International Financial Management

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Questions Bank

The Role and Objective of Financial Management
The Domestic and International Financial Marketplace
Evaluation of Financial Performance
Financial Planning and Forecasting
The Time Value of Money
Fixed Income Securities: Characteristics and Valuation
Common Stock: Characteristics, Valuation, and Issuance
Analysis of Risk and Return
Capital Budgeting and Cash Flow Analysis
Capital Budgeting: Decision Criteria and Real Option Considerations
Capital Budgeting and Risk
The Cost of Capital
Capital Structure Concepts
Capital Structure Management in Practice
Dividend Policy
Working Capital Policy and Short-term Financing
The Management of Cash and Marketable Securities
Management of Accounts Receivable and Inventories
Lease and Intermediate-term Financing
Financing With Derivatives
Risk Management
International Financial Management
Corporate Restructuring
Appendix: Continuous Compounding and Discounting
Appendix: Mutually Exclusive Investments Having Unequal Lives
Appendix: Breakeven Analysis
Appendix: Bond Refunding Analysis
Appendix: Taxes

All Questions

Question 1

Free

Multiple Choice

Which of the following actions would not tend to increase the value of a country's currency?

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relatively low interest rates

government trade policies that limit imports

relatively low rate of inflation

restrictions on foreign exchange transactions

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Question 2

Free

Multiple Choice

When interest rate parity exists, the forward rate will differ from the spot rate by just enough to ____ .

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offset the difference in the real rate of return

permit the buyer of a covered option to make a profit

offset the interest rate differential between the two currencies

result in a perfect interest rate arbitrage

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Question 3

Free

Multiple Choice

The ____ states that the differences in interest rates between two countries should be offset by equal, but opposite, changes in the future spot exchange rate.

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expectations theory

interest rate parity

purchasing power parity

international Fisher effect

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Question 4

Free

Multiple Choice

Which of the following is not a primary category of foreign exchange risk that multinational firms must consider?

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economic exposure

operating exposure

translation exposure

transaction exposure

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Question 5

Free

Multiple Choice

Motorola has a contract to deliver cellular telephones in Japan in 6 months from now and the payment for these telephones will be in Japanese yen. What type of foreign exchange risk does Motorola face?

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economic exposure

operating exposure

transaction exposure

translation exposure

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Question 6

Multiple Choice

When a multinational firm has one or more foreign subsidiaries with assets and liabilities denominated in a foreign currency, it faces ____ exposure.

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economic

operating

translation

transaction

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Question 7

Multiple Choice

Under current accounting procedures, all of the following balance sheet items are translated into dollars at the rate of exchange prevailing on the date of the balance sheet except:

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stockholder's equity

fixed assets

current liabilities payable in a foreign currency

long-term liabilities payable in a foreign currency

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Question 8

Multiple Choice

An increase in the value of a foreign currency relative to the U.S. dollar ____ the conversion value of the foreign subsidiary's liabilities.

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decreases

increases

has no effect on

is an average of

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Question 9

Multiple Choice

To protect itself against transaction exchange rate risk, a U.S. company that purchases automobiles from a Japanese manufacturer may use all of the following techniques except:

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borrow U.S. funds and invest them in interest-bearing Japanese securities

execute a contract in the forward exchange market

sell yen in the spot market at the time of each transaction

execute a contract in the foreign exchange futures market

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Question 10

Multiple Choice

Firms engaged in international transactions incur ____ because of fluctuations in the exchange rates among currencies.

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credit risk

political risk

market risk

exchange rate risk

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Question 11

Multiple Choice

The theory of interest rate parity states that the annual percentage differential in the forward market for a currency quoted in terms of another currency is equal to the approximate difference in ____ prevailing in the two countries.

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inflation rates

interest rates

trade deficit rates

GNP growth rates

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Question 12

Multiple Choice

A euro is a

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monetary unit used in transactions between European central banks

monetary unit used in providing capital to the World Bank

monetary unit used in transactions between Common Market countries

composite currency whose value is based on the weighted value of several European currencies

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Question 13

Multiple Choice

A parent company's foreign investment risk exposure depends on the foreign subsidiary's net ____ position.

