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An acquisition is: MORE RISKY THAN OTHER FOREIGN INVESTMENT TECHNIQUES. 3. Comparative advantage implies that firms should specialize in activities in which they are relatively more efficient. TRUE 4. The goal of the MNC is to increase accounting profitability by moving funds around the world. FALSE 5. Political risk refers to the risk of loss of value due to: GOVERNMENT OR PUBLIC ACTIONS. 6. Which of the following are aspects of international business that a firm may be exposed to? EXCHANGE RATES, FOREIGN ECONOMIC CONDITIONS AND POLITICAL RISK (ALL OF THE ABOVE) 7. An example of political risk is terrorism. TRUE 8. Agency problems refer to interference with a company's business practices by government bureaucracies. FALSE 9. An example of privatization is: THE SALE OF THE CITY TRASH COLLECTION SERVICES TO A PRIVATE COMPANY,THE SALE OF LARGE TRACTS OF LAND OWNED BY THE STATE OF FLORIDA TO MINING COMPANIES, THE SALE OF THE U.S. POSTAL SERVICE TO FEDEX. (ALL OF THE ABOVE) 10. American firms have legal constraints on bribery that sometimes put them at a disadvantage to foreign firms. TRUE 11. NAFTA is: A TRADE AGREEMENT THAT REDUCED TRADE BARRIERS BETWEEN MEXICO AND THE U.S. 12. Licensing refers to: AN OBLIGATION TO PROVIDE TECHNOLOGY IN EXCHANGE FOR FEES OR OTHER SPECIFIED BENEFITS. 13. The goal of the MNC is to maximize: SHAREHOLDER WEALTH. 14. Foreign opportunities are harmed by market imperfections, rather than being created by them. FALSE 15. Product Cycle Theory indicates that: FIRMS BEGIN BY EXPORTING, THEN BEGIN PRODUCING IN FOREIGN MARKETS, AND FINALLY, WHEN COMPETITION INCREASES, DIFFERENTIATE. 16. The kinds of considerations managers take into account when making multinational decisions include:HOW TO FORECAST EXCHANGE RATES, HOW TO MEASURE EXPOSURE TO EXCHANGE RATES, HOW TO MANAGE INTERNATIONAL CASH AND LIQUIDITY (ALL OF THE ABOVE) 17. One can think of the MNC as a portfolio of currency cash flows. TRUE
MANAGERS MAY HAVE DIFFERENT PERSPECTIVES ON SHORT-TERM EFFECTS OF DECISIONS (ALL OF THE ABOVE) 23. 30. FALSE 5. 4. (ALL OF THE ABOVE) 19.18. FALSE 3. Why might agency conflicts be harder to control in multinational firms? FOREIGN MANAGERS MAY NOT UNDERSTAND DOMESTIC CULTURAL PRACTICES. LAWS RESTRICTING CAPITAL FLOWS DURING CURRENCY CRISES. The Asian currency crisis of 1997-1998: CAUSED DOLLARS RECEIVED BY U. The Single European Act was an agreement to remove taxes on goods traded between the industrialized countries of Europe. RESTRICTIONS ON THE TRANSFER OF FUNDS AMONG COUNTRIES. The capital account includes: FOREIGN PURCHASES OF GOODS. FALSE 22. Increases in the value of the dollar are favorable for U. In the real world. MNCs is the same as the goal of MNCs in every other country in the world. TRUE Merchandise trade involves both goods and services. PARENTS FROM ASIAN UNITS TO DECLINE.S.S. Foreign direct investment involves a greater amount of ownership than foreign indirect investment. SUBSIDIARIES ALL OVER THE WORLD ARE MORE DIFFICULT TO MONITOR. TRUE 29. Subsidiaries may be preferable to acquisitions because the operations can be tailored to the firm's needs. NON-U. TRUE 21. The Asian Currency Crisis created an opportunity for acquisitions by foreign companies. Which of the following correctly describes privatization? THE SALE OF STATE-OWNED ENTERPRISES TO THE PRIVATE SECTOR. An agency conflict occurs when: MANAGEMENT AND SHAREHOLDERS HAVE DIFFERING OBJECTIVES 24. Examples of opportunities for multinationals in Europe include: THE SINGLE EUROPEAN ACT. Transactions reflecting inflows of funds generate credits. An example of a market imperfection is: RESTRICTIONS ON THE TRANSFER OF LABOR. PRIVATIZATION (ALL OF THE ANSWERS) 20. FALSE CHAPTER 2 1. TRUE 26. FALSE 27. has a trade deficit only because politicians have not been able to get favorable trade deals. The U. exporters.S. FALSE 2. 25. TRUE 28. The goal of U. THE REMOVAL OF THE BERLIN WALL. A country with a merchandise trade surplus necessarily has a current account surplus.S.S. all factors of production are perfectly mobile. .
