Question 1

Which of the following statements is NOT CORRECT?

Accepted Answer

A)  Any bond sold outside the country of the borrower is called an international bond. 
B)  Foreign bonds and Eurobonds are two important types of international bonds. 
C)  Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold. 
D)  The term Eurobond applies only to foreign bonds denominated in U.S. currency. 
E)  A foreign bond might pay a higher nominal interest rate than a U.S. bond. 
A)  Any bond sold outside the country of the borrower is called an international bond. 
B)  Foreign bonds and Eurobonds are two important types of international bonds. 
C)  Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold. 
D)  The term Eurobond applies only to foreign bonds denominated in U.S. currency. 
E)  A foreign bond might pay a higher nominal interest rate than a U.S. bond. D

Question 2

If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss francs can one U.S. dollar buy?

Accepted Answer

A)  0.50 
B)  0.71 
C)  1.00 
D)  1.41 
E)  2.81 
A)  0.50 
B)  0.71 
C)  1.00 
D)  1.41 
E)  2.81 D

Question 3

A Eurodollar is a U.S. dollar deposited in a bank outside the United States.

Accepted Answer

A) True 
 B)False  True

Question 4

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.

Accepted Answer

A) True 
 B)False

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

Suppose one British pound can purchase 1.82 U.S. dollars today in the foreign exchange market, and currency forecasters predict that the U.S. dollar will depreciate by 12.0% against the pound over the next 30 days. How many dollars will a pound buy in 30 days?

Accepted Answer

A)  1.12 
B)  1.63 
C)  1.82 
D)  2.04 
E)  3.64 
A)  1.12 
B)  1.63 
C)  1.82 
D)  2.04 
E)  3.64

Question 7

Which of the following is NOT a reason why companies move into international operations?

Accepted Answer

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)  To increase their inventory levels. 
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)  To increase their inventory levels.

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

The United States and most other major industrialized nations currently operate under a system of floating exchange rates.

Accepted Answer

A) True 
 B)False

Question 10

Exchange rates influence a multinational firm's inventory policy because changing currency values can affect the value of inventory.

Accepted Answer

A) True 
 B)False

Question 11

The Eurodollar market is essentially a long-term market; most loans and deposits in this market have maturities longer than one year.

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

Credit policy for multinational firms is generally more risky due in part to the additional consideration of exchange rates and also due to uncertainty regarding the credit worthiness of many foreign customers.

Accepted Answer

A) True 
 B)False

Question 15

If the United States is running a deficit trade balance with China, then in a free market we would expect the value of the Chinese yuan to depreciate against the U.S. dollar.

Accepted Answer

A) True 
 B)False

Question 16

If one U.S. dollar buys 1.64 Canadian dollars, how many U.S. dollars can you purchase for one Canadian dollar?

Accepted Answer

A)  0.37 
B)  0.61 
C)  1.00 
D)  1.64 
E)  3.28 
A)  0.37 
B)  0.61 
C)  1.00 
D)  1.64 
E)  3.28

Question 17

Suppose that currently, 1 British pound equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62 Swiss francs. What is the cross exchange rate between the pound and the franc?

Accepted Answer

A)  1 British pound equals 3.2400 Swiss francs 
B)  1 British pound equals 2.6244 Swiss francs 
C)  1 British pound equals 1.8588 Swiss francs 
D)  1 British pound equals 1.0000 Swiss francs 
E)  1 British pound equals 0.3810 Swiss francs 
A)  1 British pound equals 3.2400 Swiss francs 
B)  1 British pound equals 2.6244 Swiss francs 
C)  1 British pound equals 1.8588 Swiss francs 
D)  1 British pound equals 1.0000 Swiss francs 
E)  1 British pound equals 0.3810 Swiss francs

Question 18

Suppose in the spot market 1 U.S. dollar equals 1.60 Canadian dollars. 6-month Canadian securities have an annualized return of 6% (and thus a 6-month periodic return of 3%). 6-month U.S. securities have an annualized return of 6.5% and a periodic return of 3.25%. If interest rate parity holds, what is the U.S. dollar-Canadian dollar exchange rate in the 180-day forward market?

Accepted Answer

A)  1 U.S. dollar = 0.6235 Canadian dollars 
B)  1 U.S. dollar = 0.6265 Canadian dollars 
C)  1 U.S. dollar = 1.0000 Canadian dollars 
D)  1 U.S. dollar = 1.5961 Canadian dollars 
E)  1 U.S. dollar = 1.6039 Canadian dollars 
A)  1 U.S. dollar = 0.6235 Canadian dollars 
B)  1 U.S. dollar = 0.6265 Canadian dollars 
C)  1 U.S. dollar = 1.0000 Canadian dollars 
D)  1 U.S. dollar = 1.5961 Canadian dollars 
E)  1 U.S. dollar = 1.6039 Canadian dollars

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

The interest rate paid on Eurodollar deposits depends on the particular bank's lending rate and on rates available on U.S. money market instruments.

Accepted Answer

A) True 
 B)False

Exam 17: Multinational Financial Management

Which of the following statements is NOT CORRECT?

If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss francs can one U.S. dollar buy?

A Eurodollar is a U.S. dollar deposited in a bank outside the United States.

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.

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.

Suppose one British pound can purchase 1.82 U.S. dollars today in the foreign exchange market, and currency forecasters predict that the U.S. dollar will depreciate by 12.0% against the pound over the next 30 days. How many dollars will a pound buy in 30 days?

Which of the following is NOT a reason why companies move into international operations?

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.

The United States and most other major industrialized nations currently operate under a system of floating exchange rates.

Exchange rates influence a multinational firm's inventory policy because changing currency values can affect the value of inventory.

The Eurodollar market is essentially a long-term market; most loans and deposits in this market have maturities longer than one year.

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.

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.

Credit policy for multinational firms is generally more risky due in part to the additional consideration of exchange rates and also due to uncertainty regarding the credit worthiness of many foreign customers.

If the United States is running a deficit trade balance with China, then in a free market we would expect the value of the Chinese yuan to depreciate against the U.S. dollar.

If one U.S. dollar buys 1.64 Canadian dollars, how many U.S. dollars can you purchase for one Canadian dollar?

Suppose that currently, 1 British pound equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62 Swiss francs. What is the cross exchange rate between the pound and the franc?

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.

The interest rate paid on Eurodollar deposits depends on the particular bank's lending rate and on rates available on U.S. money market instruments.

An Overview of Financial Management and the Financial Environment

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Bonds, Bond Valuation, and Interest Rates

Risks and Rates of Return

Stocks and Their Valuation

Financial Options and Applications in Corporate Finance

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Financial Planning and Forecasting Financial Statements

Corporate Valuation, Value-Based Management, and Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Working Capital Management

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Initial Public Offerings, Investment Banking, and Financial Restructuring

Mergers, Lbos, Divestitures, and Holding Companies

Bankruptcy, Reorganization, and Liquidation

Derivatives and Risk Management

Portfolio Theory, Asset Pricing Models, and Behavioral Finance

Real Options

Analysis of Capital Structure Theory

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Pension Plan Management

Financial Management in Not-For-Profit Businesses

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