INTERNATIONAL FINANCE
INTERNATIONAL FINANCE EXAM QUESTIONS WITH SOLVED
SOLUTIONS.
The MNC's value depends on: answer>>>1. MNC's required rate of
return.
2. Amount of MNC's cash flows in particular currency.
3. The exchange rate at which cash flows are converted to dollars
For the MNC, agency costs are typically answer>>>larger than agency
costs of a small purely domestic firm.
Assume that Live Co. has expected cash flows of $200,000 from
domestic operations, SF200,000 from Swiss operations, and 150,000
euros from Italian operations at the end of the year. The Swiss franc's
value and euro's value are expected to be $.83 and $1.29 respectively,
at the end this year. What are the expected dollar cash flows of Live
Co? answer>>>1. Dollar Cash Flow= $200,000a
2. SF Cash Flow= SF 200,000 ---> in Dollars= SF 200,000*0.83 = 166,000
($)
,INTERNATIONAL FINANCE
3. Euro Cash Flow= Euro 150,000 ----> In dollar terms= Euro
150,000*1.29 = 193,500 ($)
Total Dollar Cash Flow = 200,000 + 166,000 + 193500 = 559,500
The valuation of an MNC should rise when an event causes the
expected cash flows from foreign to __________ and when foreign
currencies denominating these cash flows are expected to
_______________. answer>>>Increase; Appreciate
Jensen Co. wants to establish a new subsidiary in Mexico that will sell
computers to Mexican customers and remit earnings back to the U.S.
parent. The value of this project will be favorably affected if the value
of the peso ____________ while it establishes the new subsidiary and
___________when the subsidiary starts operations.
answer>>>Depreciates; Appreciates
The least risky method by which firms conduct international business is:
answer>>>International Trade
Which theory identifies specialization as a reason for international
business? answer>>>Theory of comparative advantage
What is an example of direct foreign investment?
answer>>>Purchasing existing companies in a country
, INTERNATIONAL FINANCE
The commonly accepted goal of the MNC is to answer>>>Maximize
Shareholder Wealth
Assume that an American firm wants to engage in international
business without major investment in the foreign country. Which
method is least appropriate in this situation? answer>>>Direct Foreign
Investment
A high home inflation rate relative to other countries would ____ the
home country's current account balance, other things equal. A high
growth in the home income level relative to other countries would
____ the home country's current account balance, other things equal.
answer>>>Decrease; Decrease
A weak home currency may not be a perfect solution to correct a
balance of trade deficit because: answer>>>Foreign companies may
reduce the prices of their products to stay competitive
Also known as the "central banks' central bank," the ____ attempts to
facilitate cooperation among countries with regard to international
transactions and provides assistance to countries experiencing a
financial crisis. answer>>>Bank of International Settlements (BIS)
An increase in the current account deficit will place ____ pressure on
the home currency value, other things equal. answer>>>Downward
INTERNATIONAL FINANCE EXAM QUESTIONS WITH SOLVED
SOLUTIONS.
The MNC's value depends on: answer>>>1. MNC's required rate of
return.
2. Amount of MNC's cash flows in particular currency.
3. The exchange rate at which cash flows are converted to dollars
For the MNC, agency costs are typically answer>>>larger than agency
costs of a small purely domestic firm.
Assume that Live Co. has expected cash flows of $200,000 from
domestic operations, SF200,000 from Swiss operations, and 150,000
euros from Italian operations at the end of the year. The Swiss franc's
value and euro's value are expected to be $.83 and $1.29 respectively,
at the end this year. What are the expected dollar cash flows of Live
Co? answer>>>1. Dollar Cash Flow= $200,000a
2. SF Cash Flow= SF 200,000 ---> in Dollars= SF 200,000*0.83 = 166,000
($)
,INTERNATIONAL FINANCE
3. Euro Cash Flow= Euro 150,000 ----> In dollar terms= Euro
150,000*1.29 = 193,500 ($)
Total Dollar Cash Flow = 200,000 + 166,000 + 193500 = 559,500
The valuation of an MNC should rise when an event causes the
expected cash flows from foreign to __________ and when foreign
currencies denominating these cash flows are expected to
_______________. answer>>>Increase; Appreciate
Jensen Co. wants to establish a new subsidiary in Mexico that will sell
computers to Mexican customers and remit earnings back to the U.S.
parent. The value of this project will be favorably affected if the value
of the peso ____________ while it establishes the new subsidiary and
___________when the subsidiary starts operations.
answer>>>Depreciates; Appreciates
The least risky method by which firms conduct international business is:
answer>>>International Trade
Which theory identifies specialization as a reason for international
business? answer>>>Theory of comparative advantage
What is an example of direct foreign investment?
answer>>>Purchasing existing companies in a country
, INTERNATIONAL FINANCE
The commonly accepted goal of the MNC is to answer>>>Maximize
Shareholder Wealth
Assume that an American firm wants to engage in international
business without major investment in the foreign country. Which
method is least appropriate in this situation? answer>>>Direct Foreign
Investment
A high home inflation rate relative to other countries would ____ the
home country's current account balance, other things equal. A high
growth in the home income level relative to other countries would
____ the home country's current account balance, other things equal.
answer>>>Decrease; Decrease
A weak home currency may not be a perfect solution to correct a
balance of trade deficit because: answer>>>Foreign companies may
reduce the prices of their products to stay competitive
Also known as the "central banks' central bank," the ____ attempts to
facilitate cooperation among countries with regard to international
transactions and provides assistance to countries experiencing a
financial crisis. answer>>>Bank of International Settlements (BIS)
An increase in the current account deficit will place ____ pressure on
the home currency value, other things equal. answer>>>Downward