The balance of payments is a set of accounts showing: TRANSACTIONS BETWEEN DOMESTIC AND FOREIGN RESIDENTS 12. TRANSACTIONS REFLECTING INFLOWS OF CAPITAL ARE CREDITS (ALL OF THE ABOVE) 17. TRUE 25. FALSE . TRUE 8. TRUE 10. Tariffs attempt to: INCREASE THE COSTS OF IMPORTS BY ADDING A TAX TO THE PRICE. AND ALL OTHER COUNTRIES IN THE WORLD.S. An exchange rate is the price of one currency in terms of another. HEDGE FUND BUYING DEBT OF FOREIGN COMPANIES 11. GOVERNMENT RESTRICTIONS (ALL OF THE ABOVE) 15. 21. The U. A GIVEN ACCOUNT MAY HAVE A DEFICIT OR SURPLUS. Buying equity in a foreign entity is always foreign direct investment. Which of the following may affect international trade flows? INFLATION. Which of the following are examples of foreign direct investment? THE PURCHASE OF A CAR MANUFACTURING PLANT IN THE U. The balance of payments records transactions: BETWEEN THE U. has had a current account surplus for 40 years. The term international monetary system refers to the framework in which:THE PRICE OF ONE CURRENCY IN TERMS OF ANOTHER IS DETERMINED. TRUE 7.S. The U. BY A JAPANESE COMPANY 9. If official reserves are close to zero. Which is true about the balance of payments? IT ALWAYS BALANCES. The General Agreement on Tariffs and Trade:RESULTED IN A DECREASE IN TARIFFS AROUND THE WORLD AND WAS BENEFICIAL TO EXPORTING FIRMS (BOTH B & C) 22. 19.S.S. NATIONAL INCOME. FALSE 14. TRUE 18. economy is the most dependent on trade in the world. An example of foreign portfolio investment is: A U. Which of the following are objectives of the IMF? TO PROMOTE CAPITAL MOBILITY AND TO PROMOTE STABILITY OF EXCHANGE RATES (BOTH B AND C) 23. The balance of payments utilizes double-entry bookkeeping. The capital account consists of foreign direct and indirect investment. Factor income is an account in the capital account. All exports are of tangible goods. Factor income refers to: INCOME RECEIVED BY INVESTORS ON FOREIGN INVESTMENTS.S.6. then a country with a current account deficit (surplus) will have a capital account surplus (deficit). 20. FALSE 16. FALSE 24. 13.
The foreign exchange market trades somewhere 24 hours a day. A BANK ESTABLISHED IN ANY ONE OF THE EU COUNTRIES HAS THE RIGHT TO EXPAND INTO ANY OR ALL OF THE OTHER EU COUNTRIES. THE TRANSACTIONS COST FOR BUYING AND SELLING CURRENCIES (ALL OF THE ABOVE) . The Eurocurrency market primarily concentrates on: SHORT-TERM LENDING (ONE YEAR OR LESS) IN ANY CURRENCY OUTSIDE THE COUNTRY OF ISSUE.TRUE 29. TRUE 27.204. A syndicate is: A GROUP OF COMPANIES THAT JOIN TOGETHER TO BORROW MONEY MORE CHEAPLY. STANDARDIZATION OF REGULATIONS REGARDING COMPETITION. TRUE 8.S.980/$. The balance of payments always balances. Only private companies. THE COMPENSATION TO BANKS FOR BEARING RISK. BEARER FORM. The international monetary system is the framework in which exchange rates are established. perspective.26. The current account components are: MERCHANDISE TRADE & SERVICES (A &B ONLY) 30. capital markets are so large. 28. The term "exchange rate" refers to: THE PRICE OF ONE CURRENCY IN TERMS OF ANOTHER. FALSE 13. The merchandise trade balance involves: NET EXPORTS OR IMPORTS OF TANGIBLE GOODS. MERGERS. FEW RESTRICTIVE COVENANTS (ALL OF THE ABOVE) 6.S. Shares of non-U. and list on the U. firms that issue stock in the U. 2. not governments. stock exchanges are called American Depository Receipts. A cross-rate is an exchange rate where neither currency is the dollar. CHAPTER 3 1.S.950/$-0. TRUE 11. The quote is E0. How much does it cost the company to buy the Euros? $10. Because the U. The bid-ask spread in the foreign exchange market is: SMALLER FOR ACTIVELY TRADED (MAJOR) CURRENCIES. 3. Most exchange rates are quoted in direct terms from the U. Which of the following are provisions of the Single European Act?MOBILITY OF CAPITAL THROUGHOUT EUROPE.S.082 9. Exchange rates in the Gold Standard were set through the value of currencies in terms of gold. borrow in the Eurobond market. Which of the following are characteristics of most Eurobonds? CALL PROVISIONS. AND TAXES THROUGHOUT EUROPE (ALL OF THE ABOVE) 10. TRUE 5. FALSE 12. A company needs to buy E10 million.S. American companies do not have to list on foreign stock exchanges. FALSE 4. TRUE 7.
The center of worldwide foreign exchange trading is: LONDON. TRUE CHAPTER 4 1. perspective? $1.) 26. Euros are the currency of denomination for the majority of bonds in the Eurobond market.60/Pound 28. You just received a gift from a friend consisting of 1. Which of the following is a direct quote from the U. Average daily worldwide trading of currencies is: $1. The Eurocurrency market is primarily used by multinational firms for hedging long-term business contracts. 19. An indirect quote for Japanese yen is: THE NUMBER OF YEN PER DOLLAR. FALSE 21. The Eurocurrency market consists mainly of loans and deposits. The percent bid-ask spread is: 3. TRUE 15. The spot foreign exchange market is composed of: INTERBANK DEALERS. Which of the following statements are true? ARBITRAGERS MAKE RISKLESS PROFITS WHILE HEDGERS TAKE POSITIONS TO REDUCE RISK. FOREIGN EXCHANGE BROKERS. (ALL OF THE ANSWERS ARE CORRECT.93 16.S. .5 TRILLION.5760/A$ . nominal interest rates. How many Australian dollars should you expect to receive for your baht? A$39. FALSE 20. ELECTRONIC MATCHING SYSTEMS. There is a fully integrated world stock market. FALSE 24. International diversification can increase risk-adjusted returns if countries' returns are not perfectly positively correlated. You observe that exchange rate quotes for the baht are currently $. TRUE 23. FALSE 29.65. 22. TRUE 30. If Canadian nominal interest rates decrease as compared to U. though not a Gold Standard.0250/TB. while quotes for the Australian dollar are $. which you would like to exchange for Australian dollars (A$). The Eurocurrency market is the market for the Euro.000 Thai baht.0230/TB $0.030%. The Bretton Woods agreement was a system of fixed exchange rates. 17. 18. A bank quotes the pound at $1. 27. typically of $1 million or more. The bid-ask spread represents compensation to the market maker for making the market in foreign exchange.$.14. The foreign exchange market closes at: NEVER 25.60-$1.S. which of the following would occur?IT DEPENDS ON IF THE RISE IN INTEREST RATES IS A RESULT OF AN INCREASE IN INFLATION.5820/A$.
