Question 1

Foreign currency forward rates aid traders by reducing uncertainty regarding future market fluctuations.

Accepted Answer

A) True 
 B)False

Question 2

All of the following are examples of political risk for a U.S.company investing in a foreign country except:

Accepted Answer

A)  expropriation of plant and equipment. 
B)  the problem of blocked funds. 
C)  substantial changes in foreign country tax laws. 
D)  government requirements that ownership must be limited to U.S. citizens. 
A)  expropriation of plant and equipment. 
B)  the problem of blocked funds. 
C)  substantial changes in foreign country tax laws. 
D)  government requirements that ownership must be limited to U.S. citizens.

Question 3

Only purely domestic firms that buy all of their inputs and sell all of their outputs in their home countries are unaffected by events in international financial markets.

Accepted Answer

A) True 
 B)False

Question 4

One theory that is useful states that the forward premium or discount should be equal and opposite in sign to the difference in the national interest rates for securities of the same maturity.This theory is known as

Accepted Answer

A)  the forward rate theory. 
B)  the interest rate parity theory. 
C)  the exchange rate theory. 
D)  the covered interest arbitrage theory. 
A)  the forward rate theory. 
B)  the interest rate parity theory. 
C)  the exchange rate theory. 
D)  the covered interest arbitrage theory.

Question 5

Elimination of all foreign exchange risk

Accepted Answer

A)  should be the objective of a prudent financial manager. 
B)  should be analyzed on a cost-benefit basis. 
C)  both A and B. 
D)  neither A nor B. 
A)  should be the objective of a prudent financial manager. 
B)  should be analyzed on a cost-benefit basis. 
C)  both A and B. 
D)  neither A nor B.

Question 6

The law of one price suggests that all of the following will have the same price in different countries except:

Accepted Answer

A)  oil. 
B)  grain. 
C)  fresh vegetables. 
D)  silver. 
A)  oil. 
B)  grain. 
C)  fresh vegetables. 
D)  silver.

Question 7

A quote of .7645 euros per dollar in New York is an example of a direct quote.

Accepted Answer

A) True 
 B)False

Question 8

The U.S.dollar is the most frequently traded currency in foreign currency markets,accounting for over 40% of total trading.

Accepted Answer

A) True 
 B)False

Question 9

Short-term daily fluctuations in exchange rates are caused by supply and demand conditions in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 10

A company holding a net asset position in a depreciating currency should lead,and a company holding a net asset position in an appreciating currency should lag.

Accepted Answer

A) True 
 B)False

Question 11

Exchange rate risk is highest for companies with

Accepted Answer

A)  international trade contracts denominated in the foreign currency. 
B)  investment portfolios that contain foreign securities. 
C)  direct foreign investments in foreign subsidiaries. 
D)  international trade contracts denominated in the domestic currency. 
A)  international trade contracts denominated in the foreign currency. 
B)  investment portfolios that contain foreign securities. 
C)  direct foreign investments in foreign subsidiaries. 
D)  international trade contracts denominated in the domestic currency.

Question 12

The current direct quote in New York is .01075 dollars per yen.Suppose the current direct quote in Tokyo is 91 yen per dollar.What is the appropriate indirect quote in New York?
 What will arbitrageurs do to eliminate the differential rates in these markets?

Accepted Answer

Indirect Quote in New York = 1/.01075 =

Question 13

Leading and lagging

Accepted Answer

A)  are important risk-reduction techniques. 
B)  are useful when hedging is not available. 
C)  can be successfully applied for an MNC. 
D)  all of the above. 
A)  are important risk-reduction techniques. 
B)  are useful when hedging is not available. 
C)  can be successfully applied for an MNC. 
D)  all of the above.

Question 14

Investments in capital markets in foreign countries are motivated by the desire to earn higher returns and reduce risk through international diversification.

Accepted Answer

A) True 
 B)False

Question 15

The bid-asked spread is much lower for currencies that are infrequently traded in order to compensate banks for providing the service.

Accepted Answer

A) True 
 B)False

Question 16

Problems of multinationals include

Accepted Answer

A)  cash management and positioning of funds. 
B)  managing receivables. 
C)  global control. 
D)  all of the above. 
A)  cash management and positioning of funds. 
B)  managing receivables. 
C)  global control. 
D)  all of the above.

Question 17

The value of the Euro floats against other major international currencies,but has a fixed value when compared to the currencies of the countries in the European Union,such as the French Franc and the German Mark.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is a reason for international investment?

