Exam 21: International Cash Management

Assume that a U.S. firm considers investing in British one-year Treasury securities. The interest rate on these securities is 12 percent, while the U.S. interest rate on the same securities is 10 percent. The firm believes that today's spot rate is an appropriate forecast for the spot rate of the pound in one year. Based on this information, the effective yield on British securities from the U.S. firm's perspective is:​

In a bilateral netting system, transactions between the parent and a subsidiary or between two subsidiaries are consolidated over a specific period of time.

An MNC has determined that the degree of appreciation for the Singapore dollar that equates the foreign and domestic yield is 2 percent. If the Singapore dollar appreciates by less than 2 percent, the investment in Singapore will be more attractive.

Since exchange rate forecasts are not always accurate, a probability distribution of possible exchange rates may be preferable to a single point estimate. ​

Assume that Subsidiaries X and Y of the same MNC often trade with each other. Assume that Subsidiary X has excess cash while Subsidiary Y is short on cash. How can Subsidiary X help Subsidiary Y?

An MNC that uses a strategy of dynamic hedging will apply a hedge when it expects a foreign currency that it holds to appreciate, and it will remove the hedge when it expects the currency to depreciate.

In general, exchange rate fluctuations cause cash flows to be more volatile and uncertain.

Assume that you forecast the value of the euro as follows for the next year: ​ Percentage Change Probability of Occurrence -2% 30% 3% 40% 5% 30% ​ If the interest rate on the euro is 12 percent, the expected effective yield from a euro-denominated deposit is:

The Swiss one-year interest rate is 7 percent, while the U.S. one-year interest rate is 2 percent. Assume that interest rate parity exists. If a U.S. firm invests in a Swiss one-year deposit and sells Swiss francs forward with a forward contract to hedge its exchange rate exposure, the effective yield from investing in a one-year deposit in Switzerland will be about:

According to ____, the effective yield earned by U.S. investors will be the same as the effective yield earned by non-U.S. investors in any given period.

Which of the following statements is false?​

When investing in a portfolio of foreign currencies, the currencies represented within the portfolio are ideally highly positively correlated. ​

According to the international Fisher effect:​

A common purpose of intersubsidiary leading or lagging strategies is to:

Which of the following is a strategy than an MNC might use when the host country where a subsidiary is located imposes restrictions blocking the transfer of funds from the country?

If interest rate parity exists, and the forward rate is an accurate forecast of the future spot rate:

Assume Scarlett Corporation, a U.S.-based MNC, invests 2,500,000 Zambian kwacha (ZMK) for a one-year period at a nominal interest rate of 9 percent. At the time the loan is extended, the spot rate of the kwacha is $.00060. If the spot rate of the kwacha in one year is $.00056, the dollar amount initially invested in Zambia is $____, and $____ are paid out after one year.

The Thai one-year interest rate is 10 percent, while the U.S. one-year interest rate is 4 percent. Assume that interest rate parity exists. If a U.S.-based MNC uses the forward rate to forecast the exchange rate of the Thai baht in one year, the expected effective yield from investing in a one-year deposit in Thailand is:

A ____ allows customers to send payments to a post office box.​

Which of the following is true?