Question 1

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.

Accepted Answer

A)   premium of 8%
B)   premium of 18%
C)   discount of 18%
D)   discount of 8%
E)   premium of 16%F) B) and C)
G) A) and D)

Question 2

Due to advanced communications technology and the standardization of general procedures, working capital management for multinational firms is no more complex than it is for large domestic firms.

Accepted Answer

A) True 
 B)False

Question 3

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

Accepted Answer

A) True 
 B)False

Question 4

Multinational financial management requires that financial analysts consider the effects of changing currency values.

Accepted Answer

A) True 
 B)False

Question 5

Credit policy for multinational firms is generally more risky due in part to the additional consideration of exchange rates and also due to uncertainty regarding the credit worthiness of many foreign customers.

Accepted Answer

A) True 
 B)False

Question 6

Suppose a U.S. firm buys $200,000 worth of television tubes from a Mexican manufacturer for delivery in 60 days with payment to be made in 90 days (30 days after the goods are received) . The rising U.S. deficit has caused the dollar to depreciate against the peso recently. The current exchange rate is 5.50 pesos per U.S. dollar. The 90-day forward rate is 5.45 pesos/dollar. The firm goes into the forward market today and buys enough Mexican pesos at the 90-day forward rate to completely cover its trade obligation. Assume the spot rate in 90 days is 5.30 Mexican pesos per U.S. dollar. How much in U.S. dollars did the firm save by eliminating its foreign exchange currency risk with its forward market hedge?

Accepted Answer

A)   $0
B)   $1,834.86
C)   $4,517.26
D)   $5,712.31
E)   $7,547.17F) C) and D)
G) A) and C)

Question 7

In Japan, 90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return. In the United States, 90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%. All securities are of equal risk, and Japanese securities are denominated in terms of the Japanese yen. Assuming that interest rate parity holds in all markets, which of the following statements is most CORRECT?

Accepted Answer

A)   The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 90-day forward market.
B)   The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 180-day forward market.
C)   The yen-dollar exchange rate in the 90-day forward market equals the yen-dollar exchange rate in the 180-day forward market.
D)   The spot rate equals the 90-day forward rate.
E)   The spot rate equals the 180-day forward rate.F) C) and E)
G) D) and E)

Question 8

When considering the risk of a foreign investment, a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification.

Accepted Answer

A) True 
 B)False

Question 9

A foreign currency will, on average, depreciate against the U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States.

Accepted Answer

A) True 
 B)False

Exam 17: Multinational Financial Management

Correct Answer
verified

A foreign currency will, on average, depreciate against the U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States.

Correct Answer
verified

Multinational financial management requires that financial analysts consider the effects of changing currency values.

Correct Answer
verified

Credit policy for multinational firms is generally more risky due in part to the additional consideration of exchange rates and also due to uncertainty regarding the credit worthiness of many foreign customers.

Correct Answer
verified

When considering the risk of a foreign investment, a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification.

Correct Answer
verified

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.

Correct Answer
verified

Correct Answer
verified

Due to advanced communications technology and the standardization of general procedures, working capital management for multinational firms is no more complex than it is for large domestic firms.

Correct Answer
verified

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

Correct Answer
verified

Exam 17: Multinational Financial Management

Correct AnswerverifiedShow Answer

A foreign currency will, on average, depreciate against the U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States.

Correct AnswerverifiedShow Answer

Multinational financial management requires that financial analysts consider the effects of changing currency values.

Correct AnswerverifiedShow Answer

Credit policy for multinational firms is generally more risky due in part to the additional consideration of exchange rates and also due to uncertainty regarding the credit worthiness of many foreign customers.

Correct AnswerverifiedShow Answer

When considering the risk of a foreign investment, a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Due to advanced communications technology and the standardization of general procedures, working capital management for multinational firms is no more complex than it is for large domestic firms.

Correct AnswerverifiedShow Answer

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified