Question 1

Political risks include the possibility that a government may expropriate a firm's profits, or worse, repatriate all of the firm's assets.

Accepted Answer

A) True 
 B)False

Question 2

To minimize exposure to political risk, a multinational firm may:

Accepted Answer

A)   establish a joint venture with a local entrepreneur or a group of multinationals
B)   purchase an insurance policy from the Foreign Credit Insurance Association (FCI
A)  .
C)   hedge in the Eurodollar market.
D)   purchase an insurance policy from any foreign company within the area that the corporation is doing business.E) All of the above
F) A) and D)

Question 3

Multinational corporations (MNC)  may take several forms. An exporter could be described as

Accepted Answer

A)   a MNC that produces a product within its own borders, but sells in a foreign market.
B)   the least risky political arrangement.
C)   a MNC willing to commit itself to long-term foreign investment.
D)   More than one of the options is correct.E) B) and C)
F) A) and D)

Question 4

The term balance of payments refers to the flow of economic transactions between the residents of one country and the residents of another.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not a reason for U.S. firms operating in foreign markets?

Accepted Answer

A)   Less expensive labor
B)   Better economic and political environment (in the U.S.) 
C)   Tax incentives
D)   To achieve international diversificationE) A) and D)
F) A) and C)

Question 6

The value of a country's currency may increase by

Accepted Answer

A)   continuous excessive government spending.
B)   a stock market rally in that country.
C)   an increase in that country's money supply.
D)   More than one of the options is correct.E) All of the above
F) B) and C)

Question 7

The Eurobond market has which of the following characteristics?

Accepted Answer

A)   Eurobond issues are denominated in the currency where the bond issue is sold.
B)   Disclosure requirements in the Eurobond market are much less stringent than those required by the U.S. Securities and Exchange Commission.
C)   Eurobond issues are underwritten by the European Central Bank.
D)   Eurobond issues are always denominated in euros.E) All of the above
F) A) and C)

Question 8

Forward contracts tend to be created on organized exchanges like the International Money Market of the Chicago Mercantile Exchange.

Accepted Answer

A) True 
 B)False

Question 9

If one Czech crown is equal to $0.05 U.S. dollar, the U.S. dollar is equal to how many Czech crowns?

Accepted Answer

A)   25.00
B)   4.00
C)   20.00
D)   400.00E) B) and D)
F) B) and C)

Question 10

Which of the following factors will NOT increase the value of a currency in foreign markets?

Accepted Answer

A)   High interest rates in that country
B)   High inflation in that country
C)   A positive balance of payments with that country
D)   A strong stock market rally in that countryE) C) and D)
F) B) and D)

Question 11

A fronting loan disguises the identity of a parent multinational corporation that infuses money into a foreign subsidiary. This technique is intended to reduce the political risk of operating a subsidiary in a foreign country.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is true of forward and spot rates?

Accepted Answer

A)   The premium or discount is usually 7-10%.
B)   Spot and forward transactions generally occur on the organized exchange.
C)   The length of a forward and spot contract is generally between zero and six months.
D)   Both the forward and spot rate occur in the over-the-counter market.E) A) and D)
F) B) and C)

Question 13

A firm exposed to exchange rate risk can hedge its risk by

Accepted Answer

A)   using the forward exchange market.
B)   borrowing in international money markets.
C)   utilizing foreign currency futures markets.
D)   All of these options are true.E) All of the above
F) B) and D)

Question 14

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)  forms the basis for the

Accepted Answer

A)   purchasing power theory of exchange rates.
B)   interest rate parity theory of exchange rates.
C)   balance of payments theory of exchange rates.
D)   government intervention theory of exchange rates.E) A) and B)
F) A) and D)

Question 15

Which of the following hedging strategies involves a loan without a futures contract?

Accepted Answer

A)   The Eurobond market
B)   The forward exchange market
C)   The money market
D)   An International Money Market (IMM)  contractE) B) and D)
F) B) and C)

Question 16

Which of the following statements about the International Finance Corporation (IFC)  is false?

