Question 1

What is the expected effective financing rate of the portfolio Martha is contemplating (assume the two currencies move independently from one another)

Accepted Answer

A)  9.03%. 
B)  7.00%. 
C)  10.00%. 
D)  7.59%. 
E)  none of the above 
A)  9.03%. 
B)  7.00%. 
C)  10.00%. 
D)  7.59%. 
E)  none of the above

Question 2

Assume that interest rate parity holds between the U.S.and Cyprus.The U.S.one-year interest rate is 7% and the Cyprus one-year interest rate is 6%.What is the approximate effective financing rate of a one-year loan denominated in Cyprus pounds assuming that the MNC covered its exposure by purchasing pounds one year forward

Accepted Answer

A)  6%. 
B)  7%. 
C)  1%. 
D)  cannot answer without more information 
A)  6%. 
B)  7%. 
C)  1%. 
D)  cannot answer without more information

Question 3

What is the expected financing rate of the portfolio contemplated by Cameron Corporation

Accepted Answer

A)  3.10%. 
B)  1.90%. 
C)  17.00%. 
D)  13.00%. 
E)  none of the above 
A)  3.10%. 
B)  1.90%. 
C)  17.00%. 
D)  13.00%. 
E)  none of the above

Question 4

Kushter Inc.would like to finance in euros.European interest rates are currently 4%,and the euro is expected to depreciate by 2% over the next year.What is Kushter's effective financing rate next year

Accepted Answer

A)  1.92% 
B)  2.00% 
C)  6.08% 
D)  none of the above 
A)  1.92% 
B)  2.00% 
C)  6.08% 
D)  none of the above

Question 5

A negative effective financing rate indicates that an MNC:

Accepted Answer

A)  paid only a small amount in interested over and above the amount borrowed. 
B)  has been negatively affected by a large appreciation of the foreign currency. 
C)  actually paid fewer dollars to repay the loan than it borrowed. 
D)  would have been better off borrowing in the U.S. 
A)  paid only a small amount in interested over and above the amount borrowed. 
B)  has been negatively affected by a large appreciation of the foreign currency. 
C)  actually paid fewer dollars to repay the loan than it borrowed. 
D)  would have been better off borrowing in the U.S.

Question 6

If all currencies in a financing portfolio are not correlated with each other,financing with such a portfolio would not be very different from financing with a single foreign currency.

Accepted Answer

A) True 
 B)False

Question 7

A negative effective financing rate implies that the U.S.firm actually paid fewer dollars in total loan repayment than the number of dollars borrowed.

Accepted Answer

A) True 
 B)False

Question 8

Assume Jelly Corporation,a U.S.-based MNC,obtains a one-year loan of 1,500,000 Malaysian ringgit (MYR)at a nominal interest rate of 7%.At the time the loan is extended,the spot rate of the ringgit is $.25.If the spot rate of the ringgit in one year is $.28,the dollar amount initially obtained from the loan is $__________,and $___________ are needed to repay the loan.

Accepted Answer

A)  375,000;449,400 
B)  449,400;375,000 
C)  6,000,000;5,357,143 
D)  5,357,143;6,000,000 
A)  375,000;449,400 
B)  449,400;375,000 
C)  6,000,000;5,357,143 
D)  5,357,143;6,000,000

Question 9

Assume a U.S.-based MNC is borrowing Romanian leu (ROL)at an interest rate of 8% for one year.Also assume that the spot rate of the leu is $.00012 and the one-year forward rate of the leu is $.00010.The expected spot rate of the leu one-year from now is $.00011.What is the effective financing rate for the MNC assuming it borrows leu on an uncovered basis

Accepted Answer

A)  about 10%. 
B)  about -10%. 
C)  about -1%. 
D)  about -2%. 
E)  none of the above 
A)  about 10%. 
B)  about -10%. 
C)  about -1%. 
D)  about -2%. 
E)  none of the above

Question 10

Euronotes are unsecured debt securities whose interest rate is based on the London Interbank Offer Rate (LIBOR)with typical maturities of one,three,and six months.

