International Financial Management 9th Edition
,MULTIPLE CHOICE - Choose the one alternative that best completes the statement
t t t t t t t t t t t
t oranswers the question.
t t t
1) What major dimension sets apart international finance from domestic finance?
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A) Foreign exchange and political risks t t t t
B) Market imperfections t
C) Expanded opportunity set t t
D) all of the options
t t t
2) An example(s) of a political risk is
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A) expropriation of assets. t t
B) adverse change in tax rules. t t t t
C) the opposition party being elected.
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D) both the expropriation of assets and adverse changes in tax rules are correct.
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3) Production of goods and services has become globalized to a large extent as a result of
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A) natural resources being depleted in one country after another.
t t t t t t t t
B) skilled labor being highly mobile.
t t t t
C) multinational corporations' efforts to source inputs and locate production t t t t t t t t
t anywherewhere costs are lower and profits higher.
t t t t t t t
D) common tastes worldwide for the same goods and services.t t t t t t t t
4) Recently, financial markets have become highly integrated. This development
t t t t t t t t
International Financial Management 9th Edition
, A) allows investors to diversify their portfolios internationally.
t t t t t t
B) allows minority investors to buy and sell stocks.
t t t t t t t
C) has increased the cost of capital for firms.
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D) none of the options t t t
5) Japan has experienced large trade surpluses. Japanese investors have responded to this
t t t t t t t t t t t
by
t
A) liquidating their positions in stocks to buy dollar-denominated bonds.
t t t t t t t t
B) investing heavily in U.S. and other foreign financial markets.
t t t t t t t t
C) lobbying the U.S. government to depreciate its currency.
t t t t t t t
D) lobbying the Japanese government to allow the yen to appreciate.
t t t t t t t t t
6) Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate is
t t t t t t t t t t t t t t t t
$1.25 = €1.00. One year later the exchange rate is the same, but the Italian government
t t t t t t t t t t t t t t t
t has expropriated your firm's assets paying only €80,000 in compensation. This is an
t t t t t t t t t t t t
t example of t
A) exchange rate risk. t t
B) political risk. t
C) market imperfections. t
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
t t t t t t t t t t
International Financial Management 9th Edition
, 7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2.
t t t t t t t t t t t t t t t t t
t One year later, the stock rises to £60. You are happy with your 20 percent return on the stock,
t t t t t t t t t t t t t t t t t t
t but when you sell the stock and exchange your £60 for dollars, you only get $45 since the
t t t t t t t t t t t t t t t t t
t poundhas fallen to £1 = $0.75. This loss of value is an example of
t t t t t t t t t t t t t t
A) exchange rate risk. t t
B) political risk. t
C) market imperfections. t
D) weakness in the dollar. t t t
8) Suppose that Great Britain is a major export market for your firm, a U.S.-based
t t t t t t t t t t t t t
t MNC. Ifthe British pound depreciates against the U.S. dollar,
t t t t t t t t t
A) your firm will be able to charge more in dollar terms while keeping pound prices
t t t t t t t t t t t t t t
stable
.
B) your firm may be priced out of the U.K. market, to the extent that your dollar costs
t t t t t t t t t t t t t t t t
stay constant and your pound prices will rise.
t t t t t t t
C) to protect U.K. market share, your firm may have to cut the dollar price of your
t t t t t t t t t t t t t t t
t goodsto keep the pound price the same.
t t t t t t t
D) your firm may be priced out of the U.K. market, to the extent that your dollar
t t t t t t t t t t t t t t t
t costs stay constant and your pound prices will rise, and to protect U.K. market share, your
t t t t t t t t t t t t t t t
t firm mayhave to cut the dollar price of your goods to keep the pound price the same.
t t t t t t t t t t t t t t t t t
9) Suppose Mexico is a major export market for your U.S.-based company and the
t t t t t t t t t t t t
t Mexicanpeso appreciates drastically against the U.S. dollar. This means
t t t t t t t t t
International Financial Management 9th Edition
,MULTIPLE CHOICE - Choose the one alternative that best completes the statement
t t t t t t t t t t t
t oranswers the question.
