INTERNATIONAL FINANCIAL MANAGEMENT
INTERNATIONAL FINANCIAL MANAGEMENT
Multiple Choice Questions
1) Which of the following is not a reason for international investment?
o To provide an expected risk-adjusted in excess of that required
o To gain access to important raw materials.
o To produce and/ or services more efficiently than possible domestically
o International investments have less political risk than domestic investment.
2) The ___________ refers to the orderly relationship between spot and forward currency exchange rates and the rates of interest between countries.
o One-price rules
o Interest –rate parity
o Purchasing – power parity
o Exchange- power parity
3) The ______________ is especially well suited tom offers hedging protection against transactions risk exposure
o Forward market
o Spot market
o Transaction market
o Inflation market
4) An accounting loss or gain that arises from translating the assets and liabilities of a foreign subsidiary (non-dollar denomination) into the parent company’s currency is accounted for as a transaction adjustment_______________
o In owner’s equity section
o On the income statement
o In the both balance sheet and income statement
o On internal accounting record only and does not materially impact accounting income
5) A multinational company that is faced with mild interference up to complete confiscation of all assets is encountering____________
o Translation risk exposure
o Transaction risk exposure
o Political risk exposure
o A very bad day
6) A written statement by the exporters ordering the importers to pay a specific amount of money upon presentation to drawee to which it is addressed is known as a______________
o Bill of lading
o Sight draft
o Time draft
o Letter of credit
7) A trade agreements in which a domestic firm accepts whiskey for full payments on a sale of computer equipments is an example of ___________
o Exports factoring
o Forfeiting
o A scene from the classic movie “animal house”
o Countertrade
8) Ausamer is an exporter who has sold outright their accounts receivable to another institution. This is an example of_______________
o Export factoring
o Forfeiting
o Striding
o Countertrade
9) Which of the following is not an example of an international trade draft?
o Time draft
o Sight draft
o Both the first and second answer is correct
o Letter of credit
10) Assume the nominal interest rate (annual) in the country of freedonia and the United States are 6% and 12% respectively. What is the implied 90-day forward rate in the current spot rate is 5 freedonia mark (Fm) per U.S dollar?
o 4.732
o 4.927
o 5.074
o 5.283
11) suppose that the euro is selling at a forward discount in the forward- exchange market thing implies that most likely ___________
o The euro has low exchange- rate risk
o The euro is gaining strength in relation to the dollar
o Interest rates are higher in euro land (i.e., the euro area) than in the United States
o Interest rates are declining in Europe
12) Assume the nominal interest rates (annual) in elbonia and the United States are 12% and 6% respectively. What is the implied 90-days forward rate if the current spot rate is 5 elbonia francs per dollar?
o 4.732
o 4.927
o 5.074
o 5.283
13) Purchasing – power parity (PPP) refers to____________
o The concept that the same goods should sell for the same price across countries after exchange are taken into account
o The concept that interest rates across countries will eventually by the same
o The orderly relationship between spot and forward currency exchange and the rates of interest between countries
o The natural offsetting relationship providing by cost and revenue is similar market environment
14) A group of European countries have formed a union and crate a common currency known as_________
o The EU currency
o The European currency
o The EMU
o The euro
15) The written statement by the exporter ordering the importer to pay specific amount of money at a specific future date is known as a ______________
o Bill of lading
o Sight draft
o Time draft
o Letter of credit
16) A shipping document is indicating the details of the shipment and delivery of goods and their ownership is a_______________
o Bill of lading
o Sight draft
o Time draft
o Letter of credit
17) A U.S. company is seeking to lower its overall risk through overseas diversification. It is considering two alternatives: (1) produce goods in the United Kingdom (U.K) that would be ultimately sold in the U.S: (2) produce goods in U.K. that ultimately be sold in the U.K.
o Both options are roughly equivalent when it comes to overall risk reduction because production is located in the same country under both options.
o The first option holds the greater likelihood for lowering overall risk overseas diversification.
o The second option holds the greater likelihood for lowering overall risk through overseas diversification.
o Both options are likely to actually increase overall risk rather than lower it.
18) The forward exchange rate_______________
o Is the rate today for exchanging one currency for another for immediate delivery.
o Is the rate today for exchanging one currency for another at a specific future date.
o Is the rate today for exchanging one currency for another at a specific future date on a specific future date.
o Is the rate today for exchanging one currency for another at a specific location for immediate delivery.
19) The spot exchange rate ______________
o Is the rate today for exchanging one currency for another for immediate delivery
o Is the rate today for exchanging one currency for another at a specific future date
o Is the rate today for exchanging one currency for another at a specific future date on a specific future date
o Is the rate today for exchanging one currency for another at a specific location for immediate delivery
20) Which of the following is an example of a natural hedge?
o The prices and cost are both determined in the market place.
o The prices are determined in the global market place and cost is determined in the domestic market place.
o The costs are determined in the global market place and prices are determined in the domestic market place
o Both b and c are example of a natural hedge.
Working note
10) 1+ (12/4) =1.03; 1+ (06/4) = 1.015; FM/5= (1.015/ 1/03); FM =4.927.
12)1 + (12/4) =1.03; 1+ (06/4) = 1.015; EFR/5= (1.03/ 1/015); EFR =4.927.
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