Question 1

Simulation is useful in the bond-denomination decision since it can:

Accepted Answer

A)  precisely compute the cost of financing with bonds denominated in a single foreign currency. 
B)  precisely compute the cost of financing with bonds denominated in a portfolio of foreign currencies. 
C)  assess the probability that a bond denominated in a foreign currency will be less costly than a bond denominated in the home currency. 
D)  A and B 
A)  precisely compute the cost of financing with bonds denominated in a single foreign currency. 
B)  precisely compute the cost of financing with bonds denominated in a portfolio of foreign currencies. 
C)  assess the probability that a bond denominated in a foreign currency will be less costly than a bond denominated in the home currency. 
D)  A and B C

Question 2

In a(n) ____ swap, the notional value is increased over time.

Accepted Answer

A)  amortizing 
B)  basis 
C)  zero-coupon 
D)  accretion 
A)  amortizing 
B)  basis 
C)  zero-coupon 
D)  accretion D

Question 3

An MNC issuing pound-denominated bonds may be completely insulated from exchange rate risk associated with the bond if its foreign subsidiary makes the coupon and principal payments of the bond with its pound receivables.

Accepted Answer

A) True 
 B)False  True

Question 4

If the currency denominating a foreign bond depreciates against the firm's home currency, the funds needed to make coupon payments will increase.

Accepted Answer

A) True 
 B)False

Question 5

Some MNCs use a country's yield curve to compare annualized rates among debt maturities, so that they can choose a maturity that has a relatively low rate.

Accepted Answer

A) True 
 B)False

Question 6

In a(n) ____ swap, the fixed rate payer has the right to terminate the swap.

Accepted Answer

A)  callable 
B)  putable 
C)  amortizing 
D)  zero-coupon 
A)  callable 
B)  putable 
C)  amortizing 
D)  zero-coupon

Question 7

When financing international operations, MNCs typically will not use a maturity that ____ the expected life of the business in that country.

Accepted Answer

A)  is less than 
B)  exceeds 
C)  is the same as 
D)  none of the above 
A)  is less than 
B)  exceeds 
C)  is the same as 
D)  none of the above

Question 8

Firm X conducts all business transactions in pounds. If it issues a currency cocktail bond, it can:

Accepted Answer

A)  reduce exchange rate risk relative to issuing a bond denominated in pounds. 
B)  reduce exchange rate risk relative to issuing a bond denominated in a single foreign currency. 
C)  A and B 
D)  none of the above. 
A)  reduce exchange rate risk relative to issuing a bond denominated in pounds. 
B)  reduce exchange rate risk relative to issuing a bond denominated in a single foreign currency. 
C)  A and B 
D)  none of the above.

Question 9

A back-to-back (also called parallel) loan represents simultaneous loans provided by two parties with an agreement to repay at a specified point in the future.

Accepted Answer

A) True 
 B)False

Question 10

Most MNCs obtain equity funding:

Accepted Answer

A)  in foreign countries. 
B)  in their home country. 
C)  through global offerings. 
D)  through private placements. 
A)  in foreign countries. 
B)  in their home country. 
C)  through global offerings. 
D)  through private placements.

Question 11

When deciding whether to take out a short- or long-term loan, there is always a clear answer to this question.

Accepted Answer

A) True 
 B)False

Question 12

Some firms may be uncomfortable issuing bonds denominated in foreign currencies because exchange rates are ____ difficult to predict over ____ time horizons.

Accepted Answer

A)  less; long 
B)  more; short 
C)  more; long 
D)  none of the above 
A)  less; long 
B)  more; short 
C)  more; long 
D)  none of the above

Question 13

As a(n) ____ to an interest rate swap, a financial institution simply arranges a swap between two parties.

Accepted Answer

A)  ultraparty 
B)  broker 
C)  counterparty 
D)  none of the above 
A)  ultraparty 
B)  broker 
C)  counterparty 
D)  none of the above

Question 14

When an MNC finances in a currency that matches its cash inflows using a relatively ____ maturity, the MNC is exposed to ____ risk.

Accepted Answer

A)  short; interest rate 
B)  long; interest rate 
C)  short; exchange rate 
D)  none of the above 
A)  short; interest rate 
B)  long; interest rate 
C)  short; exchange rate 
D)  none of the above

Question 15

Since yield curves are identical across countries, MNCs rarely consider them when deciding on the maturity of bonds denominated in a foreign currency.

Accepted Answer

A) True 
 B)False

Question 16

Because bonds denominated in foreign currencies rarely have lower yields, U.S. corporations rarely consider issuing bonds denominated in those currencies.

Accepted Answer

A) True 
 B)False

Question 17

In a(n) ____ swap, two parties agree to exchange payments associated with bonds; in a(n) ____ swap, two parties agree to periodically exchange foreign currencies.

Accepted Answer

A)  interest rate; currency 
B)  currency; interest rate 
C)  interest rate; interest rate 
D)  currency; currency 
A)  interest rate; currency 
B)  currency; interest rate 
C)  interest rate; interest rate 
D)  currency; currency

Question 18

A US firm has a Canadian subsidiary that remits some of its earnings to the parent on an annual basis. The firm has no other foreign business. The firm could best reduce its exposure to exchange rate risk by issuing bonds denominated in:

Accepted Answer

A)  US dollars. 
B)  Canadian dollars. 
C)  multiple currencies. 
D)  a unit of account such as the SDR. 
A)  US dollars. 
B)  Canadian dollars. 
C)  multiple currencies. 
D)  a unit of account such as the SDR.

