulations that are
discriminatory or wealth depriving from a/an ________ or ________ level view.
A) foreign; domestic
B) micro; macro
C) internal; external
D) local; global
When determining a firm’s weighted average cost of capital (WACC) which of the
following terms is NOT necessary?
A) the firm’s weight of equity financing
B) the risk-free rate of return
C) the firm’s weight of debt financing
D) All of the above are necessary to determine a firm’s WACC.
Which of the following is NOT a reason governments interfere with comparative
advantage?
A) Governments attempt to achieve full employment.
B) Governments promote economic development.
C) national self-sufficiency in defense-related industries
D) All are reasons governments interfere with comparative advantage.
Empirical studies indicate that WACC for an MNE is higher than for their domestic
competitors. Reasons cited for this increased cost include all of the following EXCEPT:
A) agency costs.
B) foreign exchange risk.
C) political risk.
D) All of the above are cited as reasons for an MNE’s increased WACC.
Under U.S. accounting and translation practices, use of the current rate method is
termed ________ while use of the temporal method is termed ________.
A) translation; the same
B) translation; remeasurement
C) remeasurement; the same
D) remeasurement; translation
Losses from ________ exposure generally reduce taxable income in the year they are
realized. ________ exposure losses are not cash losses and therefore, are not tax
deductible.
A) transaction; Operating
B) accounting; Operating
C) accounting; Transaction
D) transaction; Translation
If a firm’s balance sheet has an equal amount of exposed foreign currency assets and
liabilities and the firm translates by the temporal method, then:
A) the net exposed position is called monetary balance.
B) the change is value of liabilities and assets due to a change in exchange rates will be
of equal but opposite direction.
C) Both A and B are true.
D) none of the above
________ are domestic currencies of one country on deposit in a second country.
A) LIBORs
B) Eurocurrencies
C) Federal funds
D) Discount window deposits
The countries that use the euro as their currency have:
A) agreed to use a single currency (exchange rate stability), allow the free movement of
capital in and out of their economies (financial integration), but give up individual
control of their own money supply (monetary independence).
B) gained control over their own money supply (monetary independence), allowed the
free movement of capital in and out of their economies (financial integration), but give
up exchange rate stability.
C) agreed to use a single currency (exchange rate stability), allow individual control of
their own money supply (monetary independence), but give up the free movement of
capital in and out of their economies (financial integration).
D) none of the above
According to the International Fisher Effect, the forecast change in the spot rate
between two countries is equal to:
A) the current spot rate multiplied by the ratio of the inflation rates in the respective
countries.
B) but the opposite sign to the difference between nominal interest rates.
C) but the opposite sign to the difference between inflation rates.
D) but the opposite sign to the difference between real interest rates.
As of year-end 2010, the United States still held the world’s largest foreign exchange
reserve, but the total was rapidly being approached by China.
Costs associated with the purchase of sizeable put options positions include each of the
following EXCEPT:
A) the purchase price of the options.
B) the opportunity cost of buying the options rather than diversifying operations to
reduce risk.
C) executive salaries of having corporate offices in more than one country.
D) none of the above
If the goal were to decrease the value of a country’s currency – to fight an appreciation
of the domestic currency in exchange for foreign currency – the central bank would:
A) buy its own currency in exchange for foreign currency.
B) follow a restrictive monetary policy.
C) drive real rates of interest up.
D) sell its own currency in exchange for foreign currency.
A forward contract to deliver British pounds for U.S. dollars could be described either
as ________ or ________.
A) buying dollars forward; buying pounds forward
B) selling pounds forward; selling dollars forward
C) selling pounds forward; buying dollars forward
D) selling dollars forward; buying pounds forward
Which of the following primary principles of U.S. translation procedures in NOT true?
A) If the financial statements of the foreign subsidiary of a U.S. company are
maintained in U.S. dollars, translation is not required.
B) If the financial statements of the foreign subsidiary are maintained in the local
currency and the local currency is the functional currency, they are translated by the
temporal method.
C) If the financial statements of the foreign subsidiary are maintained in the local
currency and the U.S. dollar is the functional currency, they are remeasured by the
temporal method.
D) All of the above are true.