IBUS 401 – QUESTIONS AND VERIFIED SOLUTIONS
T/F: A centralized management style, where major decisions about a foreign subsidiary are
made by the parent company, results in an increase in agency costs - CORRECT ANSWER✔false
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 ___________. - CORRECT ANSWER✔increase; appreciate
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? -
CORRECT ANSWER✔direct foreign investment
Saller Co. has a subsidiary in Mexico. The expected cash flows in pesos to be received in the
future from this subsidiary have no changed since last month, but the valuation of Saller Co. has
declined since last month. What could've caused this decline in value? - CORRECT
ANSWER✔depreciation of the Mexican peso
Recently, the US experienced an annual balance of trade representing a _________ - CORRECT
ANSWER✔deficit
The primary component of the current account is the: - CORRECT ANSWER✔balance of trade
The demand for US exports tends to increase when: - CORRECT ANSWER✔the currencies of
foreign countries strengthen against the dollar
In recent years, the US had had a relatively (compared to other countries) _______ balance of
trade _____ with China - CORRECT ANSWER✔large; deficit
, Assume that a bank's bid rate on Swiss Francs is $.45 and its ask rate is $.47. Its bid-ask
percentage spread is: - CORRECT ANSWER✔about 4.26%
=(A-B/A)
The international money market primarily concentrates on: - CORRECT ANSWER✔short-term
lending (one year or less)
If a US firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 100,00
euros in 90 days, it could: - CORRECT ANSWER✔obtain a 90-day forward sale on euros
T/F: A put option is the amount or percentage by which the existing spot rate exceeds the
forward rate - CORRECT ANSWER✔false
An increase in US interest rates relative to German interest rates would likely ________ the US
demand for euros and _______ the supply of euros for sale - CORRECT ANSWER✔reduce;
increase
If US inflation suddenly increased while European inflation stayed the same, there would be: -
CORRECT ANSWER✔an increased US demand for euros and a decreased supply of euros for sale
Which of the following are considered as a factors affecting exchange rates? - CORRECT
ANSWER✔- Interest, Inflation, Income, Government Interventions, Expectations
What are the 6 ways firms engage in international business? - CORRECT ANSWER✔1.
International Trade
2. Licensing
3. Franchising
4. Joint Ventures
T/F: A centralized management style, where major decisions about a foreign subsidiary are
made by the parent company, results in an increase in agency costs - CORRECT ANSWER✔false
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 ___________. - CORRECT ANSWER✔increase; appreciate
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? -
CORRECT ANSWER✔direct foreign investment
Saller Co. has a subsidiary in Mexico. The expected cash flows in pesos to be received in the
future from this subsidiary have no changed since last month, but the valuation of Saller Co. has
declined since last month. What could've caused this decline in value? - CORRECT
ANSWER✔depreciation of the Mexican peso
Recently, the US experienced an annual balance of trade representing a _________ - CORRECT
ANSWER✔deficit
The primary component of the current account is the: - CORRECT ANSWER✔balance of trade
The demand for US exports tends to increase when: - CORRECT ANSWER✔the currencies of
foreign countries strengthen against the dollar
In recent years, the US had had a relatively (compared to other countries) _______ balance of
trade _____ with China - CORRECT ANSWER✔large; deficit
, Assume that a bank's bid rate on Swiss Francs is $.45 and its ask rate is $.47. Its bid-ask
percentage spread is: - CORRECT ANSWER✔about 4.26%
=(A-B/A)
The international money market primarily concentrates on: - CORRECT ANSWER✔short-term
lending (one year or less)
If a US firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 100,00
euros in 90 days, it could: - CORRECT ANSWER✔obtain a 90-day forward sale on euros
T/F: A put option is the amount or percentage by which the existing spot rate exceeds the
forward rate - CORRECT ANSWER✔false
An increase in US interest rates relative to German interest rates would likely ________ the US
demand for euros and _______ the supply of euros for sale - CORRECT ANSWER✔reduce;
increase
If US inflation suddenly increased while European inflation stayed the same, there would be: -
CORRECT ANSWER✔an increased US demand for euros and a decreased supply of euros for sale
Which of the following are considered as a factors affecting exchange rates? - CORRECT
ANSWER✔- Interest, Inflation, Income, Government Interventions, Expectations
What are the 6 ways firms engage in international business? - CORRECT ANSWER✔1.
International Trade
2. Licensing
3. Franchising
4. Joint Ventures