Question 19

A ____ gives its owner the right to enter into a swap.

Accepted Answer

A)  basis swap 
B)  swaption 
C)  callable swap 
D)  putable swap 
A)  basis swap 
B)  swaption 
C)  callable swap 
D)  putable swap

Question 20

When ignoring exchange rate risk, bond yields:

Accepted Answer

A)  are the same for all currencies. 
B)  are consistently higher for all non-UK bonds than UK bonds. 
C)  are consistently lower for all non-UK bonds than UK bonds. 
D)  none of the above. 
A)  are the same for all currencies. 
B)  are consistently higher for all non-UK bonds than UK bonds. 
C)  are consistently lower for all non-UK bonds than UK bonds. 
D)  none of the above.

Simulation is useful in the bond-denomination decision since it can:

In a(n) ____ swap, the notional value is increased over time.

An MNC issuing pound-denominated bonds may be completely insulated from exchange rate risk associated with the bond if its foreign subsidiary makes the coupon and principal payments of the bond with its pound receivables.

If the currency denominating a foreign bond depreciates against the firm's home currency, the funds needed to make coupon payments will increase.

Some MNCs use a country's yield curve to compare annualized rates among debt maturities, so that they can choose a maturity that has a relatively low rate.

In a(n) ____ swap, the fixed rate payer has the right to terminate the swap.

When financing international operations, MNCs typically will not use a maturity that ____ the expected life of the business in that country.

Firm X conducts all business transactions in pounds. If it issues a currency cocktail bond, it can:

A back-to-back (also called parallel) loan represents simultaneous loans provided by two parties with an agreement to repay at a specified point in the future.

Most MNCs obtain equity funding:

When deciding whether to take out a short- or long-term loan, there is always a clear answer to this question.

Some firms may be uncomfortable issuing bonds denominated in foreign currencies because exchange rates are difficult to predict over time horizons.

As a(n) ____ to an interest rate swap, a financial institution simply arranges a swap between two parties.

When an MNC finances in a currency that matches its cash inflows using a relatively maturity, the MNC is exposed to risk.

Since yield curves are identical across countries, MNCs rarely consider them when deciding on the maturity of bonds denominated in a foreign currency.

Because bonds denominated in foreign currencies rarely have lower yields, U.S. corporations rarely consider issuing bonds denominated in those currencies.

In a(n) swap, two parties agree to exchange payments associated with bonds; in a(n) swap, two parties agree to periodically exchange foreign currencies.

A US firm has a Canadian subsidiary that remits some of its earnings to the parent on an annual basis. The firm has no other foreign business. The firm could best reduce its exposure to exchange rate risk by issuing bonds denominated in:

A ____ gives its owner the right to enter into a swap.

When ignoring exchange rate risk, bond yields:

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Changes

Currency Derivatives

Exchange Rate History and the Role of Governments

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Foreign Direct Investment

Country Risk Analysis

Ethics

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 15: Long-Term Financing

Simulation is useful in the bond-denomination decision since it can:

In a(n) ____ swap, the notional value is increased over time.

An MNC issuing pound-denominated bonds may be completely insulated from exchange rate risk associated with the bond if its foreign subsidiary makes the coupon and principal payments of the bond with its pound receivables.

If the currency denominating a foreign bond depreciates against the firm's home currency, the funds needed to make coupon payments will increase.

Some MNCs use a country's yield curve to compare annualized rates among debt maturities, so that they can choose a maturity that has a relatively low rate.

In a(n) ____ swap, the fixed rate payer has the right to terminate the swap.

When financing international operations, MNCs typically will not use a maturity that ____ the expected life of the business in that country.

Firm X conducts all business transactions in pounds. If it issues a currency cocktail bond, it can:

A back-to-back (also called parallel) loan represents simultaneous loans provided by two parties with an agreement to repay at a specified point in the future.

Most MNCs obtain equity funding:

When deciding whether to take out a short- or long-term loan, there is always a clear answer to this question.

Some firms may be uncomfortable issuing bonds denominated in foreign currencies because exchange rates are ____ difficult to predict over ____ time horizons.

As a(n) ____ to an interest rate swap, a financial institution simply arranges a swap between two parties.

When an MNC finances in a currency that matches its cash inflows using a relatively ____ maturity, the MNC is exposed to ____ risk.

Since yield curves are identical across countries, MNCs rarely consider them when deciding on the maturity of bonds denominated in a foreign currency.

Because bonds denominated in foreign currencies rarely have lower yields, U.S. corporations rarely consider issuing bonds denominated in those currencies.

In a(n) ____ swap, two parties agree to exchange payments associated with bonds; in a(n) ____ swap, two parties agree to periodically exchange foreign currencies.

A US firm has a Canadian subsidiary that remits some of its earnings to the parent on an annual basis. The firm has no other foreign business. The firm could best reduce its exposure to exchange rate risk by issuing bonds denominated in:

A ____ gives its owner the right to enter into a swap.

When ignoring exchange rate risk, bond yields:

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Changes

Currency Derivatives

Exchange Rate History and the Role of Governments

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Foreign Direct Investment

Country Risk Analysis

Ethics

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Some firms may be uncomfortable issuing bonds denominated in foreign currencies because exchange rates are difficult to predict over time horizons.

When an MNC finances in a currency that matches its cash inflows using a relatively maturity, the MNC is exposed to risk.

In a(n) swap, two parties agree to exchange payments associated with bonds; in a(n) swap, two parties agree to periodically exchange foreign currencies.