Question 1

An example of comparing cross rates for countries is like comparing the U.S. dollar to the Japanese yen.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements about foreign affiliates is (are)  true?

Accepted Answer

A)   In general, foreign affiliates are more profitable than domestic businesses.
B)   Foreign affiliates usually lower the portfolio risk of the parent company.
C)   Foreign affiliates may have a significant positive impact on the host company's economic growth, employment, trade, and balance of payments.
D)   All of these options are true.E) B) and C)
F) C) and D)

Question 3

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 4

In a licensing agreement, the multinational corporation will very likely

Accepted Answer

A)   be able to compete with the local domestic manufacturers.
B)   experience lower tariffs 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) B) and C)
F) A) and B)

Question 5

A form of multinational corporation (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) C) and D)

Question 6

A money market hedge does not require the use of a futures exchange.

Accepted Answer

A) True 
 B)False

Question 7

When a country has a weak currency relative to other countries, visiting that country is much more expensive for people that don't live in that country.

Accepted Answer

A) True 
 B)False

Question 8

In the financing of a foreign affiliate, the simplest and most common arrangement is a direct loan from the parent company to the subsidiary.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

During the global financial crisis that began in late 2008, the dollar fell in value relative to the British pound and the euro.

Accepted Answer

A) True 
 B)False

Question 11

Companies such as Coca-Cola and McDonald's generate more than 50% of their sales revenues from foreign activities.

Accepted Answer

A) True 
 B)False

Question 12

The interplay between interest rate differentials and exchange rates such that each adjusts until the foreign exchange market and the money market reach equilibrium is called the

Accepted Answer

A)   purchasing power parity theory.
B)   balance of payments.
C)   interest rate parity theory.
D)   multinational corporation.E) A) and B)
F) C) and D)

Question 13

Assume that you had U.S. dollar quotes for the Japanese yen and the British pound. If you want to know the yen/pound exchange rate, you would rely on

Accepted Answer

A)   forward rates.
B)   cross rates.
C)   The Wall Street Journal.
D)   hedge ratios.E) C) and D)
F) A) and B)

Question 14

Which of the following kinds of risk is NOT uniquely associated with multinational corporations (MNCs) ?

Accepted Answer

A)   Exchange rate risk
B)   Business risk
C)   Political risk
D)   None of these options are uniquely associated with MNCs.E) A) and D)
F) B) and D)

Question 15

According to the interest rate parity theory, interest rates along with exchange rates adjust until the foreign exchange market and the money market are in equilibrium.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following hedging strategies is not used to minimize transaction exposure?

Accepted Answer

A)   The Eurobond market
B)   The forward exchange market
C)   The money market
D)   The currency futures marketE) A) and D)
F) All of the above

Question 17

A joint venture with a private entrepreneur in a host country exposes the multinational corporation to the least amount of political risk.

Accepted Answer

A) True 
 B)False

Question 18

In a parallel loan arrangement, an example would be where

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) C) and D)
F) None of the above

Question 19

Currency exchange rates may be either floating or fixed.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements about forward exchange rates is false?

Accepted Answer

A)   They reduce uncertainty about the future value of currencies.
B)   They reflect expectations about the future value of currencies.
C)   They are usually slightly lower than the spot rate.
D)   All of these options are true.E) A) and B)
F) A) and D)

Exam 21: International Financial Management

An example of comparing cross rates for countries is like comparing the U.S. dollar to the Japanese yen.

Correct AnswerverifiedShow Answer

According to the interest rate parity theory, interest rates along with exchange rates adjust until the foreign exchange market and the money market are in equilibrium.

Correct AnswerverifiedShow Answer

A form of multinational corporation (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

Which of the following statements about forward exchange rates is false?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In a parallel loan arrangement, an example would be where

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

Assume that you had U.S. dollar quotes for the Japanese yen and the British pound. If you want to know the yen/pound exchange rate, you would rely on

Correct AnswerverifiedShow Answer

Which of the following statements about foreign affiliates is (are) true?

Correct AnswerverifiedShow Answer

Companies such as Coca-Cola and McDonald's generate more than 50% of their sales revenues from foreign activities.

Correct AnswerverifiedShow Answer

Which of the following hedging strategies is not used to minimize transaction exposure?

Correct AnswerverifiedShow Answer

During the global financial crisis that began in late 2008, the dollar fell in value relative to the British pound and the euro.

Correct AnswerverifiedShow Answer

In the financing of a foreign affiliate, the simplest and most common arrangement is a direct loan from the parent company to the subsidiary.

Correct AnswerverifiedShow Answer

When a country has a weak currency relative to other countries, visiting that country is much more expensive for people that don't live in that country.

Correct AnswerverifiedShow Answer

The interplay between interest rate differentials and exchange rates such that each adjusts until the foreign exchange market and the money market reach equilibrium is called the

Correct AnswerverifiedShow Answer

Currency exchange rates may be either floating or fixed.

Correct AnswerverifiedShow Answer

A joint venture with a private entrepreneur in a host country exposes the multinational corporation to the least amount of political risk.

Correct AnswerverifiedShow Answer

A money market hedge does not require the use of a futures exchange.

Correct AnswerverifiedShow Answer

Which of the following kinds of risk is NOT uniquely associated with multinational corporations (MNCs) ?

Correct AnswerverifiedShow Answer

In a licensing agreement, the multinational corporation will very likely

Correct AnswerverifiedShow Answer

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