Question 1

If the inflation rate in the United States is greater than the inflation rate in Sweden, other things held constant, the Swedish currency 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)  Appreciate against the dollar and other major currencies. 
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)  Appreciate against the dollar and other major currencies.

Question 2

If one U.S. dollar buys 1.64 Canadian, how many U.S. dollars can you purchase for one Canadian dollar?

Accepted Answer

A)  1.64 
B)  3.28 
C)  0.61 
D)  1.00 
E)  0.37 
A)  1.64 
B)  3.28 
C)  0.61 
D)  1.00 
E)  0.37

Question 3

In the spot market, 1 U.S. dollar equals 1.60 Canadian dollars. 6-month Canadian securities have an annualized return of 6 percent (and therefore have a 6-month periodic return equal to 3 percent). 6-month U.S. securities have an annualized return of 6.5 percent and a periodic return of 3.25 percent. If interest rate parity holds, what is the U.S. dollar-Canadian dollar exchange rate in the 180-day forward market?

Accepted Answer

A)  1 U.S. dollar = 0.6235 Canadian. dollars 
B)  1 U.S. dollar = 0.6265 Canadian. dollars 
C)  1 U.S. dollar = 1.0000 Canadian. dollars 
D)  1 U.S. dollar = 1.5961 Canadian. dollars 
E)  1 U.S. dollar = 1.6039 Canadian. dollars 
A)  1 U.S. dollar = 0.6235 Canadian. dollars 
B)  1 U.S. dollar = 0.6265 Canadian. dollars 
C)  1 U.S. dollar = 1.0000 Canadian. dollars 
D)  1 U.S. dollar = 1.5961 Canadian. dollars 
E)  1 U.S. dollar = 1.6039 Canadian. dollars

Question 4

Exchange rate quotations consist solely of direct quotations.

Accepted Answer

A) True 
 B)False

Question 5

Sunware Corporation, a U.S. based importer, makes a purchase of crystal glassware from a firm in Switzerland for 39,960 Swiss francs or $24,000, at the spot rate of 1.665 francs per dollar. The terms of the purchase are net 90 days, and the U.S. firm wants to cover this trade payable with a forward market hedge to eliminate its exchange rate risk. Suppose the firm completes a forward hedge at the 90-day forward rate of 1.682 francs. If the spot rate in 90 days is actually 1.638 francs, how much will the U.S. firm have saved in U.S. dollars by hedging its exchange rate exposure?

Accepted Answer

A)  -$396 
B)  -$243 
C)  $ 0 
D)  $243 
E)  $638 
A)  -$396 
B)  -$243 
C)  $ 0 
D)  $243 
E)  $638

Question 6

In 1985, a particular Japanese imported automobile sold for 1,476,000 yen or $8,200. If the car still sells for the same amount of yen today but the current exchange rate is 144 yen per dollar, what is the car selling for today in U.S. dollars?

Accepted Answer

A)  $10,250 
B)  $12,628 
C)  $ 8,200 
D)  $ 5,964 
E)  $13,525 
A)  $10,250 
B)  $12,628 
C)  $ 8,200 
D)  $ 5,964 
E)  $13,525

Question 7

If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market, then the forward currency is said to be selling at a discount to the spot rate.

Accepted Answer

A) True 
 B)False

Question 8

Exchange rate risk is the risk that the cash flows from a foreign project will be worth less than those same cash flows denominated in the parent company's home currency.

Accepted Answer

A) True 
 B)False

Question 9

Solartech Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, Solartech agreed to make the bill payable in yen, thus agreeing to take on exchange rate risk for the transaction. The terms were net 6 months. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would Solartech actually receive after it exchanged yen for U.S. dollars?

Accepted Answer

A)  $1,000,000 
B)  $1,025,000 
C)  $1,075,958 
D)  $ 929,404 
E)  $ 975,610 
A)  $1,000,000 
B)  $1,025,000 
C)  $1,075,958 
D)  $ 929,404 
E)  $ 975,610

Question 10

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 percent against the pound over the next 30 days. How many dollars will a pound buy in 30 days?