nominal interest rates remain constant. Higher nominal interest rates in one country as compared to another are always accompanied by increases in the currency's value. 8.. Relatively higher inflation in the U.S. For fixed exchange rates. The demand curve for foreign currency is upward sloping. The term "exchange rate" refers to the price of one currency in terms of another. given that U. RELATIVE INTEREST RATES. it means:THE DOLLAR ROSE AGAINST SOME CURRENCIES AND FELL AGAINST OTHERS.TRUE 12. An increase in Canadian nominal interest rates..S.S. Government controls such as taxes on purchases of foreign bonds can impact the value of a currency. If the real interest rate rises in Canada as compared to the U. RELATIVE INCOME LEVELS (ALL OF THE ANSWERS ARE CORRECT). It is not possible for interest rates in Canada to affect the U. AND A DECREASE IN THE VALUE OF THE DOLLAR AS COMPARED TO THE POUND. INCOME LEVELS. 14.TRUE 9. FALSE 3. If real interest rates rise in the UK as compared to the U. 5. 4. the formula (S-St-1)/St-1 tells us the % appreciation or depreciation of the Dollar as compared to the Euro. For floating exchange rates. Because exchange rates are always in equilibrium. If relative income rises in Switzerland as compared to the U.TRUE 19.FALSE 15. Which of the following affect the equilibrium exchange rate? RELATIVE INFLATION. speculators will most likely: BUY CANADIAN DOLLARS.FALSE 18.FALSE 13. companies cannot be negatively affected by exchange rate movements. an increase in the value of a currency is referred to as: A REVALUATION. the outcome would be:A DECREASE IN THE DEMAND FOR DOLLARS. If we are measuring the change in the $/Euro exchange rate.S. than the UK would cause a decline in demand for dollars. will lead to an increase in the value of the Canadian dollar irrespective of inflation.S.S. more people will want to buy it. because when the foreign currency is worth more. the impact would be:MORE THAN ONE OF THESE. 17. 10. When news reports say that the dollar was mixed in trading.. and inflation does not correspondingly rise.2.S. Which of the following would cause an increase in the value of the U.FALSE .FALSE 11. 7.$/Pound exchange rate.TRUE 6. dollar as compared to the Pound? AN INCREASE IN UK INCOME LEVELS RELATIVE TO U. a decline in the value of a currency is referred to as:A DEVALUATION. Political stability is an important factor affecting the equilibrium exchange rate for two countries. 16.S.
For floating exchange rates. Put options are an obligation to buy currency at the strike for the writer of the put if the put is exercised.S. the Euro spot rate is $1. Today. the Euro spot rate was $1. the indirect exchange rate of the peso was 11. When do relative interest rate increases in one country as compared to another lead to a depreciation of the currency of the country with the interest rate increase? WHEN THE INTEREST RATES ARE NOMINAL RATES. FALSE 4. 3. Which of the following would occur if inflation in the U. increased as compared to Canada? THE CANADIAN DOLLAR WOULD RISE AS COMPARED TO THE U. Which of the following would likely result in an increase in the dollar as compared to the Euro?POLITICAL INSTABILITY IN THE REST OF THE WORLD CAUSES A DESIRE TO HOLD A STABLE CURRENCY.S. If you originally sold a MAR 2004 Euro futures contract.TRUE 6. Which of the following are true of options?THE PRICE IS CALLED AN OPTION PREMIUM. The Fisher Effect asserts that investors in a given money or bond market demand a higher nominal return to compensate them for loss of value due to inflation. DOLLAR. 22. Three days ago. The depreciation or appreciation of a currency is measured by the percent change in the price of the currency in terms of another currency. which of the following would it do? BUY YEN WITH DOLLARS 30. APPRECIATED BY 10% 27.TRUE 5. The dollar floats against the Euro.20. futures are private agreements. 25. Call option premiums are positively affected by decreases in the volatility of the currency. 21. AND THE INCREASE IN RATES REFLECTS HIGHER INFLATION. you would offset it in one month by:BUYING A JUN 2004 EURO FUTURES CONTRACT.TRUE 28. Forwards are exchange traded contracts. Today.FALSE 2. An appreciation of a currency refers to a strengthening of the currency's value.TRUE 24. The peso's value ________ over the last year. .TRUE CHAPTER 5 1. A conditional option is an option that cancels the premium if a certain trigger is reached. If Japan has a low nominal interest rate and high inflation. just like for any other asset. supply and demand generate the equilibrium price.30.FALSE 26.25. the Yen should be strong. Last year. If the Bank of Japan wanted to increase the value of the Yen as compared to the dollar. The Euro has: DEPRECIATED. the indirect exchange rate of the Mexican peso is 10. 29.TRUE 23.
