Exam 20: Short-Term Financing

Morton Company obtains a one-year loan of 2,000,000 Japanese yen at an interest rate of 6%. At the time the loan is extended, the spot rate of the yen is $.005. If the spot rate of the yen at maturity of the loan is $.0035, what is the effective financing rate of borrowing yen?

(Multiple Choice)

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Question 21

Assume the U.S. one-year interest rate is 9%, while the Chilean one-year interest rate is 13%. If the Chilean peso by %, a U.S.-based MNC would incur the same financing cost in dollars versus Chilean pesos over a one year period.

(Multiple Choice)

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Question 22

An MNC's parent or subsidiary in need for funds commonly determines whether there are any available internal funds before searching for outside funding.

(True/False)

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Question 23

Exhibit 20-1 Assume a U.S.-based MNC is borrowing Romanian leu (ROL) at an interest rate of 8% for one year. Also assume that the spot rate of the leu is $.00012 and the one-year forward rate of the leu is $.00010. The expected spot rate of the leu one-year from now is $.00011. -Refer to Exhibit 20-1. What is the effective financing rate for the MNC assuming it borrows leu on a covered basis?

(Multiple Choice)

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Question 24

A risk-averse firm would prefer to borrow ____ when the expected financing costs are similar in a foreign country as in the local country.

(Multiple Choice)

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Question 25

If a firm repeatedly borrows a foreign currency portfolio, the variability of the portfolio's effective financing rate will be highest if the correlations between currencies in the portfolio are and the individual variability of each currency is .

(Multiple Choice)

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Question 26

If movements of two currencies with low interest rates are highly negatively correlated, then financing in a portfolio of currencies would not be very beneficial. That is, financing with such a portfolio would not be very different from financing with a single foreign currency.

(True/False)

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Question 27

Assume that interest rates of most industrialized countries are similar to the U.S. interest rate. In the last few months, the currencies of all industrialized countries weakened substantially against the U.S. dollar. If non-U.S. firms based in these countries financed with U.S. dollars during this period (even when they had no receivables in dollars), their effective financing rate would have been:

(Multiple Choice)

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Question 28

Firms that believe the forward rate is an unbiased predictor of the future spot rate will prefer borrowing the foreign currency.

(True/False)

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Question 29

____ are free of default risk.

(Multiple Choice)

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Question 30

Countries with a rate of inflation tend to have a interest rate.

(Multiple Choice)

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Question 31

Foreign financing costs in a single foreign currency financing costs in dollars, and the variance of foreign financing costs over time is than the variance of financing in dollars.

(Multiple Choice)

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Question 32

Kushter Inc. would like to finance in euros. European interest rates are currently 4%, and the euro is expected to depreciate by 2% over the next year. What is Kushter's effective financing rate next year?

(Multiple Choice)

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Question 33

The interest rate of euronotes is based on the T-bill rate.

(True/False)

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Question 34

Assume Jelly Corporation, a U.S.-based MNC, obtains a one-year loan of 1,500,000 Malaysian ringgit (MYR) at a nominal interest rate of 7%. At the time the loan is extended, the spot rate of the ringgit is $.25. If the spot rate of the ringgit in one year is $.28, the dollar amount initially obtained from the loan is $, and $ are needed to repay the loan.

(Multiple Choice)

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Question 35

Which of the following is probably not a scenario under which a U.S.-based MNC would consider short-term foreign financing?

(Multiple Choice)

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Question 36

Exhibit 20-1 Assume a U.S.-based MNC is borrowing Romanian leu (ROL) at an interest rate of 8% for one year. Also assume that the spot rate of the leu is $.00012 and the one-year forward rate of the leu is $.00010. The expected spot rate of the leu one-year from now is $.00011. -Refer to Exhibit 20-1. What is the effective financing rate for the MNC assuming it borrows leu on an uncovered basis?

(Multiple Choice)

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Question 37

The degree of volatility of financing with a currency portfolio depends on only the standard deviations of effective financing rates of the individual currencies within the portfolio.

(True/False)

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Question 38

Euronotes are unsecured debt securities whose interest rate is based on the London Interbank Offer Rate (LIBOR) with typical maturities of one, three, and six months.

(True/False)

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Question 39

MNCs may be able to lock in a lower cost from financing in a low interest rate foreign currency if they:

(Multiple Choice)

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Question 40

Showing 21 - 40 of 55

Morton Company obtains a one-year loan of 2,000,000 Japanese yen at an interest rate of 6%. At the time the loan is extended, the spot rate of the yen is $.005. If the spot rate of the yen at maturity of the loan is $.0035, what is the effective financing rate of borrowing yen?

