Question 1

Simulation is useful in the bonddenomination decision since it can:

Accepted Answer

A)  precisely compute the cost of financing with bonds denominated in a single foreign currency. 
B)  precisely compute the cost of financing with bonds denominated in a portfolio of foreign currencies. 
C)  assess the probability that a bond denominated in a foreign currency will be less costly than a bond denomin ated in the home currency. 
D)  A and B 
A)  precisely compute the cost of financing with bonds denominated in a single foreign currency. 
B)  precisely compute the cost of financing with bonds denominated in a portfolio of foreign currencies. 
C)  assess the probability that a bond denominated in a foreign currency will be less costly than a bond denomin ated in the home currency. 
D)  A and B C

Question 2

Good Company prefers variable to fixed rate debt.Bad Company prefers fixed to variable rate debt.Assume the following information for Good and Bad Companies:
 
Given this information:

Accepted Answer

A)  an interest rate swap will probably not be advantageous to Good Company because it can issue both fixed and variable debt at more attractive rates than Bad Company. 
B)  an interest rate swap attractive to both parties could result if Good Company agreed to provide Bad Company with variable rate payments at LIBOR + 1% in exchange for fixed rate payments of 10.5%. 
C)  an interest rate swap attractive to both parties could result if Bad Company agreed to provide Good Company with variable rate payments at LIBOR + 1% in exchange for fixed rate payments of 10.5%. 
D)  none of the above 
A)  an interest rate swap will probably not be advantageous to Good Company because it can issue both fixed and variable debt at more attractive rates than Bad Company. 
B)  an interest rate swap attractive to both parties could result if Good Company agreed to provide Bad Company with variable rate payments at LIBOR + 1% in exchange for fixed rate payments of 10.5%. 
C)  an interest rate swap attractive to both parties could result if Bad Company agreed to provide Good Company with variable rate payments at LIBOR + 1% in exchange for fixed rate payments of 10.5%. 
D)  none of the above B

Question 3

Countries where bond yields are ________ tend to have a _______ risk-free interest rate.

Accepted Answer

A)  low;high 
B)  high;low 
C)  high;high 
D)  none of the above 
A)  low;high 
B)  high;low 
C)  high;high 
D)  none of the above C

Question 4

If the foreign currency that was borrowed appreciates over time,an MNC will need fewer funds to cover the coupon or principal payments.[Assume the MNC has no other cash flows in that currency.]

Accepted Answer

A) True 
 B)False

Question 5

An MNC issuing pound-denominated bonds may be completely insulated from exchange rate risk associated with the bond if its foreign subsidiary makes the coupon and principal payments of the bond with its pound receivables.

Accepted Answer

A) True 
 B)False

Question 6

A U.S.firm has a Canadian subsidiary that remits some of its earnings to the parent on an annual basis.  The firm has no other foreign business.  The firm could best reduce its exposure to exchange rate risk by issuing bonds denominated in:

Accepted Answer

A)  U.S. dollars. 
B)  Canadian dollars. 
C)  multiple currencies. 
D)  a unit of account such as the SDR. 
A)  U.S. dollars. 
B)  Canadian dollars. 
C)  multiple currencies. 
D)  a unit of account such as the SDR.

Question 7

In a(an)___________ swap,two parties agree to exchange payments associated with bonds;in a(an)____________ swap,two parties agree to periodically exchange foreign currencies.

Accepted Answer

A)  interest rate;currency 
B)  currency;interest rate 
C)  interest rate;interest rate 
D)  currency;currency 
A)  interest rate;currency 
B)  currency;interest rate 
C)  interest rate;interest rate 
D)  currency;currency

Question 8

A floating coupon rate can be an advantage to the bond issuer during periods of increasing interest rates.

Accepted Answer

A) True 
 B)False

Question 9

Two limitations of interest rate swaps are that there is a cost of time and resources associated with searching for a suitable partner and that there is a risk to each swap participant that the counterparticipant could default on his payments.

Accepted Answer

A) True 
 B)False

Question 10

Minnie Corp.has decided to issue three-year bonds denominated in 5,000,000 Slovakian koruna (SKK)at par.The bonds have a coupon rate of 17%.If the koruna is expected to appreciate from its current level of $.03 to $.032,$.034,and $.035 in years 1,2,and 3,respectively,what is the financing cost of these bonds

Accepted Answer

A)  17%. 
B)  23.18%. 
C)  22.36%. 
D)  23.39%. 
A)  17%. 
B)  23.18%. 
C)  22.36%. 
D)  23.39%.