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cash

equity

present value

working capital

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Question 14

Multiple Choice

A U.S. company that purchases goods on credit from a German supplier can protect itself against transaction exchange risk by

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executing a contract in the forward exchange market

borrowing U.S. funds and investing in interest-bearing German securities

borrowing German funds and investing in interest-bearing U.S. securities

executing a contract in the forward exchange market, and by borrowing U.S. funds and investing in interest-bearing German securities

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Question 15

Multiple Choice

Primary sources of demand for British pounds in the foreign exchange market include

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foreign buyers of British exports who must pay for their purchases in pounds

foreign investors who desire to make investments in physical or financial assets in Great Britain

speculators who expect British pounds to increase in value relative to other currencies

all of these answers are correct

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Question 16

Multiple Choice

Primary sources of supply of British pounds in the foreign exchange market include:

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British importers who need to convert their pounds into foreign currency to pay for purchases

foreign investors who desire to make investments in physical or financial assets in Great Britain

speculators who expect British pounds to increase in value relative to other currencies

U.S. importers who need to convert dollars to pounds to pay for purchases

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Question 17

Multiple Choice

Government trade policies that restrict imports into a country tend to the supply of the country's currency in the foreign exchange market and tend to the value of the country's currency with respect to other currencies.

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increase, decrease

increase, increase

decrease, decrease

decrease, increase

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Question 18

Multiple Choice

Which of the following trade policies will tend to decrease the supply of the country's currency in the foreign exchange market?

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imposition of tariffs

imposition of export quotas

financing exports with low interest loans

imposition of tariffs and export quotas

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Question 19

Multiple Choice

When the Federal Reserve (acting through member commercial banks) sells U.S. dollars in the foreign exchange market, it the supply of U.S. dollars and hence tends to the value of the U.S. dollar relative to other currencies.

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increases, raise

decreases, lower

increases, lower

decreases, raise

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Question 20

Multiple Choice

A high rate of inflation within a country will tend to ____ the value of its currency with respect to the currencies of other countries that are experiencing lower rates of inflation.

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increase

decrease

have no effect on

cannot be determined because of insufficient information

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International Financial Management

Which of the following actions would not tend to increase the value of a country's currency?

When interest rate parity exists, the forward rate will differ from the spot rate by just enough to ____ .

The ____ states that the differences in interest rates between two countries should be offset by equal, but opposite, changes in the future spot exchange rate.

Which of the following is not a primary category of foreign exchange risk that multinational firms must consider?

Motorola has a contract to deliver cellular telephones in Japan in 6 months from now and the payment for these telephones will be in Japanese yen. What type of foreign exchange risk does Motorola face?

When a multinational firm has one or more foreign subsidiaries with assets and liabilities denominated in a foreign currency, it faces ____ exposure.

Under current accounting procedures, all of the following balance sheet items are translated into dollars at the rate of exchange prevailing on the date of the balance sheet except:

An increase in the value of a foreign currency relative to the U.S. dollar ____ the conversion value of the foreign subsidiary's liabilities.

To protect itself against transaction exchange rate risk, a U.S. company that purchases automobiles from a Japanese manufacturer may use all of the following techniques except:

Firms engaged in international transactions incur ____ because of fluctuations in the exchange rates among currencies.

The theory of interest rate parity states that the annual percentage differential in the forward market for a currency quoted in terms of another currency is equal to the approximate difference in ____ prevailing in the two countries.

A euro is a

A parent company's foreign investment risk exposure depends on the foreign subsidiary's net ____ position.

A U.S. company that purchases goods on credit from a German supplier can protect itself against transaction exchange risk by

Primary sources of demand for British pounds in the foreign exchange market include

Primary sources of supply of British pounds in the foreign exchange market include:

Government trade policies that restrict imports into a country tend to ____ the supply of the country's currency in the foreign exchange market and tend to ____ the value of the country's currency with respect to other currencies.

Which of the following trade policies will tend to decrease the supply of the country's currency in the foreign exchange market?

When the Federal Reserve (acting through member commercial banks) sells U.S. dollars in the foreign exchange market, it ____ the supply of U.S. dollars and hence tends to ____ the value of the U.S. dollar relative to other currencies.

A high rate of inflation within a country will tend to ____ the value of its currency with respect to the currencies of other countries that are experiencing lower rates of inflation.

Government trade policies that restrict imports into a country tend to the supply of the country's currency in the foreign exchange market and tend to the value of the country's currency with respect to other currencies.

When the Federal Reserve (acting through member commercial banks) sells U.S. dollars in the foreign exchange market, it the supply of U.S. dollars and hence tends to the value of the U.S. dollar relative to other currencies.