Answer Choices:
a. 0.5051
b. 0.5556
c. 0.6111
d. 0.6722
e. 0.7394
Answer: a. 0.5051
Question: A Eurodollar is a U.S. dollar deposited in a bank outside the United States.
Answer Choices:
a. True
b. False
Answer: a. True
Question: If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market, then the forward currency is said to be selling at a discount to the spot rate.
Answer Choices:
a. True
b. False
Answer: True
Question: Which of the following are reasons why companies move into international operations?
Answer Choices:
a. To take advantage of lower production costs in regions where labor costs are relatively low.
b. To develop new markets for the firm’s products.
c. To better serve their primary customers.
d. Because important raw materials are located abroad.
e. All of the above.
Answer: e. All of the above.
Question: If one Swiss franc can purchase $0.76 U.S. dollars, how many Swiss francs can one U.S. dollar buy?
Answer Choices:
a. 0.0592
b. 1.0658
c. 1.1842
d. 1.3158
e. 1.4474
Answer: d. 1.3158
Question: Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.
Answer Choices:
a. True
b. False
Answer: a. True
Question: The cash flows relevant for a foreign investment should, from the parent company’s perspective, include the financial cash flows that the subsidiary can legally send back to the parent company plus the cash flows that must remain in the foreign country.
Answer Choices:
a. True
b. False
Answer: False
Question: Exchange rate quotations consist solely of direct quotations.
Answer Choices:
a. True
b. False
Answer: b. False
Question: When considering the risk of a foreign investment, a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification.
Answer Choices:
a. True
b. False
Answer: True
Question: Individuals and corporations can buy or sell forward currencies to hedge their exchange rate exposure. Essentially, the process involves simultaneously selling the currency expected to appreciate in value and buying the currency expected to depreciate.
Answer Choices:
a. True
b. False
Answer: False
Question: If a dollar will buy fewer units of a foreign currency in the forward market than in the spot market, then the forward currency is said to be selling at a premium to the spot rate.
Answer Choices:
a. True
b. False
Answer: True
Question: The cost of capital may be different for a foreign project than for an equivalent domestic project because foreign projects may be more or less risky.
Answer Choices:
a. True
b. False
Answer: True
Question: If one U.S. dollar buys 0.63 euro, how many dollars can you purchase for one euro?
Answer Choices:
a. 1.0414
b. 1.1571
c. 1.2857
d. 1.4286
Answer: d. 1.4286
Question: Exchange rate risk is the risk that the cash flows from a foreign project, when converted to the parent company’s currency, will be worth less than was originally projected because of exchange rate changes.
Answer Choices:
a. True
b. False
Answer: True
Question: Multinational financial management requires that
Answer Choices:
a. the effects of changing currency values be included in financial analyses.
b. legal and economic differences need not be considered in financial decisions because these differences are insignificant.
c. political risk should be excluded from multinational corporate financial analyses.
d. traditional U.S. and European financial models incorporating the existence of a competitive marketplace not be recast when analyzing projects in other parts of the world.
e. cultural differences need not be accounted for when considering firm goals and employee management.
Answer: a. the effects of changing currency values be included in financial analyses.
Question: Because political risk is seldom negotiable, it cannot be explicitly addressed in multinational corporate financial analysis.
Answer Choices:
a. True
b. False
Answer: False
Question: A foreign currency will, on average, depreciate against the U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States.
Answer Choices:
a. True
b. False
Answer: True
Question: LIBOR is an acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to smaller U.S. corporations on all deposits.
Answer Choices:
a. True
b. False
Answer: False
Question: If one U.S. dollar buys 1.64 Canadian dollars, how many U.S. dollars can you purchase for one Canadian dollar?
Answer Choices:
a. 0.5488
b. 0.6098
c. 0.6707
d. 0.7378
e. 0.8116
Answer: b. 0.6098
Question: The United States and most other major industrialized nations currently operate under a system of floating exchange rates.
Answer Choices:
a. True
b. False
Answer: a. True