Exam 19: International Managerial Finance

In the U.S. over the past 30 years, foreign direct investment (FDI) came overwhelmingly in the form of mergers and acquisitions rather than through establishments.

Theory and empirical evidence indicate that the capital structures of multinational companies ________.

The existence of specific regulations and controls on dollar deposits in the United States, including interest rate ceiling imposed by the government, has contributed to the growth of the Euromarket.

When fewer units of a foreign currency are required to buy one dollar, the currency is said to have ________.

As a result of the Maastricht Treaty of 1991, 12 EU nations adopted a single currency, the euro, as a continent-wide medium of exchange.

FASB No. 52 requires U.S. multinationals to first convert the financial statement accounts of foreign subsidiaries into their functional currency and then to translate the accounts into the parent firm's currency using the all-current-rate method.

In the case of short-term financing, the forces of supply and demand are among the main factors determining exchange rates in Eurocurrency markets.

Harry Mining, a U.S.-based MNC has a foreign subsidiary that earns $1,050,000 before local taxes, with all the after tax funds to be available to the parent in the form of dividends. The foreign income tax rate is 30 percent, the foreign dividend withholding tax rate is 15 percent, and the firm's U.S. tax rate is 35 percent. What are the funds available to the parent MNC if no tax credits are allowed?

The usual capital markets used by U.S.-based MNCs that desire international ownership of their equity are ________.

The three basic types of risks associated with international cash flows are business and financial risks, inflation and exchange rate risks, and political risks.

Both theory and empirical evidence indicate that the capital structures of MNCs are not different from those of purely domestic firms.

As a foreign exchange hedging tool, options ________.

Although several economic and political factors can influence foreign exchange rate movements, by far the most important explanation for long-term changes in exchange rates is fiscal policy that a country adopts.

If the exchange rate between the U.S. dollar and the Euro is $1.20 per Euro and the annual rate of inflation is 5 percent in the United States and 10 percent in Europe, what will be U.S. dollar per Euro exchange rate in one year?

Macro political risk and micro political risk in international business refer to the risk ________.

Fixed relationship among currencies refers to ________.

A multinational company has two subsidiaries, one in U.K (local currency, Pound Sterling) and the other in Germany (local currency, Euro). Proforma statements of operations indicate the following short-term financial needs for each subsidiary (in equivalent U.S. dollars): U.K: $25 million excess cash to be invested (lent); Germany: $10 million funds to be raised (borrowed) The following financial data is also available: (a) Determine the effective rates of interest for Irish pound and Deutsche mark in both the Euromarket and the domestic market. (b) Where should the funds be invested? (c) Where should the funds be raised?

Which of the following is a reason for growth of the Euromarket?

The spot exchange rate is the rate of exchange between two currencies at some specified future date.

In 2003-2004, the United States signed a regional trade pact with the Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua called the Central American Free Trade Agreement or CAFTA.