Question 1

What are some of the potential risks,other than exchange rate risk,that need to be considered in foreign direct investment decisions.

Accepted Answer

Business risks involve issues such as pr

Question 2

The forward rate is the same as the spot rate that will prevail in the future.

Accepted Answer

A) True 
 B)False

Question 3

Forward contracts benefit only the customer due to a reduction in uncertainty.

Accepted Answer

A) True 
 B)False

Question 4

The price of a Big Mac is more or less the same everywhere in the world.

Accepted Answer

A) True 
 B)False

Question 5

RAH Inc. ,a U.S.corporation is evaluating a proposal to construct and lease an office building in Kiev.RAH's weighted average cost of capital is 11%.The risk free rate in the U.S.is 3.75%.RAH believes that conditions in Kiev warrant a required rate of return that is 12% above the risk-free rate.Cash flows from the hotel project should be discounted at:

Accepted Answer

A) 23%. 
B) 14.75%. 
C) 15.75%. 
D) 12%. 
A) 23%. 
B) 14.75%. 
C) 15.75%. 
D) 12%.

Question 6

The spot exchange rate for the Thai bhat is 33.135 bhat to the dollar.The Host Hotel Company will be able to repatriate profits from its luxury resort hotel in Phuket in 5 years.It has estimated the 5 year forward rate at 38 bhat to the dollar.The risk-free rate in the U.S.is 4% and Host uses an 11 % risk premium for investments of this type.If the expected accumulated profits after 5 years are 100 million bhat,what is their present value in U.S.dollars.

Accepted Answer

Present value in bhats is 100,

Question 7

A dealer in London posts an ask rate of .6238 and a bid rate of .6237.How much,in U.K.pounds,would it cost to purchase $100,000.For how much in pounds could you sell $100,000?

Accepted Answer

$100,000 could be pu

Question 8

Forward exchange rates:

Accepted Answer

A) reduce uncertainty about future value of currencies. 
B) are always slightly lower than the spot rate. 
C) reflect expectations about the future value of currencies. 
D) both A and C. 
A) reduce uncertainty about future value of currencies. 
B) are always slightly lower than the spot rate. 
C) reflect expectations about the future value of currencies. 
D) both A and C.

Question 9

Use the following information to answer the following question(s).
Below is an excerpt from Table 19.1,Foreign Exchange Ratrd (January 8,2010)that appears in your text.(Sources The Wall Street Journal and Reuters)
  
-To buy one Indian Rupee you would need:

Accepted Answer

A) 2.199 cents. 
B) 45.4752 dollars. 
C) 21.99 cents. 
D) 4.54752 dollars. 
A) 2.199 cents. 
B) 45.4752 dollars. 
C) 21.99 cents. 
D) 4.54752 dollars.

Question 10

Which of the following statements is true?

Accepted Answer

A) The forward rate is the same as the spot rate that will prevail in the future. 
B) Only the forward rate is known. 
C) An indirect quote is the exchange rate that indicates the number of units of the home currency required to buy one unit of foreign currency. 
D) Both B and C. 
A) The forward rate is the same as the spot rate that will prevail in the future. 
B) Only the forward rate is known. 
C) An indirect quote is the exchange rate that indicates the number of units of the home currency required to buy one unit of foreign currency. 
D) Both B and C.

Question 11

If the net present value of a direct foreign investment is negative,the multinational firm should:

Accepted Answer

A) reject any proposals. 
B) consider establishing a sales office. 
C) consider licensing. 
D) both A and C. 
A) reject any proposals. 
B) consider establishing a sales office. 
C) consider licensing. 
D) both A and C.

Question 12

An important (additional)consideration for a direct foreign investment is:

Accepted Answer

A) political risk. 
B) maximizing the firm's profits. 
C) attaining a high international P/E ratio. 
D) all of the above. 
A) political risk. 
B) maximizing the firm's profits. 
C) attaining a high international P/E ratio. 
D) all of the above.

Question 13

Jean-Marc lives in Besançon,a French city near the Swiss border.The exchange rate is 1.47 Swiss francs to the euro.If Jean-Marc's shopping cart of groceries typically costs him 80 euros,what should it cost him if he drives across the border to Switzerland? Do you think that purchase price parity would apply in this situation?

Accepted Answer

If purchase price parity applies,Jean-Ma

Question 14

What is the law of one price? How does it apply to foreign exchange rates?

Accepted Answer

The law of one price states that under c

Question 15

Risks of foreign direct investment potentially include:

Accepted Answer

A) exchange rate fluctuations. 
B) political instability. 
C) competition from foreign competitors. 
D) all of the above. 
A) exchange rate fluctuations. 
B) political instability. 
C) competition from foreign competitors. 
D) all of the above.