t t t
1) What major dimension sets apart international finance from domestic finance?
t t t t t t t t t
A) Foreign exchange and political risks t t t t
B) Market imperfections t
C) Expanded opportunity set t t
D) all of the options
t t t
2) An example(s) of a political risk is
t t t t t t
A) expropriation of assets. t t
B) adverse change in tax rules. t t t t
C) the opposition party being elected.
t t t t
D) both the expropriation of assets and adverse changes in tax rules are correct.
t t t t t t t t t t t t
3) Production of goods and services has become globalized to a large extent as a result of
t t t t t t t t t t t t t t t
A) natural resources being depleted in one country after another.
t t t t t t t t
B) skilled labor being highly mobile.
t t t t
C) multinational corporations' efforts to source inputs and locate production t t t t t t t t
t anywherewhere costs are lower and profits higher.
t t t t t t t
D) common tastes worldwide for the same goods and services.t t t t t t t t
4) Recently, financial markets have become highly integrated. This development
t t t t t t t t
International Financial Management 9th Edition
, A) allows investors to diversify their portfolios internationally.
t t t t t t
B) allows minority investors to buy and sell stocks.
t t t t t t t
C) has increased the cost of capital for firms.
t t t t t t t
D) none of the options t t t
5) Japan has experienced large trade surpluses. Japanese investors have responded to this
t t t t t t t t t t t
by
t
A) liquidating their positions in stocks to buy dollar-denominated bonds.
t t t t t t t t
B) investing heavily in U.S. and other foreign financial markets.
t t t t t t t t
C) lobbying the U.S. government to depreciate its currency.
t t t t t t t
D) lobbying the Japanese government to allow the yen to appreciate.
t t t t t t t t t
6) Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate is
t t t t t t t t t t t t t t t t
$1.25 = €1.00. One year later the exchange rate is the same, but the Italian government
t t t t t t t t t t t t t t t
t has expropriated your firm's assets paying only €80,000 in compensation. This is an
t t t t t t t t t t t t
t example of t
A) exchange rate risk. t t
B) political risk. t
C) market imperfections. t
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
t t t t t t t t t t
International Financial Management 9th Edition
, 7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2.
t t t t t t t t t t t t t t t t t
t One year later, the stock rises to £60. You are happy with your 20 percent return on the stock,
t t t t t t t t t t t t t t t t t t
t but when you sell the stock and exchange your £60 for dollars, you only get $45 since the
t t t t t t t t t t t t t t t t t
t poundhas fallen to £1 = $0.75. This loss of value is an example of
t t t t t t t t t t t t t t
A) exchange rate risk. t t
B) political risk. t
C) market imperfections. t
D) weakness in the dollar. t t t
8) Suppose that Great Britain is a major export market for your firm, a U.S.-based
t t t t t t t t t t t t t
t MNC. Ifthe British pound depreciates against the U.S. dollar,
t t t t t t t t t
A) your firm will be able to charge more in dollar terms while keeping pound prices
t t t t t t t t t t t t t t
stable
.
B) your firm may be priced out of the U.K. market, to the extent that your dollar costs
t t t t t t t t t t t t t t t t
stay constant and your pound prices will rise.
t t t t t t t
C) to protect U.K. market share, your firm may have to cut the dollar price of your
t t t t t t t t t t t t t t t
t goodsto keep the pound price the same.
t t t t t t t
D) your firm may be priced out of the U.K. market, to the extent that your dollar
t t t t t t t t t t t t t t t
t costs stay constant and your pound prices will rise, and to protect U.K. market share, your
t t t t t t t t t t t t t t t
t firm mayhave to cut the dollar price of your goods to keep the pound price the same.
t t t t t t t t t t t t t t t t t
9) Suppose Mexico is a major export market for your U.S.-based company and the
t t t t t t t t t t t t
t Mexicanpeso appreciates drastically against the U.S. dollar. This means
t t t t t t t t t
International Financial Management 9th Edition
