International Financial Management

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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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A

relatively low interest rates

B

government trade policies that limit imports

C

relatively low rate of inflation

D

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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A

offset the difference in the real rate of return

B

permit the buyer of a covered option to make a profit

C

offset the interest rate differential between the two currencies

D

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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A

expectations theory

B

interest rate parity

C

purchasing power parity

D

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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A

economic exposure

B

operating exposure

C

translation exposure

D

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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A

economic exposure

B

operating exposure

C

transaction exposure

D

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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A
economic
B
operating
C
translation
D
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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A
stockholder's equity
B
fixed assets
C
current liabilities payable in a foreign currency
D
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.

Choose correct answer/s
A
decreases
B
increases
C
has no effect on
D
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:

Choose correct answer/s
A
borrow U.S. funds and invest them in interest-bearing Japanese securities
B
execute a contract in the forward exchange market
C
sell yen in the spot market at the time of each transaction
D
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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A
credit risk
B
political risk
C
market risk
D
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.

Choose correct answer/s
A
inflation rates
B
interest rates
C
trade deficit rates
D
GNP growth rates
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Question 12
Multiple Choice

A euro is a

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A
monetary unit used in transactions between European central banks
B
monetary unit used in providing capital to the World Bank
C
monetary unit used in transactions between Common Market countries
D
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.

Choose correct answer/s
A
cash
B
equity
C
present value
D
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

Choose correct answer/s
A
executing a contract in the forward exchange market
B
borrowing U.S. funds and investing in interest-bearing German securities
C
borrowing German funds and investing in interest-bearing U.S. securities
D
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

Choose correct answer/s
A
foreign buyers of British exports who must pay for their purchases in pounds
B
foreign investors who desire to make investments in physical or financial assets in Great Britain
C
speculators who expect British pounds to increase in value relative to other currencies
D
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:

Choose correct answer/s
A
British importers who need to convert their pounds into foreign currency to pay for purchases
B
foreign investors who desire to make investments in physical or financial assets in Great Britain
C
speculators who expect British pounds to increase in value relative to other currencies
D
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.

Choose correct answer/s
A
increase, decrease
B
increase, increase
C
decrease, decrease
D
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?

Choose correct answer/s
A
imposition of tariffs
B
imposition of export quotas
C
financing exports with low interest loans
D
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.

Choose correct answer/s
A
increases, raise
B
decreases, lower
C
increases, lower
D
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.

Choose correct answer/s
A
increase
B
decrease
C
have no effect on
D
cannot be determined because of insufficient information
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