Accepted Answer

A)  to reduce portfolio risk 
B)  to increase P/E ratio 
C)  to gain an advantage in a foreign country 
D)  to gain access to foreign currency 
A)  to reduce portfolio risk 
B)  to increase P/E ratio 
C)  to gain an advantage in a foreign country 
D)  to gain access to foreign currency

Question 19

A direct quote of $1.9887 dollars to buy one U.K.pound corresponds to an indirect quote of .9887 pounds per one dollar.

Accepted Answer

A) True 
 B)False

Question 20

If you are an importer of goods and you need to make payment for the purchase of inventory before the close of business today,which of the below is the correct term for the exchange rate that you will use?

Accepted Answer

A)  indirect rate 
B)  spot rate 
C)  direct rate 
D)  forward rate 
A)  indirect rate 
B)  spot rate 
C)  direct rate 
D)  forward rate

Foreign currency forward rates aid traders by reducing uncertainty regarding future market fluctuations.

All of the following are examples of political risk for a U.S.company investing in a foreign country except:

Only purely domestic firms that buy all of their inputs and sell all of their outputs in their home countries are unaffected by events in international financial markets.

One theory that is useful states that the forward premium or discount should be equal and opposite in sign to the difference in the national interest rates for securities of the same maturity.This theory is known as

Elimination of all foreign exchange risk

The law of one price suggests that all of the following will have the same price in different countries except:

A quote of .7645 euros per dollar in New York is an example of a direct quote.

The U.S.dollar is the most frequently traded currency in foreign currency markets,accounting for over 40% of total trading.

Short-term daily fluctuations in exchange rates are caused by supply and demand conditions in the foreign exchange market.

A company holding a net asset position in a depreciating currency should lead,and a company holding a net asset position in an appreciating currency should lag.

Exchange rate risk is highest for companies with

The current direct quote in New York is .01075 dollars per yen.Suppose the current direct quote in Tokyo is 91 yen per dollar.What is the appropriate indirect quote in New York? What will arbitrageurs do to eliminate the differential rates in these markets?

Leading and lagging

Investments in capital markets in foreign countries are motivated by the desire to earn higher returns and reduce risk through international diversification.

The bid-asked spread is much lower for currencies that are infrequently traded in order to compensate banks for providing the service.

Problems of multinationals include

The value of the Euro floats against other major international currencies,but has a fixed value when compared to the currencies of the countries in the European Union,such as the French Franc and the German Mark.

Which of the following is a reason for international investment?

A direct quote of $1.9887 dollars to buy one U.K.pound corresponds to an indirect quote of .9887 pounds per one dollar.

If you are an importer of goods and you need to make payment for the purchase of inventory before the close of business today,which of the below is the correct term for the exchange rate that you will use?

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

Current Asset Management

Filters

Exam 17: International Business Finance

Foreign currency forward rates aid traders by reducing uncertainty regarding future market fluctuations.

All of the following are examples of political risk for a U.S.company investing in a foreign country except:

Only purely domestic firms that buy all of their inputs and sell all of their outputs in their home countries are unaffected by events in international financial markets.

One theory that is useful states that the forward premium or discount should be equal and opposite in sign to the difference in the national interest rates for securities of the same maturity.This theory is known as

Elimination of all foreign exchange risk

The law of one price suggests that all of the following will have the same price in different countries except:

A quote of .7645 euros per dollar in New York is an example of a direct quote.

The U.S.dollar is the most frequently traded currency in foreign currency markets,accounting for over 40% of total trading.

Short-term daily fluctuations in exchange rates are caused by supply and demand conditions in the foreign exchange market.

A company holding a net asset position in a depreciating currency should lead,and a company holding a net asset position in an appreciating currency should lag.

Exchange rate risk is highest for companies with

The current direct quote in New York is .01075 dollars per yen.Suppose the current direct quote in Tokyo is 91 yen per dollar.What is the appropriate indirect quote in New York? What will arbitrageurs do to eliminate the differential rates in these markets?

Leading and lagging

Investments in capital markets in foreign countries are motivated by the desire to earn higher returns and reduce risk through international diversification.

The bid-asked spread is much lower for currencies that are infrequently traded in order to compensate banks for providing the service.

Problems of multinationals include

The value of the Euro floats against other major international currencies,but has a fixed value when compared to the currencies of the countries in the European Union,such as the French Franc and the German Mark.

Which of the following is a reason for international investment?

A direct quote of $1.9887 dollars to buy one U.K.pound corresponds to an indirect quote of .9887 pounds per one dollar.

If you are an importer of goods and you need to make payment for the purchase of inventory before the close of business today,which of the below is the correct term for the exchange rate that you will use?

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

Current Asset Management

Filters