Question 1

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 2

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) A) and E)
G) A) and D)

Question 3

Suppose 90-day investments in Britain have a 6% annualized return and a 1.5% quarterly (90-day)  return. In the U.S., 90-day investments of similar risk have a 4% annualized return and a 1% quarterly (90-day)  return. In the 90-day forward market, 1 British pound equals $1.65. If interest rate parity holds, what is the spot exchange rate?

Accepted Answer

A)   1 pound = $1.8000
B)   1 pound = $1.6582
C)   1 pound = $1.0000
D)   1 pound = $0.8500
E)   1 pound = $0.6031F) A) and E)
G) A) and C)

Question 4

Suppose hockey skates sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP)  holds, what is the price of hockey skates in the United States?

Accepted Answer

A)   $14.79
B)   $63.00
C)   $74.55
D)   $85.88
E)   $147.88F) A) and C)
G) A) and E)

Question 5

If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will

Accepted Answer

A)   Appreciate against the U.S. dollar.
B)   Depreciate against the U.S. dollar.
C)   Remain unchanged against the U.S. dollar.
D)   Appreciate against other major currencies.E) None of the above
F) B) and C)

Question 6

If a dollar will buy fewer units of a foreign currency in the forward market than in the spot market, then the forward currency is said to be selling at a premium to the spot rate.

Accepted Answer

A) True 
 B)False

Question 7

Because political risk is seldom negotiable, it cannot be explicitly addressed in multinational corporate financial analysis.

Accepted Answer

A) True 
 B)False

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

The Eurodollar market is essentially a long-term market; most loans and deposits in this market have maturities longer than one year.

Accepted Answer

A) True 
 B)False

Question 10

Suppose that currently, 1 British pound 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?

Accepted Answer

A)   1 British pound equals 3.2400 Swiss francs
B)   1 British pound equals 2.6244 Swiss francs
C)   1 British pound equals 1.8588 Swiss francs
D)   1 British pound equals 1.0000 Swiss francs
E)   1 British pound equals 0.3810 Swiss francsF) All of the above
G) A) and B)

Question 11

Suppose one British pound can purchase 1.82 U.S. dollars today 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?

Accepted Answer

A)   1.12
B)   1.63
C)   1.82
D)   2.04
E)   3.64F) B) and E)
G) B) and D) D

Question 12

If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss francs can one U.S. dollar buy?

Accepted Answer

A)   0.50
B)   0.71
C)   1.00
D)   1.41
E)   2.81F) A) and B)
G) A) and D)

Question 13

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.

Accepted Answer

A) True 
 B)False  True

Question 14

Which of the following statements is NOT CORRECT?

Accepted Answer

A)   Any bond sold outside the country of the borrower is called an international bond.
B)   Foreign bonds and Eurobonds are two important types of international bonds.
C)   Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold.
D)   The term Eurobond applies only to foreign bonds denominated in U.S. currency.
E)   A foreign bond might pay a higher nominal interest rate than a U.S. bond.F) None of the above
G) B) and C) D

Question 15

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

Question 16

Which of the following is NOT a reason why companies move into international operations?

Accepted Answer

A)   To take advantage of lower production costs in regions where labor costs are relatively low.
B)   To develop new markets for the firm's products.
C)   To better serve their primary customers.
D)   Because important raw materials are located abroad.
E)   To increase their inventory levels.F) D) and E)
G) None of the above

Question 17

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 18

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?

Accepted Answer

A)   0.43
B)   0.86
C)   1.41
D)   1.64
E)   2.27F) A) and E)
G) A) and B)

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

The United States and most other major industrialized nations currently operate under a system of floating exchange rates.

Accepted Answer

A) True 
 B)False

Exam 17: Multinational Financial Management

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
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Correct Answer
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Correct Answer
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Suppose hockey skates sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP) holds, what is the price of hockey skates in the United States?

Correct Answer
verified

If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will

Correct Answer
verified

If a dollar will buy fewer units of a foreign currency in the forward market than in the spot market, then the forward currency is said to be selling at a premium to the spot rate.

Correct Answer
verified

Because political risk is seldom negotiable, it cannot be explicitly addressed in multinational corporate financial analysis.

Correct Answer
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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.

Correct Answer
verified

The Eurodollar market is essentially a long-term market; most loans and deposits in this market have maturities longer than one year.

Correct Answer
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Suppose that currently, 1 British pound 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?

Correct Answer
verified

Suppose one British pound can purchase 1.82 U.S. dollars today 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?

Correct Answer
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D

If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss francs can one U.S. dollar buy?

Correct Answer
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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.

Correct Answer
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True

Which of the following statements is NOT CORRECT?

Correct Answer
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D

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
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Which of the following is NOT a reason why companies move into international operations?

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

Correct Answer
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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?

Correct Answer
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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.

Correct Answer
verified

The United States and most other major industrialized nations currently operate under a system of floating exchange rates.

Correct Answer
verified

Exam 17: Multinational Financial Management

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose hockey skates sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP) holds, what is the price of hockey skates in the United States?

Correct AnswerverifiedShow Answer

If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will

Correct AnswerverifiedShow Answer

If a dollar will buy fewer units of a foreign currency in the forward market than in the spot market, then the forward currency is said to be selling at a premium to the spot rate.

Correct AnswerverifiedShow Answer

Because political risk is seldom negotiable, it cannot be explicitly addressed in multinational corporate financial analysis.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

The Eurodollar market is essentially a long-term market; most loans and deposits in this market have maturities longer than one year.

Correct AnswerverifiedShow Answer

Suppose that currently, 1 British pound 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?

Correct AnswerverifiedShow Answer

Suppose one British pound can purchase 1.82 U.S. dollars today 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?

Correct AnswerverifiedD

If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss francs can one U.S. dollar buy?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedTrue

Which of the following statements is NOT CORRECT?

Correct AnswerverifiedD

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

Which of the following is NOT a reason why companies move into international operations?

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

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?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

The United States and most other major industrialized nations currently operate under a system of floating exchange rates.

Correct AnswerverifiedShow Answer

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D

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True

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D

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