Accepted Answer

A)   The decision to assist a venture depends on both the profitability of the project and the potential benefit to the host country's economy.
B)   The IFC assumes no managerial responsibility and exercises no voting rights.
C)   The IFC may either buy equity shares or provide long-term loans.
D)   All of these options are true.E) A) and B)
F) B) and D)

Question 17

In Germany, restrictions limiting labor layoffs have encouraged companies to reduce investment there. Thus, in the long run, these labor protection laws actually could result in higher unemployment in Germany.

Accepted Answer

A) True 
 B)False

Question 18

In recent years, fully owned foreign subsidiaries are experiencing increased political pressure from foreign governments.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is NOT an example of a factor that can significantly influence exchange rates?

Accepted Answer

A)   The cost to purchase a loaf of bread in the U.S. has increased by $0.50 while the cost has remained the same in London.
B)   The cost of capital has increased by 2% in the U.S. and has decreased by 2% in Germany.
C)   Interest rates on short-term investments in the U.S. have decreased to 4% while interest rates in Japan are at 8%.
D)   The U.S. has begun to export a higher level of goods to China than the prior year.
E)   All of the above are factors that influence exchange rates.F) A) and C)
G) A) and E)

Question 20

You are leaving Mexico and have 290 pesos to change into dollars. The exchange rate is now 12 pesos to the dollar. Approximately how many dollars will you receive?

Accepted Answer

A)   $3025.00
B)   $24.17
C)   $264.00
D)   $3,480.00E) All of the above
F) None of the above

Exam 21: International Financial Management

A firm exposed to exchange rate risk can hedge its risk by

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In recent years, fully owned foreign subsidiaries are experiencing increased political pressure from foreign governments.

Correct AnswerverifiedShow Answer

The value of a country's currency may increase by

Correct AnswerverifiedShow Answer

Multinational corporations (MNC) may take several forms. An exporter could be described as

Correct AnswerverifiedShow Answer

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) forms the basis for the

Correct AnswerverifiedShow Answer

Which of the following is NOT an example of a factor that can significantly influence exchange rates?

Correct AnswerverifiedShow Answer

Which of the following hedging strategies involves a loan without a futures contract?

Correct AnswerverifiedShow Answer

Political risks include the possibility that a government may expropriate a firm's profits, or worse, repatriate all of the firm's assets.

Correct AnswerverifiedShow Answer

A fronting loan disguises the identity of a parent multinational corporation that infuses money into a foreign subsidiary. This technique is intended to reduce the political risk of operating a subsidiary in a foreign country.

Correct AnswerverifiedShow Answer

To minimize exposure to political risk, a multinational firm may:

Correct AnswerverifiedShow Answer

Forward contracts tend to be created on organized exchanges like the International Money Market of the Chicago Mercantile Exchange.

Correct AnswerverifiedShow Answer

The term balance of payments refers to the flow of economic transactions between the residents of one country and the residents of another.

Correct AnswerverifiedShow Answer

Which of the following statements about the International Finance Corporation (IFC) is false?

Correct AnswerverifiedShow Answer

Which of the following is not a reason for U.S. firms operating in foreign markets?

Correct AnswerverifiedShow Answer

If one Czech crown is equal to $0.05 U.S. dollar, the U.S. dollar is equal to how many Czech crowns?

Correct AnswerverifiedShow Answer

You are leaving Mexico and have 290 pesos to change into dollars. The exchange rate is now 12 pesos to the dollar. Approximately how many dollars will you receive?

Correct AnswerverifiedShow Answer

Which of the following is true of forward and spot rates?

Correct AnswerverifiedShow Answer

In Germany, restrictions limiting labor layoffs have encouraged companies to reduce investment there. Thus, in the long run, these labor protection laws actually could result in higher unemployment in Germany.

Correct AnswerverifiedShow Answer

Which of the following factors will NOT increase the value of a currency in foreign markets?

Correct AnswerverifiedShow Answer

The Eurobond market has which of the following characteristics?

Correct AnswerverifiedShow Answer

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