Question 11

Some firms may be uncomfortable issuing bonds denominated in foreign currencies because exchange rates are __________ difficult to predict over ________ time horizons.

Accepted Answer

A)  less;long 
B)  more;short 
C)  more;long 
D)  none of the above 
A)  less;long 
B)  more;short 
C)  more;long 
D)  none of the above

Question 12

An interest rate swap is commonly used by an issuer of fixed-rate bonds to:

Accepted Answer

A)  convert to floating-rate debt. 
B)  hedge exchange rate risk. 
C)  lock in the interest payments on debt. 
D)  remove the default risk of its debt. 
A)  convert to floating-rate debt. 
B)  hedge exchange rate risk. 
C)  lock in the interest payments on debt. 
D)  remove the default risk of its debt.

Question 13

A back-to-back (also called parallel)loan represents simultaneous loans provided by two parties with an agreement to repay at a specified point in the future.

Accepted Answer

A) True 
 B)False

Question 14

A currency swap between two firms of different countries enables the exchange of __________ for ___________ at periodic intervals.

Accepted Answer

A)  stock;one currency 
B)  stock;a portfolio of foreign currencies 
C)  one currency;stock options 
D)  one currency;another currency 
A)  stock;one currency 
B)  stock;a portfolio of foreign currencies 
C)  one currency;stock options 
D)  one currency;another currency

Question 15

When financing international operations,MNCs typically will not use a maturity that _________ the expected life of the business in that country.

Accepted Answer

A)  is less than 
B)  exceeds 
C)  is the same as 
D)  none of the above 
A)  is less than 
B)  exceeds 
C)  is the same as 
D)  none of the above

Question 16

U.S.-based MNCs whose foreign subsidiary generates large earnings may be able to offset exposure to exchange rate risk by issuing bonds denominated in the subsidiary's local currency.

Accepted Answer

A) True 
 B)False

Question 17

Firm "X" conducts all business transactions in U.S.dollars.  If it issues a currency cocktail bond,it can:

Accepted Answer

A)  reduce exchange rate risk relative to issuing a bond denominated in U.S. dollars. 
B)  reduce exchange rate risk relative to issuing a bond denominated in a single foreign currency. 
C)  A and B 
D)  none of the above 
A)  reduce exchange rate risk relative to issuing a bond denominated in U.S. dollars. 
B)  reduce exchange rate risk relative to issuing a bond denominated in a single foreign currency. 
C)  A and B 
D)  none of the above

Question 18

If an MNC uses a long-term forward contract to hedge the exchange rate risk associated with a bond denominated in euros,it would sell euros forward.

Accepted Answer

A) True 
 B)False

Question 19

_____________ are beneficial because they may reduce transaction costs.However,MNCs may not be able to obtain all the funds that they need.

Accepted Answer

A)  Private placements 
B)  Domestic equity offerings 
C)  Global equity offerings 
D)  Global debt offerings 
A)  Private placements 
B)  Domestic equity offerings 
C)  Global equity offerings 
D)  Global debt offerings

Question 20

When ignoring exchange rate risk,bond yields:

Accepted Answer

A)  are the same for all currencies. 
B)  are consistently higher for all non U.S. bonds than U.S. bonds. 
C)  are consistently lower for all non U.S. bonds than U.S. bonds. 
D)  none of the above 
A)  are the same for all currencies. 
B)  are consistently higher for all non U.S. bonds than U.S. bonds. 
C)  are consistently lower for all non U.S. bonds than U.S. bonds. 
D)  none of the above

Simulation is useful in the bonddenomination decision since it can:

Good Company prefers variable to fixed rate debt.Bad Company prefers fixed to variable rate debt.Assume the following information for Good and Bad Companies: Given this information:

Countries where bond yields are __ tend to have a _ risk-free interest rate.

If the foreign currency that was borrowed appreciates over time,an MNC will need fewer funds to cover the coupon or principal payments.[Assume the MNC has no other cash flows in that currency.]

An MNC issuing pound-denominated bonds may be completely insulated from exchange rate risk associated with the bond if its foreign subsidiary makes the coupon and principal payments of the bond with its pound receivables.

