Question 1

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 2

A foreign affiliate may be an exporter, a joint venture, or a fully owned foreign subsidiary.

Accepted Answer

A) True 
 B)False

Question 3

An exporter is able to satisfy foreign demand for a product while avoiding long-term investment, although this method is considered riskier than all other alternatives.

Accepted Answer

A) True 
 B)False

Question 4

In a parallel loan arrangement,

Accepted Answer

A)  the United States parent firm lends dollars to the U.S.affiliate, while the Dutch parent firm lends guilders to the Dutch affiliate.
B)  the United States parent firm lends dollars to the Dutch affiliate, while the Dutch parent lends guilders to the American affiliate.
C)  the United States parent lends guilders to the Dutch affiliate, while the Dutch parent lends dollars to the American affiliate.
D)  the parent firms lend funds to each other, while the affiliates lend funds to each other.E) None of the above
F) All of the above

Question 5

Because of political risk, it is generally disadvantageous for U.S. firms to list their stocks on the world stock exchanges.

Accepted Answer

A) True 
 B)False

Question 6

To add financial strength and stability, the countries of Greece and Portugal are now considering joining the "Eurozone."

Accepted Answer

A) True 
 B)False

Question 7

The most widely used currency in the Eurobond market is the euro.

Accepted Answer

A) True 
 B)False

Question 8

Suppose a Swedish krona sells for $0.1309 and a British pound sells for $1.5119. What is the exchange rate (cross rate) of the Swedish krona to the British pound? That is, how many Swedish kronas are equal to a British pound?

Accepted Answer

One dollar is worth 7.639 Swedish kronas...

Question 9

An "ADR" is used to

Accepted Answer

A)  facilitate investment in foreign shares by American investors.
B)  allow American investors to participate in the debt securities of other countries.
C)  guarantee dividends from foreign companies.
D)  insure against foreign exchange currency risk.E) B) and C)
F) All of the above

Question 10

The future rates of currency tend to increase for dates further in the future because of the increasing uncertainty over time.

Accepted Answer

A) True 
 B)False

Question 11

In a licensing agreement, the multinational corporation will very likely

Accepted Answer

A)  be able to compete with the local domestic manufacturers.
B)  experience import restrictions imposed by the foreign government.
C)  allow a foreign firm to use its technology in exchange for a fee.
D)  None of these options are true.E) A) and D)
F) B) and C)

Question 12

Investors and firms who diversify their U.S. portfolios by buying foreign stocks or investing in foreign subsidiaries take on a much higher level of portfolio risk than if they had invested in domestic stocks or companies.

Accepted Answer

A) True 
 B)False

Question 13

There is no guarantee that any currency will stay strong relative to other currencies, but the dollar is an exception.

Accepted Answer

A) True 
 B)False

Question 14

The lower borrowing costs in the Eurodollar market as compared to the U.S. are often attributed to

Accepted Answer

A)  lower inflation abroad.
B)  higher inflation in the United States.
C)  slower money growth in the United States.
D)  smaller overhead costs and the absence of a compensating balance requirement abroad.E) C) and D)
F) A) and B)

Question 15

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

Accepted Answer

A)  foreign exchange risk.
B)  political risk.
C)  translation exposure.
D)  hedging risk.E) B) and C)
F) A) and C)

Question 16

A form of MNC that exposes the firm to the least amount of political risk, and is therefore the preferred arrangement by both business and foreign governments, is called

Accepted Answer

A)  an exporter.
B)  a licensing agreement.
C)  a joint venture.
D)  a fully owned foreign subsidiary.E) A) and D)
F) None of the above

Question 17

For a U.S. company, foreign business operations are more complex because the

Accepted Answer

A)  host country's economy may be different from the domestic economy.
B)  rules of taxation are different.
C)  structure and operations of financial markets vary.
D)  All of these options are true.E) All of the above
F) B) and D)

Question 18

The North American Free Trade Association (NAFTA) continues to generate more foreign trade despite some negative political views.

Accepted Answer

A) True 
 B)False

Question 19

The lending rate for borrowers in the Eurodollar market is based on the prime lending rate.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 21: International Financial Management

Investors and firms who diversify their U.S. portfolios by buying foreign stocks or investing in foreign subsidiaries take on a much higher level of portfolio risk than if they had invested in domestic stocks or companies.

Correct AnswerverifiedShow Answer

In a parallel loan arrangement,

Correct AnswerverifiedShow Answer

The future rates of currency tend to increase for dates further in the future because of the increasing uncertainty over time.

Correct AnswerverifiedShow Answer

The most widely used currency in the Eurobond market is the euro.

Correct AnswerverifiedShow Answer

An "ADR" is used to

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

Because of political risk, it is generally disadvantageous for U.S. firms to list their stocks on the world stock exchanges.

Correct AnswerverifiedShow Answer

The North American Free Trade Association (NAFTA) continues to generate more foreign trade despite some negative political views.

Correct AnswerverifiedShow Answer

For a U.S. company, foreign business operations are more complex because the

Correct AnswerverifiedShow Answer

To add financial strength and stability, the countries of Greece and Portugal are now considering joining the "Eurozone."

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

There is no guarantee that any currency will stay strong relative to other currencies, but the dollar is an exception.

Correct AnswerverifiedShow Answer

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

Correct AnswerverifiedShow Answer

An exporter is able to satisfy foreign demand for a product while avoiding long-term investment, although this method is considered riskier than all other alternatives.

Correct AnswerverifiedShow Answer

Suppose a Swedish krona sells for $0.1309 and a British pound sells for $1.5119. What is the exchange rate (cross rate) of the Swedish krona to the British pound? That is, how many Swedish kronas are equal to a British pound?

Correct AnswerverifiedOne dollar is worth 7.639 Swedish kronas...View AnswerShow Answer

The lending rate for borrowers in the Eurodollar market is based on the prime lending rate.

Correct AnswerverifiedShow Answer

A form of MNC that exposes the firm to the least amount of political risk, and is therefore the preferred arrangement by both business and foreign governments, is called

Correct AnswerverifiedShow Answer

In a licensing agreement, the multinational corporation will very likely

Correct AnswerverifiedShow Answer

The lower borrowing costs in the Eurodollar market as compared to the U.S. are often attributed to

Correct AnswerverifiedShow Answer

A foreign affiliate may be an exporter, a joint venture, or a fully owned foreign subsidiary.

Correct AnswerverifiedShow Answer

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One dollar is worth 7.639 Swedish kronas...
View Answer

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