Assume the U.S. one-year interest rate is 9%, while the Chilean one-year interest rate is 13%. If the Chilean peso by %, a U.S.-based MNC would incur the same financing cost in dollars versus Chilean pesos over a one year period.

An MNC's parent or subsidiary in need for funds commonly determines whether there are any available internal funds before searching for outside funding.

A risk-averse firm would prefer to borrow ____ when the expected financing costs are similar in a foreign country as in the local country.

If a firm repeatedly borrows a foreign currency portfolio, the variability of the portfolio's effective financing rate will be highest if the correlations between currencies in the portfolio are and the individual variability of each currency is .

If movements of two currencies with low interest rates are highly negatively correlated, then financing in a portfolio of currencies would not be very beneficial. That is, financing with such a portfolio would not be very different from financing with a single foreign currency.

Firms that believe the forward rate is an unbiased predictor of the future spot rate will prefer borrowing the foreign currency.

____ are free of default risk.

Countries with a rate of inflation tend to have a interest rate.

Foreign financing costs in a single foreign currency financing costs in dollars, and the variance of foreign financing costs over time is than the variance of financing in dollars.

Kushter Inc. would like to finance in euros. European interest rates are currently 4%, and the euro is expected to depreciate by 2% over the next year. What is Kushter's effective financing rate next year?

The interest rate of euronotes is based on the T-bill rate.

Which of the following is probably not a scenario under which a U.S.-based MNC would consider short-term foreign financing?

The degree of volatility of financing with a currency portfolio depends on only the standard deviations of effective financing rates of the individual currencies within the portfolio.

Euronotes are unsecured debt securities whose interest rate is based on the London Interbank Offer Rate (LIBOR) with typical maturities of one, three, and six months.

MNCs may be able to lock in a lower cost from financing in a low interest rate foreign currency if they:

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

International Cash Management

Filters

Exam 20: Short-Term Financing

Morton Company obtains a one-year loan of 2,000,000 Japanese yen at an interest rate of 6%. At the time the loan is extended, the spot rate of the yen is $.005. If the spot rate of the yen at maturity of the loan is $.0035, what is the effective financing rate of borrowing yen?

Assume the U.S. one-year interest rate is 9%, while the Chilean one-year interest rate is 13%. If the Chilean peso ____ by ____%, a U.S.-based MNC would incur the same financing cost in dollars versus Chilean pesos over a one year period.

An MNC's parent or subsidiary in need for funds commonly determines whether there are any available internal funds before searching for outside funding.

A risk-averse firm would prefer to borrow ____ when the expected financing costs are similar in a foreign country as in the local country.

If a firm repeatedly borrows a foreign currency portfolio, the variability of the portfolio's effective financing rate will be highest if the correlations between currencies in the portfolio are ____ and the individual variability of each currency is ____.

If movements of two currencies with low interest rates are highly negatively correlated, then financing in a portfolio of currencies would not be very beneficial. That is, financing with such a portfolio would not be very different from financing with a single foreign currency.

Firms that believe the forward rate is an unbiased predictor of the future spot rate will prefer borrowing the foreign currency.

____ are free of default risk.

Countries with a ____ rate of inflation tend to have a ____ interest rate.

Foreign financing costs in a single foreign currency ____ financing costs in dollars, and the variance of foreign financing costs over time is ____ than the variance of financing in dollars.

Kushter Inc. would like to finance in euros. European interest rates are currently 4%, and the euro is expected to depreciate by 2% over the next year. What is Kushter's effective financing rate next year?

The interest rate of euronotes is based on the T-bill rate.

Which of the following is probably not a scenario under which a U.S.-based MNC would consider short-term foreign financing?

The degree of volatility of financing with a currency portfolio depends on only the standard deviations of effective financing rates of the individual currencies within the portfolio.

Euronotes are unsecured debt securities whose interest rate is based on the London Interbank Offer Rate (LIBOR) with typical maturities of one, three, and six months.

MNCs may be able to lock in a lower cost from financing in a low interest rate foreign currency if they:

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

International Cash Management

Filters

Assume the U.S. one-year interest rate is 9%, while the Chilean one-year interest rate is 13%. If the Chilean peso by %, a U.S.-based MNC would incur the same financing cost in dollars versus Chilean pesos over a one year period.

If a firm repeatedly borrows a foreign currency portfolio, the variability of the portfolio's effective financing rate will be highest if the correlations between currencies in the portfolio are and the individual variability of each currency is .

Countries with a rate of inflation tend to have a interest rate.

Foreign financing costs in a single foreign currency financing costs in dollars, and the variance of foreign financing costs over time is than the variance of financing in dollars.