A U.S.firm has a Canadian subsidiary that remits some of its earnings to the parent on an annual basis. The firm has no other foreign business. The firm could best reduce its exposure to exchange rate risk by issuing bonds denominated in:

In a(an)_ swap,two parties agree to exchange payments associated with bonds;in a(an)__ swap,two parties agree to periodically exchange foreign currencies.

A floating coupon rate can be an advantage to the bond issuer during periods of increasing interest rates.

Two limitations of interest rate swaps are that there is a cost of time and resources associated with searching for a suitable partner and that there is a risk to each swap participant that the counterparticipant could default on his payments.

Some firms may be uncomfortable issuing bonds denominated in foreign currencies because exchange rates are __ difficult to predict over time horizons.

An interest rate swap is commonly used by an issuer of fixed-rate bonds to:

A back-to-back (also called parallel)loan represents simultaneous loans provided by two parties with an agreement to repay at a specified point in the future.

A currency swap between two firms of different countries enables the exchange of for _ at periodic intervals.

When financing international operations,MNCs typically will not use a maturity that _________ the expected life of the business in that country.

U.S.-based MNCs whose foreign subsidiary generates large earnings may be able to offset exposure to exchange rate risk by issuing bonds denominated in the subsidiary's local currency.

Firm "X" conducts all business transactions in U.S.dollars. If it issues a currency cocktail bond,it can:

If an MNC uses a long-term forward contract to hedge the exchange rate risk associated with a bond denominated in euros,it would sell euros forward.

_____________ are beneficial because they may reduce transaction costs.However,MNCs may not be able to obtain all the funds that they need.

When ignoring exchange rate risk,bond yields:

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation,Interest Rates,and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

Multinational Restructuring

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 18: Long-Term Financing

Simulation is useful in the bonddenomination decision since it can:

Good Company prefers variable to fixed rate debt.Bad Company prefers fixed to variable rate debt.Assume the following information for Good and Bad Companies: Given this information:

Countries where bond yields are ________ tend to have a _______ risk-free interest rate.

If the foreign currency that was borrowed appreciates over time,an MNC will need fewer funds to cover the coupon or principal payments.[Assume the MNC has no other cash flows in that currency.]

An MNC issuing pound-denominated bonds may be completely insulated from exchange rate risk associated with the bond if its foreign subsidiary makes the coupon and principal payments of the bond with its pound receivables.

A U.S.firm has a Canadian subsidiary that remits some of its earnings to the parent on an annual basis. The firm has no other foreign business. The firm could best reduce its exposure to exchange rate risk by issuing bonds denominated in:

In a(an)___________ swap,two parties agree to exchange payments associated with bonds;in a(an)____________ swap,two parties agree to periodically exchange foreign currencies.

A floating coupon rate can be an advantage to the bond issuer during periods of increasing interest rates.

Two limitations of interest rate swaps are that there is a cost of time and resources associated with searching for a suitable partner and that there is a risk to each swap participant that the counterparticipant could default on his payments.

Some firms may be uncomfortable issuing bonds denominated in foreign currencies because exchange rates are __________ difficult to predict over ________ time horizons.

An interest rate swap is commonly used by an issuer of fixed-rate bonds to:

A back-to-back (also called parallel)loan represents simultaneous loans provided by two parties with an agreement to repay at a specified point in the future.

A currency swap between two firms of different countries enables the exchange of __________ for ___________ at periodic intervals.

When financing international operations,MNCs typically will not use a maturity that _________ the expected life of the business in that country.

U.S.-based MNCs whose foreign subsidiary generates large earnings may be able to offset exposure to exchange rate risk by issuing bonds denominated in the subsidiary's local currency.

Firm "X" conducts all business transactions in U.S.dollars. If it issues a currency cocktail bond,it can:

If an MNC uses a long-term forward contract to hedge the exchange rate risk associated with a bond denominated in euros,it would sell euros forward.

_____________ are beneficial because they may reduce transaction costs.However,MNCs may not be able to obtain all the funds that they need.

When ignoring exchange rate risk,bond yields:

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation,Interest Rates,and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

Multinational Restructuring

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Countries where bond yields are __ tend to have a _ risk-free interest rate.

In a(an)_ swap,two parties agree to exchange payments associated with bonds;in a(an)__ swap,two parties agree to periodically exchange foreign currencies.

Some firms may be uncomfortable issuing bonds denominated in foreign currencies because exchange rates are __ difficult to predict over time horizons.

A currency swap between two firms of different countries enables the exchange of for _ at periodic intervals.