Accepted Answer

A)  1.82 
B)  3.64 
C)  1.12 
D)  2.04 
E)  1.63 
A)  1.82 
B)  3.64 
C)  1.12 
D)  2.04 
E)  1.63

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

A foreign currency will, on average, depreciate against the 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 13

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 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

Which of the following are reasons why companies move into international operations?

Accepted Answer

A)  To take advantage of lower production costs in regions of inexpensive labor. 
B)  To develop new markets for their finished products. 
C)  To better serve their primary customers. 
D)  Because important raw materials are located abroad. 
E)  All of the above. 
A)  To take advantage of lower production costs in regions of inexpensive labor. 
B)  To develop new markets for their finished products. 
C)  To better serve their primary customers. 
D)  Because important raw materials are located abroad. 
E)  All of the above.

Question 17

Which of the following statements is false?

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)  None of the above. 
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)  None of the above.

Question 18

If the United States is running a deficit trade balance with Great Britain, we would expect the value of the British pound to depreciate against the U.S. dollar.

Accepted Answer

A) True 
 B)False

Question 19

The threat of expropriation creates an incentive for the multinational firm to minimize inventory holdings and to bring in goods only as needed.

Accepted Answer

A) True 
 B)False

Question 20

Multinational financial management requires that

Accepted Answer

A)  The effects of changing currency values be included in financial analyses. 
B)  Legal and economic differences be considered in financial decisions. 
C)  Political risk be excluded from multinational corporate financial analyses. 
D)  All of the above. 
E)  Only a and b above. 
A)  The effects of changing currency values be included in financial analyses. 
B)  Legal and economic differences be considered in financial decisions. 
C)  Political risk be excluded from multinational corporate financial analyses. 
D)  All of the above. 
E)  Only a and b above.

Exam 27: Multinational Financial Management

If the inflation rate in the United States is greater than the inflation rate in Sweden, other things held constant, the Swedish currency will

If one U.S. dollar buys 1.64 Canadian, how many U.S. dollars can you purchase for one Canadian dollar?

Exchange rate quotations consist solely of direct quotations.

In 1985, a particular Japanese imported automobile sold for 1,476,000 yen or $8,200. If the car still sells for the same amount of yen today but the current exchange rate is 144 yen per dollar, what is the car selling for today in U.S. dollars?

If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market, then the forward currency is said to be selling at a discount to the spot rate.

Exchange rate risk is the risk that the cash flows from a foreign project will be worth less than those same cash flows denominated in the parent company's home currency.

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 percent against the pound over the next 30 days. How many dollars will a pound buy in 30 days?

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

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

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

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.

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

Which of the following are reasons why companies move into international operations?

Which of the following statements is false?

If the United States is running a deficit trade balance with Great Britain, we would expect the value of the British pound to depreciate against the U.S. dollar.

The threat of expropriation creates an incentive for the multinational firm to minimize inventory holdings and to bring in goods only as needed.

Multinational financial management requires that

An Overview of Financial Management

Risk and Return: Part I

Risk and Return: Part II

Bond Valuation

Basic Stock Valuation

Financial Options

Accounting for Financial Management

Analysis of Financial Statements

Financial Planning and Forecasting Financial Statements

Determining the Cost of Capital

Corporate Valuation and Value-Based Management

Capital Budgeting: Decision Criteria

Capital Budgeting: Cash Flows and Risk

Real Options

Capital Structure Decisions: Part I

Capital Structure Decisions: Part II

Distributions to Shareholders

Ipos, Investment Banking, and Financial Restructuring

Lease Financing

Hybrid Financing

Working Capital Management

Providing and Obtaining Credit

Other Topics in Working Capital Management

Derivatives and Risk Management

Bankruptcy, Reorganization, and Liquidation

Mergers, Lbos, Divestitures, and Holding Companies

Filters