Accepted Answer

A) True 
 B)False

Question 11

MNCs can use short-term foreign financing to reduce their exposure to exchange rate fluctuations.For example,if an American-based MNC has ____________ in Algerian dinars,it could borrow ___________,resulting in an offsetting effect.

Accepted Answer

A)  payables;dinars 
B)  receivables;dinars 
C)  payables;dollars 
D)  receivables;dollars 
A)  payables;dinars 
B)  receivables;dinars 
C)  payables;dollars 
D)  receivables;dollars

Question 12

One reason an MNC may consider foreign financing is that the proceeds could be used to offset a foreign net payables position.

Accepted Answer

A) True 
 B)False

Question 13

MNCs may be able to lock in a lower cost from financing in a low interest rate foreign currency if they:

Accepted Answer

A)  have future cash inflows in that foreign currency. 
B)  have future cash outflows in that foreign currency. 
C)  have offsetting future cash inflows and outflows in that foreign currency. 
D)  have no other cash flows in that foreign currency. 
A)  have future cash inflows in that foreign currency. 
B)  have future cash outflows in that foreign currency. 
C)  have offsetting future cash inflows and outflows in that foreign currency. 
D)  have no other cash flows in that foreign currency.

Question 14

Assume the U.S.oneyear interest rate is 8%,and the British oneyear interest rate is 6%.  The oneyear forward rate of the pound is $1.97.  The spot rate of the pound at the beginning of the year is $1.95.  By the end of the year,the pound's spot rate is $2.05.  Based on the information,what is the effective financing rate for a U.S.firm that takes out a oneyear,uncovered British loan

Accepted Answer

A)  about 12.4%. 
B)  about 7.1%. 
C)  about 13.5%. 
D)  about 10.3%. 
E)  about 11.3%. 
A)  about 12.4%. 
B)  about 7.1%. 
C)  about 13.5%. 
D)  about 10.3%. 
E)  about 11.3%.

Question 15

___________ typically have maturities of less than one year.

Accepted Answer

A)  Eurobonds 
B)  Euro-commercial paper 
C)  Euronotes 
D)  ADRs 
A)  Eurobonds 
B)  Euro-commercial paper 
C)  Euronotes 
D)  ADRs

Question 16

A negative effective financing rate for a U.S.firm implies that the firm:

Accepted Answer

A)  will incur a loss on the project financed with the funds. 
B)  paid more interest on the funds than what it would have paid if it had borrowed dollars. 
C)  will be unable to repay the loan. 
D)  none of the above 
A)  will incur a loss on the project financed with the funds. 
B)  paid more interest on the funds than what it would have paid if it had borrowed dollars. 
C)  will be unable to repay the loan. 
D)  none of the above

Question 17

Assume the U.S.financing rate is 10 percent and that the financing rate in Germany is 9 percent.An MNC would be indifferent between financing in dollars and financing in euros next year if the euro is expected to ___________.

Accepted Answer

A)  appreciate by 0.92%. 
B)  depreciate by 0.92%. 
C)  appreciate by 1.00%. 
D)  depreciate by 1.00%. 
A)  appreciate by 0.92%. 
B)  depreciate by 0.92%. 
C)  appreciate by 1.00%. 
D)  depreciate by 1.00%.

Question 18

If interest rate parity exists,financing with a foreign currency may still be feasible,but it would have to be conducted on an uncovered basis (i.e.,without use of a forward hedge).

Accepted Answer

A) True 
 B)False

Question 19

A risk-averse firm would prefer to borrow __________ when the expected financing costs are similar in a foreign country as in the local country.

Accepted Answer

A)  locally 
B)  in the foreign country 
C)  either A or B 
D)  part of the funds locally, and part from the foreign country 
A)  locally 
B)  in the foreign country 
C)  either A or B 
D)  part of the funds locally, and part from the foreign country

Question 20

Assume the annual British interest rate is above the annual U.S.interest rate.  Also assume the pound's forward rate of $1.75 equals the pound's spot rate.  Given this information,interest rate parity __________ exist,and the U.S.firm __________ lock in a lower financing cost by borrowing pounds for one year.

