Question 1

In a free market, the exchange rate between two currencies is determined by the supply of and demand for those currencies with the influence of the central bank.

Accepted Answer

A) True 
 B)False  True

Question 2

As Exchange rates change, they

Accepted Answer

A)   change the relative purchasing power between countries.
B)   can affect imports and exports between those two countries.
C)   will affect the flow of funds between the countries.
D)   all of these are true.E) A) and B)
F) C) and D)

Question 3

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

Accepted Answer

A)   foreign exchange risk.
B)   political risk.
C)   translation exposure.
D)   hedging risk.E) A) and B)
F) A) and C)

Question 4

As inflation in France increases and stays the same in the U.S., the exchange rate of the euro to the dollar will increase.

Accepted Answer

A) True 
 B)False

Question 5

The Overseas Private Investment Corporation (OPIC)

Accepted Answer

A)   loans money to multinational firms.
B)   does feasibility studies for multinational firms.
C)   sells insurance policies to qualified multinational firms.
D)   none of these.E) None of the above
F) A) and B)

Question 6

The interplay between interest rate differentials and exchange rates such that each adjusts until the foreign exchange market and the money market reach equilibrium is called the

Accepted Answer

A)   Purchasing Power Parity Theory.
B)   Balance of Payments.
C)   Interest Rate Parity Theory.
D)   None of these.E) A) and B)
F) None of the above C

Question 7

Assume that you had dollar quotes for the Japanese Yen and the British Pound. If you want to know the Yen/Pound exchange rate, you would rely on

Accepted Answer

A)   forward rates.
B)   cross rates.
C)   the Wall Street Journal.
D)   hedge ratios.E) A) and C)
F) None of the above

Question 8

The belief that shifts in exchange rates result from increasing or decreasing demand for a country's exports (or the corresponding opposite movements in supply of a country's imports)  form the basis for the

Accepted Answer

A)   purchasing power theory of exchange rates.
B)   interest rate parity theory of exchange rates.
C)   balance of payments theory of exchange rates.
D)   government intervention theory of exchange rates.E) A) and B)
F) B) and C)

Question 9

A long-term debt issue sold simultaneously in several different national capital markets, but denominated in a currency different from that of the national market where the issue occurs is called a(n)

Accepted Answer

A)   World bond.
B)   International capital bond.
C)   Floating bond.
D)   Eurobond.E) A) and C)
F) A) and D)

Question 10

While shopping in the Mexican market, you find that limes cost 11 pesos each. You remember that back home, they cost 80 cents each. If the Purchasing Power Parity Theory holds, the rate of exchange is

Accepted Answer

A)   13.75 pesos/dollar or 7.3 cents/peso.
B)   80 pesos/dollar or 1.25 cents/peso.
C)   7.3 pesos/dollar or 13.75 cents/peso.
D)   not enough information to tell.E) A) and C)
F) B) and C) A

Question 11

Which of the following statements about foreign affiliates is (are)  true?

Accepted Answer

A)   In general, foreign affiliates are more profitable than domestic businesses.
B)   Foreign affiliates usually lower the portfolio risk of the parent company.
C)   Foreign affiliates may have a significant positive impact on the host company's economic growth, employment, trade, and balance of payments.
D)   All of these are true.E) B) and C)
F) C) and D)

Question 12

In recent years, fully owned foreign subsidiaries are experiencing increased political pressure from foreign governments.

Accepted Answer

A) True 
 B)False

Question 13

Multinational firms tend to have a lower level of portfolio risk than comparable U.S. firms.

Accepted Answer

A) True 
 B)False

Question 14

In Germany, restrictions limiting labor layoffs have encouraged companies to reduce investment there. Thus, in the long-run, these labor protection laws actually can be expected to result in higher unemployment in Germany.

Accepted Answer

A) True 
 B)False

Question 15

A foreign exchange rate specifies how much a currency is worth in terms of another currency.

Accepted Answer

A) True 
 B)False

Question 16

Transaction Exposure associated with changes in the exchange rate between countries can be hedged with a currency futures contract.