FALSE 21. TRADING BY BROKERS. Which of the following characterizes nondeliverable forwards? PAYMENT BY ONE COUNTERPARTY TO ANOTHER DEPENDING ON SETTLEMENT PRICES. Which of the following are true about futures?A FIRM HEDGING AN ACCOUNT RECEIVABLE SHOULD BUY FUTURES. 19. Which of the following are aspects of the options markets?MARGIN. Which of the following describes futures contracts?MARGIN 22. Non-deliverable forwards are only used for speculation. ALL OF THE ANSWERS ARE CORRECT.FALSE 15. Forwards are marked to market every day.TRUE 8. Which of the following is true of call options?A CALL IS AN OBLIGATION TO SELL FOR THE WRITER OF THE CALL IF EXERCISED. Which of the following are positively related to call option premiums?. INCREASING TIME TO MATURITY 14. Which of the following does not characterize currency futures contracts?PHYSICAL DELIVERY 24.FALSE 9. European options can be exercised any time up to maturity. then an abnormal trading profit can never be made. Which of the following are private agreements rather than exchange traded?FORWARD CONTRACTS 16. FALSE 13. REGULATION THROUGH THE SEC. Forward are settled by actual delivery of the currency. THE OPTION IS IN THE MONEY.TRUE 12.FALSE 11. BOTH FORWARDS AND FUTURES PRICES PROVIDE AN INDICATION ABOUT FUTURE SPOT RATES (ALL OF THE ANSWERS ARE CORRECT). . Forward contracts are used primarily by individuals to manage their exchange rate risk. Which of the following are true about both forwards and futures? BOTH ARE OBLIGATIONS TO BUY OR SELL AT EXPIRATION.7. BOTH ARE USED FOR HEDGING. 23. The call option premium is negatively affected by decreases in the time to maturity. Which of the following is true for a put option?IF THE STRIKE PRICE IS HIGHER THAN THE SPOT. 18.TRUE 20. 10. A straddle combines a put and a call with the same exercise price. 17. If options and futures markets are efficient.
Futures can be traded on GLOBEX 23 hours a day. Which of the following are true regarding forward contracts?THEY INVOLVE PHYSICAL DELIVERY. the investor will:EXERCISE THE CALL AND BUY EUROS AT $1. 30. TRUE 27. An investor buys a call on Euros with a strike of $1.TRUE . Long positions in futures are appropriate for which of the following?CORPORATIONS THAT EXPECT TO BUY FOREIGN CURRENCY TO FINANCE FOREIGN SUBSIDIARIES.25.25 for $0.25. 29. Call options are the right to buy currency at the strike price for the holder of the call. 26. Non-deliverable forwards do not involve delivery of the underlying asset.02/Euro. If. the spot rate is $1. at expiration. TRUE 28.30.
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