Exam 21: International Cash Management

Assume that you forecast the value of the euro as follows for the next year: If the interest rate on the euro is 12%, the expected effective yield from a euro-denominated deposit is:

In general, exchange rate fluctuations cause cash flows to be more volatile and uncertain.

A ____ allows customers to send payments to a post office box number.

A common purpose of inter-subsidiary leading or lagging strategies is to:

The most useful measure of an MNC's liquidity is its:

According to the text:

Assume the U.S. one-year interest rate is 11% and the French one-year interest rate is 18%. The break-even level of depreciation in the euro at which the U.S. and French investments would exhibit the same return to a U.S. investor is:

Centralized cash management is more complicated when the MNC uses multiple currencies.

Assume that in recent months, most currencies of industrialized countries depreciated substantially against the dollar. Assume that their interest rates were similar to the U.S. interest rate. If non-U.S. firms invested in U.S. Treasury securities during this period, their effective yield would have been:

Which of the following statements is false?

To ____, MNCs can use preauthorized payments.

Assume that there are several foreign currencies that exhibit a higher interest rate than the U.S. interest rate. The U.S. firm has a higher probability of generating a higher effective yield on a portfolio of currencies (relative to the domestic yield) if:

The international Fisher effect suggests that:

When investing in a portfolio of foreign currencies, the currencies represented within the portfolio are ideally highly positively correlated if the goal is to reduce exchange rate risk.

In what is known as dynamic hedging, banks always hedge open positions in any foreign currencies.

The effective yield of investing in a foreign currency depends on both the ____ and the ____ of the foreign currency.

Assume that interest rate parity holds. The U.S. one-year interest rate is 10% and the Australian one-year interest rate is 8%. What will the approximate effective yield be for an Australian citizen of a one-year deposit denominated in U.S. dollars? Assume the deposit is covered by a forward sale of dollars.

MNCs often use ____ to invest excess cash while retaining liquidity.

Assume the U.S. one-year interest rate is 15%, while the South African one-year interest rate is 13%. If the South African rand ____ by ____%, a U.S.-based MNC is indifferent between investing in dollars and investing in rand.

Although netting typically increases the need for foreign exchange conversion, it generally reduces the number of cross border transactions between subsidiaries.