Accepted Answer

A) True 
 B)False

Question 17

The lower borrowing costs in the Eurodollar market as compared to the U.S. are often attributed to:

Accepted Answer

A)   lower inflation abroad.
B)   higher inflation in the United States.
C)   slower money growth in the United States.
D)   smaller overhead costs and the absence of a compensating balance requirement abroad.E) C) and D)
F) None of the above

Question 18

A loan arrangement in which a parent company reduces its political risk by using an intermediary bank rather than a direct transfer of funds to a subsidiary is called a (an)

Accepted Answer

A)   parallel loan.
B)   Eximbank direct loan.
C)   fronting loan.
D)   it depends on the host country.E) All of the above
F) A) and B)

Question 19

Which of the following hedging strategies involves a loan without a futures contract?

Accepted Answer

A)   Eurobond market
B)   Forward exchange market
C)   Money market
D)   IMM contractE) C) and D)
F) All of the above

Question 20

Political risks include the possibility that a government may expropriate a firm's profits, or worse, repatriate all of the firm's assets.

Accepted Answer

A) True 
 B)False

Exam 21: International Financial Management

In a free market, the exchange rate between two currencies is determined by the supply of and demand for those currencies with the influence of the central bank.

Correct AnswerverifiedTrue

As Exchange rates change, they

Correct AnswerverifiedShow Answer

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

Correct AnswerverifiedShow Answer

As inflation in France increases and stays the same in the U.S., the exchange rate of the euro to the dollar will increase.

Correct AnswerverifiedShow Answer

The Overseas Private Investment Corporation (OPIC)

Correct AnswerverifiedShow Answer

The interplay between interest rate differentials and exchange rates such that each adjusts until the foreign exchange market and the money market reach equilibrium is called the

Correct AnswerverifiedC

Assume that you had dollar quotes for the Japanese Yen and the British Pound. If you want to know the Yen/Pound exchange rate, you would rely on

Correct AnswerverifiedShow Answer

The belief that shifts in exchange rates result from increasing or decreasing demand for a country's exports (or the corresponding opposite movements in supply of a country's imports) form the basis for the

Correct AnswerverifiedShow Answer

A long-term debt issue sold simultaneously in several different national capital markets, but denominated in a currency different from that of the national market where the issue occurs is called a(n)

Correct AnswerverifiedShow Answer

While shopping in the Mexican market, you find that limes cost 11 pesos each. You remember that back home, they cost 80 cents each. If the Purchasing Power Parity Theory holds, the rate of exchange is

Correct AnswerverifiedA

Which of the following statements about foreign affiliates is (are) true?

Correct AnswerverifiedShow Answer

In recent years, fully owned foreign subsidiaries are experiencing increased political pressure from foreign governments.

Correct AnswerverifiedShow Answer

Multinational firms tend to have a lower level of portfolio risk than comparable U.S. firms.

Correct AnswerverifiedShow Answer

In Germany, restrictions limiting labor layoffs have encouraged companies to reduce investment there. Thus, in the long-run, these labor protection laws actually can be expected to result in higher unemployment in Germany.

Correct AnswerverifiedShow Answer

A foreign exchange rate specifies how much a currency is worth in terms of another currency.

Correct AnswerverifiedShow Answer

Transaction Exposure associated with changes in the exchange rate between countries can be hedged with a currency futures contract.

Correct AnswerverifiedShow Answer

The lower borrowing costs in the Eurodollar market as compared to the U.S. are often attributed to:

Correct AnswerverifiedShow Answer

A loan arrangement in which a parent company reduces its political risk by using an intermediary bank rather than a direct transfer of funds to a subsidiary is called a (an)

Correct AnswerverifiedShow Answer

Which of the following hedging strategies involves a loan without a futures contract?

Correct AnswerverifiedShow Answer

Political risks include the possibility that a government may expropriate a firm's profits, or worse, repatriate all of the firm's assets.

Correct AnswerverifiedShow Answer

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True

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C

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A

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