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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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other things equal.51 Canadian dollars  (d) About .S.17%  (d) About 3. 13.51 and the Peruvian Sol is equal to £0. 9.26.3137 Canadian dollars If choice d is selected set score to 2.  (a) True  (b) False If choice b is selected set score to 2.S. The forward rate is the exchange rate used for immediate exchange of currencies. dollar with respect to the British pound would likely reduce the U.26%  (b) 4%  (c) About 4.16.  (a) True  (b) False If choice b is selected set score to 2. A weakening of the U. 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 2.85% If choice d is selected set score to 2. 11. imports from Britain. An increase in the current account deficit will place _______ pressure on the home currency value.25 and its ask rate is £0.S. exports to Britain and increase U.  (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. The value of the Peruvian Sol in Canadian dollars is: (a) About 2. Assume that a bank's bid rate on Swiss francs is £0. 12. Its bid-ask percentage spread is: (a) 4.36 Canadian dollars  (b) About . Page 2 . Assume the Canadian dollar is equal to £0.8. 10.3621 Canadian dollars  (c) About 2.

16.S. Offered by commercial banks If choice a is selected set score to 2. Under the gold standard. forward contracts are typically _______. 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.  (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. Page 3 .14. When the foreign exchange market opens in the UK each morning. 18. 19. Futures contracts are typically _______. 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. that is currencies were not exchanged. 15. market opens  (d) Closing prices in the U. during the previous day If choice a 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. the exchange rate between any two currencies was typically:-  (a) Non existent. 17. From 1944 to 1971. 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.S. _______ is not a bank characteristic important to customers in need of foreign exchange. Sold on an exchange Offered by commercial banks.  (a)  (b)  (c)  (d) Sold on an exchange. Offered by commercial banks Sold on an exchange.  (a) True  (b) False If choice a is selected set score to 2. but gold was used to pay for all foreign t ransactions  (b) Floating.

24. Thus. 23. 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. 25.10. market opens. 22. 21. the Euro is worth $1.5  (d) 13. In general. Page 4 . 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. Reduce  (d) Increase. the price of the ADR should be _____.  (a) True  (b) False If choice b is selected set score to 2. Reduce If choice a is selected set score to 2. the speculator will borrow the currency that is expected to appreciate and invest in the country whose currency is expected to depreciate.20. Increase  (c) Reduce.  (a) Reduce. The strike price is also known as the premium price.  (a) True  (b) False If choice b is selected set score to 2. 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.  (a) 15  (b) 16. Eurobonds are certificates representing bundles of stock.64  (e) None of the above If choice c is selected set score to 2.S.50 Euros  (c) 16. Increase  (b) Increase.  (a) True  (b) False If choice b is selected set score to 2. As the U. The share price of the firm was 15 Euros when the Dutch market closed. when speculating on exchange rate movements.

72 per pound:-  (a) U.S.76 in 90 days. 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.61.02. 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.70. If inflation in New Zealand suddenly increased while Euro area inflation stayed the same.75. Assume the following information regarding UK and European annualized interest rates:- Milly Bank can borrow either £20 million or €20 million.  (a) True  (b) False If choice b is selected set score to 2.813  (b) £5. 27.324  (d) £2.200  (e) £2.S.S.26. 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 2.713  (c) £5.41. 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.51. At an exchange rate of $1. The equilibrium exchange rate of pounds is $1. Milly Bank expects the spot rate of the Euro to be £0. 29.S. 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. 28. The current spot rate of the Euro is £0. Page 5 .51. What is Milly Bank's pound profit from speculating if the spot rate of the euro is indeed £0.386 If choice d is selected set score to 2.S. The exchange rates of smaller countries are very stable because the market for their currency is very liquid. Furthermore.76 in 90 days?  (a) £5. 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.

Upward  (c) Decrease. Euro If choice a is selected set score to 2.  (a) Decrease. If a country experiences high inflation relative to the UK. Downward  (e) Decrease. Immediately  (d) Upward. 34. Decrease.  (a) Increase. Decrease. 32. 33.  (a) Downward. Immediately If choice d is selected set score to 2. Downward  (b) Increase. Upward If choice a is selected set score to 2. Since supply and demand for a currency are constant (primarily due to government intervention).30. Only after the U. 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 _______. To force the value of the dollar to appreciate against the pound.  (a) True  (b) False If choice a is selected set score to 2.S. other things being equal. Non Euro currencies  (c) Decrease. The pressure will occur _______.  (a) True  (b) False If choice b is selected set score to 2. Increase.S. Euro  (b) Increase. Increase. Non Euro currencies  (d) Increase. inflation and zero Chilean inflation places _______ pressure on the value of the Chilean Peso. inflation surges  (c) Downward.S. its imports should ___________ and there is __________ pressure on its currency's equilibrium value. News of a potential surge in U. 35. Relatively high Japanese inflation may result in an increase in the supply of Yen for sale and a reduction in the demand for Yen. Page 6 . Upward  (d) Decrease. inflation surges  (b) Upward. currency values seldom fluctuate. Only after the U. its exports to the UK should _______________. Decrease. 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. 31.

More  (b) Less. Increase  (c) Decrease. It is likely that country X will export _______ to country Z and import _______ from country Z.  (a) Less. 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. 38. Decrease  (b) Decrease. Page 7 . 39. 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. 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. 40. Less  (c) More. 41. Less If choice d is selected set score to 2.36. More  (d) More. Assume that county Y's currency depreciates against the currency of country Z. 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. Increase If choice d is selected set score to 2.  (a) Increase. 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  (d) Increase. 37.

Non sterilized intervention is intervention by a central bank in the foreign exchange market without adjusting for the change in money supply. Page 8 . 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 2.42. but currency revaluation can increase foreign competition.  (a) Locational arbitrage  (b) Triangular arbitrage  (c) Covered interest arbitrage  (d) Forward realignment arbitrage If choice c is selected set score to 2. A major advantage of the Euro is the complete elimination of exchange rate risk on transactions between participating European countries. 45. The Bretton Woods Agreement created a system under which exchange rates are determined by market forces without intervention by various governments.  (a) True  (b) False If choice a is selected set score to 2. which encourages more trade and capital flows within Europe. 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. Due to _______. 43.  (a) True  (b) False If choice b is selected set score to 2. 46. Currency devaluation can boost a country's exports.  (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. A potential advantage of exchange rate target zones is that they may stabilize international trade patterns by reducing exchange rate volatility. 47. 44. 48.  (a) True  (b) False If choice a is selected set score to 2.

22 while the ask rate is £0. What is the value of the Canadian dollar in U.710  (d) £36.50. Assume the U. Assume the bid rate of a Swiss Franc is £0. Based on interest rate parity.S.17  (d) 1.619 If choice c is selected set score to 2.S. what would be your gain if you use £10.S.85  (c) 1.000  (d) £1.340  (b) £12. 51.585  (e) £47.219  (c) £48. Assume the bid rate of the Swiss Franc is £0.550  (c) £1. Given this information.00.47. Assume the bid rate of a Singapore dollar is £0. nor British investors could benefit from covered interest arbitrage  (d) d) Both (a) and (b) If choice a is selected set score to 2. Page 9 .S. dollars to the nearest cent?  (a) 0. 52.00.000 you started with?  (a) £24.S. 50. how much will you end up with over and above the £10. Assume the bid rate of a Singapore dollar is £0. how much will you end up with over and above the £10.54  (e) 0.21 at Bank X.25. Given this information. 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. investors could possibly benefit from covered interest arbitrage  (b) b) British investors could possibly benefit from covered interest arbitrage  (c) c) Neither U.49.23 at Bank Z.42 while the ask rate is £0.42 If choice b is selected set score to 2.000 you started with?  (a) £11.000 and execute locational arbitrage? That is. 53.00.20 while the ask rate is £0.15  (b) 0.764  (b) £18. what would be your gain if you use £10.40 while the ask rate is £0.55 and the Canadian dollar is worth £0.000 and execute locational arbitrage? That is.000 If choice a is selected set score to 2. dollar is worth £0.45 at Bank X. than in the United Kingdom and if the forward rate of the British pound is the same as its spot rate: (a) a) U. If the interest rate is lower in the U.00. the larger the degree by which the foreign interest rate exceeds the UK interest rate.41 at Bank Y.

419 at Bank V.24.841  (c) £4. Assume the following information:You have £4.42 at Bank Q.000 and execute locational arbitrage? That is. Page 10 . If Interest Rate Parity (IRP) exists. If you conduct covered interest arbitrage.063 If choice d is selected set score to 2.40 while the ask rate is £0.441  (c) £10. 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.219  (b) £14. More specifically.  (a) True  (b) False If choice b is selected set score to 2.242  (b) £4.00.000 you started with?  (a) £18. Given this information. Assume the bid rate of an Australian Dollar is £0. 57. 55.  (a) True  (b) False If choice b is selected set score to 2.003  (d) £0  (e) £12.415 while the ask rate is £0.00.911  (e) None of the above If choice e is selected set score to 2.16. Realignment in the exchange rates of banks will eliminate locational arbitrage. then the rate of return achieved from covered interest arbitrage should be equal to the rate available in the foreign country.24.000 to invest.08.  (a) True  (b) False If choice a is selected set score to 2. 58.000  (d) £4. what would be your gain if you use £10. what amount will you have after 1 year to the nearest £?  (a) £4. one bank's ask rate must be higher than another bank's bid rate for a currency.00. For locational arbitrage to be possible. 56. Assume the bid rate of an Australian dollar is £0.54. how much will you end up with over and above the £10.