Question 1

The risk of an investment in a Eurodollar deposit is partially due to

Accepted Answer

A)   the fact that these instruments only pay interest at maturity.
B)   the fact that the center of the Eurodollar market is in London.
C)   the presence of some foreign exchange risk.
D)   the fact that the majority of these deposits are not in the form of U.S. dollars. C

Question 2

Fluctuations in foreign exchange markets can affect foreign revenues and profits of a multinational company, but they have no impact on its overall value.

Accepted Answer

A) True 
 B)False  False

Question 3

When more units of a foreign currency are required to buy one euro, the currency is said to have appreciated with respect to the euro.

Accepted Answer

A) True 
 B)False  False

Question 4

Although several economic and political factors can influence foreign exchange rate movements, by far the most important explanation for long- term changes in exchange rates is a differing inflation rate between two countries.

Accepted Answer

A) True 
 B)False

Question 5

When more units of a foreign currency are required to buy one euro, the currency is said to have appreciated with respect to the euro.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)   principal amounts are reversed at the spot rate at maturity.
B)   principal amounts are reversed at a pre- agreed rate at maturity.
C)   an initial exchange by two parties of two principal amounts in two different currencies.
D)   each party pays the other's interest payment.

Question 7

For currencies, changes in the value of foreign exchange rates are called .

Accepted Answer

A)   floating; revaluation or devaluation
B)   floating; appreciation
C)   fixed; appreciation or depreciation
D)   fixed; revaluation or devaluation

Question 8

The risk attached to international cash flows are all of the following EXCEPT

Accepted Answer

A)   inflation and foreign exchange risks.
B)   business and financial risks.
C)   political risks.
D)   risk of local management.

Question 9

Exchange rate risk hedging tools include forward contracts, options, interest rate swaps, currency swaps, and hybrid securities.

Accepted Answer

A) True 
 B)False

Question 10

The functional currency is the currency of the economic environment in which a business entity primarily generates and expends cash, and in which its accounts are maintained.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A)   macro political risk.
B)   economic exposure.
C)   accounting exposure.
D)   micro political risk.

Question 12

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

Accepted Answer

A)   at some specified future date; today
B)   on that date; at some specified future date
C)   today; on that date
D)   on that date; today

Question 13

Although several economic and political factors can influence foreign exchange rate movements, by far the most important explanation for long- term changes in exchange rates is fiscal policy that a country adopts.

Accepted Answer

A) True 
 B)False

Question 14

In doing business in foreign countries, financing operations in the local market not only improves the company's business ties to the host community but also minimizes exchange rate risk.

Accepted Answer

A) True 
 B)False

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

The forward exchange rate is the rate of exchange between two currencies on any given day.

Accepted Answer

A) True 
 B)False

Question 17

Countries that experience high inflation rates will see their currencies decline in value relative to the currencies of countries with lower inflation rates.

Accepted Answer

A) True 
 B)False

Question 18

In international trade when a U.S. company sells a product in France, the U.S. company experiences an exchange rate gain if the franc depreciates against the dollar before the U.S. exporter collects on its accounts receivable.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)   depreciated
B)   consolidated
C)   remained fixed
D)   appreciated

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 25: Present Value of an Annuity of 1 at Compound Interest

The risk of an investment in a Eurodollar deposit is partially due to

Fluctuations in foreign exchange markets can affect foreign revenues and profits of a multinational company, but they have no impact on its overall value.

When more units of a foreign currency are required to buy one euro, the currency is said to have appreciated with respect to the euro.

Although several economic and political factors can influence foreign exchange rate movements, by far the most important explanation for long- term changes in exchange rates is a differing inflation rate between two countries.

When more units of a foreign currency are required to buy one euro, the currency is said to have appreciated with respect to the euro.

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

For currencies, changes in the value of foreign exchange rates are called .

The risk attached to international cash flows are all of the following EXCEPT

Exchange rate risk hedging tools include forward contracts, options, interest rate swaps, currency swaps, and hybrid securities.

The functional currency is the currency of the economic environment in which a business entity primarily generates and expends cash, and in which its accounts are maintained.

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

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

Although several economic and political factors can influence foreign exchange rate movements, by far the most important explanation for long- term changes in exchange rates is fiscal policy that a country adopts.

In doing business in foreign countries, financing operations in the local market not only improves the company's business ties to the host community but also minimizes exchange rate risk.

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.

The forward exchange rate is the rate of exchange between two currencies on any given day.

Countries that experience high inflation rates will see their currencies decline in value relative to the currencies of countries with lower inflation rates.

In international trade when a U.S. company sells a product in France, the U.S. company experiences an exchange rate gain if the franc depreciates against the dollar before the U.S. exporter collects on its accounts receivable.

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

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.