Accepted Answer

A)  does;could 
B)  does;could not 
C)  does not;could not 
D)  does not;could 
A)  does;could 
B)  does;could not 
C)  does not;could not 
D)  does not;could

What is the expected effective financing rate of the portfolio Martha is contemplating (assume the two currencies move independently from one another)

What is the expected financing rate of the portfolio contemplated by Cameron Corporation

Kushter Inc.would like to finance in euros.European interest rates are currently 4%,and the euro is expected to depreciate by 2% over the next year.What is Kushter's effective financing rate next year

A negative effective financing rate indicates that an MNC:

If all currencies in a financing portfolio are not correlated with each other,financing with such a portfolio would not be very different from financing with a single foreign currency.

A negative effective financing rate implies that the U.S.firm actually paid fewer dollars in total loan repayment than the number of dollars borrowed.

Euronotes are unsecured debt securities whose interest rate is based on the London Interbank Offer Rate (LIBOR)with typical maturities of one,three,and six months.

MNCs can use short-term foreign financing to reduce their exposure to exchange rate fluctuations.For example,if an American-based MNC has __ in Algerian dinars,it could borrow _,resulting in an offsetting effect.

One reason an MNC may consider foreign financing is that the proceeds could be used to offset a foreign net payables position.

MNCs may be able to lock in a lower cost from financing in a low interest rate foreign currency if they:

___________ typically have maturities of less than one year.

A negative effective financing rate for a U.S.firm implies that the firm:

Assume the U.S.financing rate is 10 percent and that the financing rate in Germany is 9 percent.An MNC would be indifferent between financing in dollars and financing in euros next year if the euro is expected to ___________.

If interest rate parity exists,financing with a foreign currency may still be feasible,but it would have to be conducted on an uncovered basis (i.e.,without use of a forward hedge).

A risk-averse firm would prefer to borrow __________ when the expected financing costs are similar in a foreign country as in the local country.

Assume the annual British interest rate is above the annual U.S.interest rate. Also assume the pound's forward rate of $1.75 equals the pound's spot rate. Given this information,interest rate parity exist,and the U.S.firm lock in a lower financing cost by borrowing pounds for one year.

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

Long-Term Financing

Financing International Trade

International Cash Management

Filters

Exam 20: Short-Term Financing

What is the expected effective financing rate of the portfolio Martha is contemplating (assume the two currencies move independently from one another)

What is the expected financing rate of the portfolio contemplated by Cameron Corporation

Kushter Inc.would like to finance in euros.European interest rates are currently 4%,and the euro is expected to depreciate by 2% over the next year.What is Kushter's effective financing rate next year

A negative effective financing rate indicates that an MNC:

If all currencies in a financing portfolio are not correlated with each other,financing with such a portfolio would not be very different from financing with a single foreign currency.

A negative effective financing rate implies that the U.S.firm actually paid fewer dollars in total loan repayment than the number of dollars borrowed.

Euronotes are unsecured debt securities whose interest rate is based on the London Interbank Offer Rate (LIBOR)with typical maturities of one,three,and six months.

MNCs can use short-term foreign financing to reduce their exposure to exchange rate fluctuations.For example,if an American-based MNC has ____________ in Algerian dinars,it could borrow ___________,resulting in an offsetting effect.

One reason an MNC may consider foreign financing is that the proceeds could be used to offset a foreign net payables position.

MNCs may be able to lock in a lower cost from financing in a low interest rate foreign currency if they:

___________ typically have maturities of less than one year.

A negative effective financing rate for a U.S.firm implies that the firm:

Assume the U.S.financing rate is 10 percent and that the financing rate in Germany is 9 percent.An MNC would be indifferent between financing in dollars and financing in euros next year if the euro is expected to ___________.

If interest rate parity exists,financing with a foreign currency may still be feasible,but it would have to be conducted on an uncovered basis (i.e.,without use of a forward hedge).

A risk-averse firm would prefer to borrow __________ when the expected financing costs are similar in a foreign country as in the local country.

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

Long-Term Financing

Financing International Trade

International Cash Management

Filters

MNCs can use short-term foreign financing to reduce their exposure to exchange rate fluctuations.For example,if an American-based MNC has __ in Algerian dinars,it could borrow _,resulting in an offsetting effect.