Exam 22: International Financial Management

When the Federal Reserve (acting through member commercial banks) sells U.S.dollars in the foreign exchange market, it the supply of U.S.dollars and hence tends to the value of the U.S.dollar relative to other currencies.

The theory of interest rate parity states that the annual percentage differential in the forward market for a currency quoted in terms of another currency is equal to the approximate difference in prevailing in the two countries.

What are two hedging techniques that a U.S.company might use to protect itself against foreign exchange risk with regard to transaction exposure?

A U.S.company that purchases goods on credit from a German supplier can protect itself against transaction exchange risk by

When a multinational firm has one or more foreign subsidiaries with assets and liabilities denominated in a foreign currency, it faces exposure.

Under current accounting procedures, all of the following balance sheet items are translated into dollars at the rate of exchange prevailing on the date of the balance sheet except:

In general, when a foreign subsidiary's assets are than its liabilities, will occur when the exchange rate on the currency of the country in which the foreign subsidiary operates loses value.

Basic hedging techniques include all of the following except

What is the real rate of return if the risk-free rate is 4 percent and the expected rate of inflation is 2.5 percent?

How do market forces support the relative purchasing power parity?

Motorola has a contract to deliver cellular telephones in Japan in 6 months from now and the payment for these telephones will be in Japanese yen.What type of foreign exchange risk does Motorola face?

The law of one price, an economic principle, means that the price of a product in different markets should be:

Primary sources of demand for British pounds in the foreign exchange market include

What is the nominal interest rate in Canada if the real rate of return is 2.5% and the expected inflation rate was 4.5%

How does a firm manage economic exposure due to changes in exchange rates?

To protect itself against transaction exchange rate risk, a U.S.company that purchases automobiles from a Japanese manufacturer may use all of the following techniques except:

A parent company's foreign investment risk exposure depends on the foreign subsidiary's net position.

If the annual nominal interest rate on 5-year U.S.Government Treasury bonds is 7 percent, and the annual nominal interest rate on 5-year Canadian bonds is 5.5 percent, what is the expected future spot rate in 5 years given that the current spot exchange rate between U.S.dollars and Canadian dollars is $0.587?

Which of the following trade policies will tend to decrease the supply of the country's currency in the foreign exchange market?

Primary sources of supply of British pounds in the foreign exchange market include: