1.

Which of the following is not a form of corporate control that could reduce agency problems for an MNC?  (a) Investor monitoring  (b) Stock options  (c) Hostile takeover threat  (d) All of the above
If choice d is selected set score to 2.

2.

Which of the following theories suggests that firms seek to penetrate new markets over time?  (a) Theory of comparative advantage  (b) Imperfect markets theory  (c) Product cycle theory  (d) None of the above
If choice c is selected set score to 2.

3.

Licensing is the process by which a firm provides its technology (copyrights, patents, trademarks or trade names) in exchange for fees or some other specified benefits.  (a) True  (b) False
If choice a is selected set score to 2.

4.

The Single European Act of 1987: (a) Reduced competition in most industries  (b) Eliminated competition in many industries  (c) Increased competition in most industries  (d) Reduced efficiency in most industries
If choice c is selected set score to 2.

5.

Which of the following is not a way in which agency problems can be reduced through corporate control?  (a) Threat of hostile takeover  (b) Acquisition of a foreign subsidiary  (c) Executive compensation  (d) Monitoring by large shareholders
If choice b is selected set score to 2.

6.

Due to the larger opportunity set of funding sources around the world from which an MNC can choose, an MNC may be able to obtain capital at a lower cost than a purely domestic firm.  (a) True  (b) False
If choice a is selected set score to 2.

7.

A centralized management style for an MNC results in relatively high agency costs.  (a) True  (b) False
If choice b is selected set score to 2.

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85% If choice d is selected set score to 2. Which of the following would likely have the least direct influence on a country's current account?  (a) National income  (b) A tax on income earned from foreign stocks  (c) Tariffs  (d) Inflation  (e) Exchange rates If choice b is selected set score to 2. 10. Its bid-ask percentage spread is: (a) 4. 9. The forward rate is the exchange rate used for immediate exchange of currencies.  (a) True  (b) False If choice b is selected set score to 2. Assume the Canadian dollar is equal to £0.51 Canadian dollars  (d) About .36 Canadian dollars  (b) About .26. Page 2 .25 and its ask rate is £0.  (a) True  (b) False If choice b is selected set score to 2.S. exports to Britain and increase U.S. dollar with respect to the British pound would likely reduce the U.3137 Canadian dollars If choice d is selected set score to 2.17%  (d) About 3. 11. An increase in the current account deficit will place _______ pressure on the home currency value.S. A weakening of the U. The value of the Peruvian Sol in Canadian dollars is: (a) About 2.51 and the Peruvian Sol is equal to £0.  (a) Downward  (b) Upward  (c) No  (d) Upward or downward (depending on the size of the deficit) If choice a is selected set score to 2.26%  (b) 4%  (c) About 4. 12. imports from Britain. other things equal.16. 13.8. Assume that a bank's bid rate on Swiss francs is £0.3621 Canadian dollars  (c) About 2.

Under the gold standard. but gold was used to pay for all foreign t ransactions  (b) Floating. 19. _______ is not a bank characteristic important to customers in need of foreign exchange.  (a) True  (b) False If choice a is selected set score to 2. the exchange rate between any two currencies was typically:-  (a) Non existent. 17.S.  (a)  (b)  (c)  (d)  (e) Quote competitiveness Speed of execution Forecasting advice Advice about current market conditions All of the above are important bank characteristics to customers in need of foreign exchange If choice e is selected set score to 2. Sold on an exchange Offered by commercial banks. LIBOR is: (a)  (b)  (c)  (d)  (e) The maximum deposit rate ceiling on deposits in the international money market The average inflation rate in European countries The interest rate commonly charged for loans between banks The maximum interest rate offered on bonds that are issued in London The maximum loan rate ceiling on loans in the international money market If choice c is selected set score to 2.S. Offered by commercial banks Sold on an exchange. Sold on an exchange Offered by commercial banks. Page 3 . that is currencies were not exchanged. market opens  (d) Closing prices in the U.  (a)  (b)  (c)  (d) Sold on an exchange. Offered by commercial banks If choice a is selected set score to 2.14. 15. each currency was convertible into gold at a specified rate and the exchange rate between two currencies was determined by their relative convertibility rates per ounce of gold. forward contracts are typically _______. 16. Futures contracts are typically _______. but subject to central bank intervention  (c) Fixed within narrow boundaries  (d) Floating and not subject to central bank intervention If choice c is selected set score to 2. the opening exchange rate quotations will be based on the: (a) Prevailing prices in locations where the foreign exchange markets have been open  (b) Closing prices in Canada during the previous day  (c) Officially set by central banks before the U. during the previous day If choice a is selected set score to 2. 18. When the foreign exchange market opens in the UK each morning. From 1944 to 1971.

50 Euros  (c) 16. The strike price is also known as the premium price.20.64  (e) None of the above If choice c is selected set score to 2.5  (d) 13. Page 4 . Eurobonds are certificates representing bundles of stock. An increase in UK interest rates relative to Euro interest rates is likely to ________ the UK demand for Euros and _________ the supply of Euros for sale. 21. Increase  (b) Increase.  (a) 15  (b) 16.  (a) Reduce.S. The commonly accepted goal of the MNC is to: (a)  (b)  (c)  (d)  (e) a) Maximize short-term earnings b) Maximize shareholder wealth c) Minimize risk d) Both (a) and (c) e) Maximize international sales If choice b is selected set score to 2. In general.10. the speculator will borrow the currency that is expected to appreciate and invest in the country whose currency is expected to depreciate. 24. 22. Reduce  (d) Increase. As the U. the Euro is worth $1. A share of the ADR of a Dutch firm represents one share of that firm's stock that is traded on a Dutch stock exchange. Thus. 25. 23. Reduce If choice a is selected set score to 2. when speculating on exchange rate movements. Increase  (c) Reduce.  (a) True  (b) False If choice b is selected set score to 2. market opens. The share price of the firm was 15 Euros when the Dutch market closed.  (a) True  (b) False If choice b is selected set score to 2.  (a) True  (b) False If choice b is selected set score to 2. the price of the ADR should be _____.

Milly Bank expects the spot rate of the Euro to be £0. The exchange rates of smaller countries are very stable because the market for their currency is very liquid. demand for pounds would be equal to the supply of pounds for sale and there would be a shortage of pounds in the foreign exchange market  (c) U.S. Page 5 . At an exchange rate of $1.S.02.713  (c) £5.72 per pound:-  (a) U.  (a) True  (b) False If choice b is selected set score to 2.324  (d) £2.S.76 in 90 days.386 If choice d is selected set score to 2. The current spot rate of the Euro is £0.41. demand for pounds would exceed the supply of pounds for sale and there would be a sh ortage of pounds in the foreign exchange market If choice d is selected set score to 2. 27. 29. demand for pounds would exceed the supply of pounds for sale and there would be a su rplus of pounds in the foreign exchange market  (d) U. If inflation in New Zealand suddenly increased while Euro area inflation stayed the same.51.75.813  (b) £5.S.51. there would be: (a) An inward shift in the demand schedule for NZ$ and an outward shift in the supply schedule f or NZ$  (b) An inward shift in the demand schedule for NZ$ and an inward shift in the supply schedule for NZ$  (c) An outward shift in the demand schedule for NZ$ and an inward shift in the supply schedule f or NZ$  (d) An outward shift in the demand schedule for NZ$ and an outward shift in the supply schedule for NZ$ If choice a is selected set score to 2.76 in 90 days?  (a) £5. demand for pounds would be less than the supply of pounds for sale and there would be a shortage of pounds in the foreign exchange market  (b) U. Assume the following information regarding UK and European annualized interest rates:- Milly Bank can borrow either £20 million or €20 million.S. What is Milly Bank's pound profit from speculating if the spot rate of the euro is indeed £0.200  (e) £2. 28.61. The equilibrium exchange rate of pounds is $1.26. Furthermore.70. demand for pounds would be less than the supply of pounds for sale and there would be a surplus of pounds in the foreign exchange market  (e) U.

35.  (a) Decrease. Immediately If choice d is selected set score to 2. Page 6 . Non Euro currencies  (d) Increase. 31.S. Since supply and demand for a currency are constant (primarily due to government intervention). Decrease. inflation surges  (c) Downward.S. Upward  (c) Decrease. Euro  (b) Increase. the Federal Reserve should:-  (a) Sell dollars for pounds in the foreign exchange market and the Bank of England should sell p ounds for dollars in the foreign exchange market  (b) Sell dollars for pounds in the foreign exchange market and the Bank of England should sell d ollars for pounds in the foreign exchange market  (c) Sell pounds for dollars in the foreign exchange market and the Bank of England should sell p ounds for dollars in the foreign exchange market  (d) Sell dollars for pounds in the foreign exchange market and the Bank of England should not int ervene If choice c is selected set score to 2. inflation and zero Chilean inflation places _______ pressure on the value of the Chilean Peso. Upward If choice a is selected set score to 2.S. Decrease. Upward  (d) Decrease. Increase.30. Only after the U. The pressure will occur _______. Only after the U. If a country experiences high inflation relative to the UK. To force the value of the dollar to appreciate against the pound. News of a potential surge in U. inflation surges  (b) Upward. 34. Decrease. Immediately  (d) Upward. Non Euro currencies  (c) Decrease. 32. 33. Euro If choice a is selected set score to 2. currency values seldom fluctuate. Increase. its exports to the UK should _______________. Downward  (b) Increase.  (a) Increase.  (a) Downward. Downward  (e) Decrease. its imports should ___________ and there is __________ pressure on its currency's equilibrium value.  (a) True  (b) False If choice a is selected set score to 2. Relatively high Japanese inflation may result in an increase in the supply of Yen for sale and a reduction in the demand for Yen. other things being equal.  (a) True  (b) False If choice b is selected set score to 2. Any event that reduces the Euro area demand for Japanese Yen should result in a(n) _______ in the value of the Japanese Yen with respect to _______.

40. Decrease  (d) Increase. Increase If choice d is selected set score to 2. Assume that county Y's currency depreciates against the currency of country Z. 41. The Exchange Rate Mechanism (ERM) crisis in 1992 represents the __________ in German interest rates that caused other European interest rates to __________ and resulted in less aggregate spending. Less If choice d is selected set score to 2. Which of the following are examples of currency controls?  (a)  (b)  (c)  (d) Prohibition of remittance of funds Ceilings on granting credit to foreign firms Import restrictions All of the above If choice d is selected set score to 2. As foreign exchange activity has grown: (a)  (b)  (c)  (d) Central bank intervention has become less effective Central bank intervention has become more frequent Central bank intervention has become more effective None of the above If choice a is selected set score to 2.36. More  (d) More. Increase  (c) Decrease.  (a) Increase. The Bank of England may use a stimulative monetary policy with least concern about causing inflation if the pound's value is expected to: (a) Strengthen  (b) Remain stable  (c) Weaken  (d) None of the above will have an impact on inflation If choice a is selected set score to 2. 37. More  (b) Less. It is likely that country X will export _______ to country Z and import _______ from country Z. Less  (c) More. 39. The currency of country X is pegged to the currency of country Y. A primary result of the Bretton Woods Agreement was:-  (a) The establishment of the European Monetary System (EMS)  (b) Establishing that exchange rates of most major currencies were to be allowed to fluctuate fre ely without boundaries (although the central banks did have the right to intervene when necessary)  (c) Establishing that exchange rates of most major currencies were to be allowed to fluctuate 1% above or below their initially set values  (d) Establishing specific rules for when tariffs and quotas could be imposed by governments If choice c is selected set score to 2. Decrease  (b) Decrease.  (a) Less. Page 7 . 38.

A major advantage of the Euro is the complete elimination of exchange rate risk on transactions between participating European countries. 46.42. Non sterilized intervention is intervention by a central bank in the foreign exchange market without adjusting for the change in money supply.  (a) Locational arbitrage  (b) Triangular arbitrage  (c) Covered interest arbitrage  (d) Forward realignment arbitrage If choice c is selected set score to 2. In which case will locational arbitrage most likely be feasible?  (a)  (b)  (c)  (d) One bank's bid price for a currency is less than another bank's bid price for the currency One bank's ask price for a currency is less than another bank's ask price for the currency One bank's bid price for a currency is greater than another bank's ask price for the currency One bank's ask price for a currency is greater than another bank's bid price for the currency If choice c is selected set score to 2. Due to _______. 47.  (a) True  (b) False If choice a is selected set score to 2. The Bretton Woods Agreement created a system under which exchange rates are determined by market forces without intervention by various governments. 44. 45. Currency devaluation can boost a country's exports. A potential advantage of exchange rate target zones is that they may stabilize international trade patterns by reducing exchange rate volatility.  (a) True  (b) False If choice a is selected set score to 2.  (a) True  (b) False If choice a is selected set score to 2. 48. which encourages more trade and capital flows within Europe.  (a) True  (b) False If choice a is selected set score to 2. but currency revaluation can increase foreign competition. market forces should realign the relationship between the interest rate differential of two currencies and the forward premium (or discount) on the forward exchange rate between the two currencies.  (a) True  (b) False If choice b is selected set score to 2. Page 8 . 43.

