Exam 19: International Managerial Finance

In the case of short-term financing, the forces of supply and demand are among the main factors determining exchange rates in Eurocurrency markets.

Economic exposure is the risk resulting from the effects of changes in foreign exchange rates on the firm's value.

The three basic types of risk associated with international cash flows are 1) business and financial risks, 2) inflation and foreign exchange risks, and 3) political risks.

Hedging strategies are techniques used to offset or protect against risk; in the international context these include borrowing or lending in different currencies, undertaking contracts in the forward, futures, and/or options markets, and also swapping assets/liabilities with other parties.

Disagreements among European Union country members over the disposition of garbage and manufacturing refuse generated primarily by Eastern European countries have come to be known as the Euro Trash Issue.

A U.S.-based MNC has three subsidiaries: S1 (40 percent owned by the MNC); S2 (33 percent owned by S1), and S3 (20 percent owned by S2). The taxable income for each firm is $100 million. The local taxes for each firm are $15 million, $20 million, and $10 million, respectively. The MNC's tax rate is 40 percent. (a) Can the MNC apply all of its local taxes as a credit against its U.S. taxes? (b) Based on the "grossing up" concept, calculate all tax credits applicable to the MNC.

The official melding of the national currencies of the European Union into one currency, the Euro, created the European Monetary Union in 2002.

________ is a treaty that has governed world trade throughout most of the post World War II era.

For a Eurodollar bond, the interest rate will reflect several different rates, most notably the U.S. long-term rate, the Eurodollar rate, and long-term rates in other countries.

As a foreign exchange hedging tool, options have all of the following characteristics EXCEPT

As a foreign exchange hedge, currency swaps have all of the following characteristics EXCEPT

A multi-national corporation (MNC) can give some protection to international cash flows by reducing its liabilities if the currency is appreciating, or by reducing its financial assets if the currency is depreciating.

Relative to cash flows of domestic firms, by diversifying internationally, multinationals

The Mercosur Group is a major European trading bloc made up of former Soviet bloc countries in Eastern Europe.

A functional currency is the currency of the host country in which a subsidiary primarily generates and expends cash and in which its accounts are maintained.

Between two major currencies, the spot exchange rate is the rate ________ and the forward exchange rate is the rate ________.

In the U.S. over the past 30 years, foreign direct investment (FDI) came overwhelmingly in the form of mergers and acquisitions rather than through establishments.

When fewer units of a foreign currency are required to buy one dollar, the currency is said to have ________ with respect to the dollar.

The spot exchange rate is the rate of exchange between two currencies at some specified future date.

The all-current-rate method is the method by which the functional currency-denominated financial statements of an MNC's subsidiary are translated into the parent company's currency.