Exam 27: Multinational Financial Management

The cash flows relevant for a foreign investment should,from the parent company's perspective,include the financial cash flows that the subsidiary can legally send back to the parent company plus the cash flows that must remain in the foreign country.

A box of chocolate candy costs 28.80 Swiss francs in Switzerland and $20 in the United States.Assuming that purchasing power parity (PPP)holds,what is the current exchange rate?

If the United States is running a deficit trade balance with China,then in a free market we would expect the value of the Chinese yuan to depreciate against the U.S.dollar.

Suppose Stackpool Inc.had inventory in Britain valued at 240,000 pounds one year ago.The exchange rate for dollars to pounds was 1£ = 2 U.S.dollars.This year the exchange rate is 1£ = 1.82 U.S.dollars.The inventory in Britain is still valued at 240,000 pounds.What is the gain or loss in inventory value in U.S.dollars as a result of the change in exchange rates?

A product sells for $750 in the United States.The exchange rate is $1 to 1.65 Swiss francs.If purchasing power parity (PPP)holds,what is the price of the product in Switzerland?

Which of the following is NOT a reason why companies move into international operations?

When considering the risk of a foreign investment,a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification.

When the value of the U.S.dollar appreciates against another country's currency,we may purchase more of the foreign currency with a dollar.

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

If it takes $0.71 U.S.dollars to purchase one Swiss franc,how many Swiss francs can one U.S.dollar buy?

Suppose a carton of hockey pucks sell in Canada for 105 Canadian dollars,and 1 Canadian dollar equals 0.71 U.S.dollars.If purchasing power parity (PPP)holds,what is the price of hockey pucks in the United States?

Due to advanced communications technology and the standardization of general procedures,working capital management for multinational firms is no more complex than it is for large domestic firms.

In Japan,90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return.In the United States,90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%.All securities are of equal risk,and Japanese securities are denominated in terms of the Japanese yen.Assuming that interest rate parity holds in all markets,which of the following statements is most CORRECT?

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

Multinational financial management requires that financial analysts consider the effects of changing currency values.

Exchange rate risk is the risk that the cash flows from a foreign project,when converted to the parent company's currency,will be worth less than was originally projected because of exchange rate changes.

Individuals and corporations can buy or sell forward currencies to hedge their exchange rate exposure.Essentially,the process involves simultaneously selling the currency expected to appreciate in value and buying the currency expected to depreciate.

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

The Eurodollar market is essentially a long-term market; most loans and deposits in this market have maturities longer than one year.

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.