00. the: (a) Smaller will be the forward premium of the foreign currency  (b) Smaller will be the forward discount of the foreign currency  (c) Larger will be the forward premium of the foreign currency  (d) Larger will be the forward discount of the foreign currency If choice d is selected set score to 2.S.42 If choice b is selected set score to 2.49.85  (c) 1.55 and the Canadian dollar is worth £0. dollar is worth £0.710  (d) £36.619 If choice c is selected set score to 2.25.000 and execute locational arbitrage? That is.550  (c) £1.000 and execute locational arbitrage? That is. Given this information.S.22 while the ask rate is £0. how much will you end up with over and above the £10.20 while the ask rate is £0.45 at Bank X. Assume the bid rate of a Swiss Franc is £0.42 while the ask rate is £0. how much will you end up with over and above the £10. nor British investors could benefit from covered interest arbitrage  (d) d) Both (a) and (b) If choice a is selected set score to 2.21 at Bank X.219  (c) £48. If the interest rate is lower in the U. Based on interest rate parity. What is the value of the Canadian dollar in U. 53.15  (b) 0.00.S.S.17  (d) 1. Page 9 .000  (d) £1.50. 52. 51.47.764  (b) £18.41 at Bank Y.000 If choice a is selected set score to 2.40 while the ask rate is £0.340  (b) £12.54  (e) 0. Given this information. Assume the bid rate of a Singapore dollar is £0. dollars to the nearest cent?  (a) 0. what would be your gain if you use £10.000 you started with?  (a) £24. what would be your gain if you use £10. Assume the bid rate of the Swiss Franc is £0.S. the larger the degree by which the foreign interest rate exceeds the UK interest rate.00.585  (e) £47. 50.23 at Bank Z. Assume the bid rate of a Singapore dollar is £0.00. investors could possibly benefit from covered interest arbitrage  (b) b) British investors could possibly benefit from covered interest arbitrage  (c) c) Neither U. Assume the U. than in the United Kingdom and if the forward rate of the British pound is the same as its spot rate: (a) a) U.000 you started with?  (a) £11.

what amount will you have after 1 year to the nearest £?  (a) £4.08. Page 10 .415 while the ask rate is £0.911  (e) None of the above If choice e is selected set score to 2.242  (b) £4.441  (c) £10. Assume the bid rate of an Australian dollar is £0.003  (d) £0  (e) £12.42 at Bank Q.00.54. For locational arbitrage to be possible.000 to invest. one bank's ask rate must be higher than another bank's bid rate for a currency.00. then the rate of return achieved from covered interest arbitrage should be equal to the rate available in the foreign country. 57.00.000 you started with?  (a) £18.16. If you conduct covered interest arbitrage. More specifically. 58.  (a) True  (b) False If choice b is selected set score to 2. If Interest Rate Parity (IRP) exists.  (a) True  (b) False If choice a is selected set score to 2. 55.  (a) True  (b) False If choice b is selected set score to 2.063 If choice d is selected set score to 2. Assume the following information:You have £4. Assume the bid rate of an Australian Dollar is £0.000 and execute locational arbitrage? That is. what would be your gain if you use £10. Realignment in the exchange rates of banks will eliminate locational arbitrage.841  (c) £4. market forces will increase the ask rate of the bank from which the currency was bought to conduct locational arbitrage and will decrease the bid rate of the bank to which the currency was sold to conduct locational arbitrage.24. 56.40 while the ask rate is £0.419 at Bank V.000  (d) £4. how much will you end up with over and above the £10. Given this information.24.219  (b) £14.

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