Question 16

The forward price of currencies can be either higher,lower or even the same as the spot price.

Accepted Answer

A) True 
 B)False

Question 17

The interplay between interest rate differentials and exchange rates such that both adjust until the foreign exchange market and the money market reach equilibrium is called the:

Accepted Answer

A) purchasing power parity theory. 
B) balance of payments quantum theory. 
C) interest rate parity theory. 
D) arbitrage markets theory. 
A) purchasing power parity theory. 
B) balance of payments quantum theory. 
C) interest rate parity theory. 
D) arbitrage markets theory.

Question 18

One U.S.dollar buys 12.706 Mexican pesos and .6936 euros.What is the peso/euro exchange rate.

Accepted Answer

12.706/1 ×

Question 19

Foreign exchange transactions carried out in the spot market entails an agreement today to deliver a specific number of units of currency on a future date in return for a specified number of units of another currency.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements about exchange rates is true?

Accepted Answer

A) Exchange rates are fixed by international agreements. 
B) Exchange fluctuate between currencies but are fixed in terms of gold. 
C) Exchange rates fluctuate constantly. 
D) Are regulated by a special committee of the United Nations. 
A) Exchange rates are fixed by international agreements. 
B) Exchange fluctuate between currencies but are fixed in terms of gold. 
C) Exchange rates fluctuate constantly. 
D) Are regulated by a special committee of the United Nations.

What are some of the potential risks,other than exchange rate risk,that need to be considered in foreign direct investment decisions.

The forward rate is the same as the spot rate that will prevail in the future.

Forward contracts benefit only the customer due to a reduction in uncertainty.

The price of a Big Mac is more or less the same everywhere in the world.

A dealer in London posts an ask rate of .6238 and a bid rate of .6237.How much,in U.K.pounds,would it cost to purchase $100,000.For how much in pounds could you sell $100,000?

Forward exchange rates:

Use the following information to answer the following question(s). Below is an excerpt from Table 19.1,Foreign Exchange Ratrd (January 8,2010)that appears in your text.(Sources The Wall Street Journal and Reuters) -To buy one Indian Rupee you would need:

Which of the following statements is true?

If the net present value of a direct foreign investment is negative,the multinational firm should:

An important (additional)consideration for a direct foreign investment is:

What is the law of one price? How does it apply to foreign exchange rates?

Risks of foreign direct investment potentially include:

The forward price of currencies can be either higher,lower or even the same as the spot price.

The interplay between interest rate differentials and exchange rates such that both adjust until the foreign exchange market and the money market reach equilibrium is called the:

One U.S.dollar buys 12.706 Mexican pesos and .6936 euros.What is the peso/euro exchange rate.

Foreign exchange transactions carried out in the spot market entails an agreement today to deliver a specific number of units of currency on a future date in return for a specified number of units of another currency.

Which of the following statements about exchange rates is true?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

Corporate Risk Management

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Exam 19: International Business Finance

What are some of the potential risks,other than exchange rate risk,that need to be considered in foreign direct investment decisions.

The forward rate is the same as the spot rate that will prevail in the future.

Forward contracts benefit only the customer due to a reduction in uncertainty.

The price of a Big Mac is more or less the same everywhere in the world.

A dealer in London posts an ask rate of .6238 and a bid rate of .6237.How much,in U.K.pounds,would it cost to purchase $100,000.For how much in pounds could you sell $100,000?

Forward exchange rates:

Use the following information to answer the following question(s). Below is an excerpt from Table 19.1,Foreign Exchange Ratrd (January 8,2010)that appears in your text.(Sources The Wall Street Journal and Reuters) -To buy one Indian Rupee you would need:

Which of the following statements is true?

If the net present value of a direct foreign investment is negative,the multinational firm should:

An important (additional)consideration for a direct foreign investment is:

What is the law of one price? How does it apply to foreign exchange rates?

Risks of foreign direct investment potentially include:

The forward price of currencies can be either higher,lower or even the same as the spot price.

The interplay between interest rate differentials and exchange rates such that both adjust until the foreign exchange market and the money market reach equilibrium is called the:

One U.S.dollar buys 12.706 Mexican pesos and .6936 euros.What is the peso/euro exchange rate.

Foreign exchange transactions carried out in the spot market entails an agreement today to deliver a specific number of units of currency on a future date in return for a specified number of units of another currency.

Which of the following statements about exchange rates is true?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

Corporate Risk Management

Filters