International Financial Management – 9th Edition by Cheol Eun & Bruce Resnick | Complete Test Bank with Solutions

International Financial Management 9th Edition
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,MULTIPLE CHOICE - gs gs




Choose the one alternative that best completes the statement oranswers the question.
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1) What major dimension sets apart international finance from domestic finance?
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A) Foreign exchange and political risks gs gs gs gs




B) Market imperfections gs




C) Expanded opportunity set gs gs




D) all of the options
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2) An example(s) of a political risk is
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A) expropriation of assets. gs gs




B) adverse change in tax rules. gs gs gs gs




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.
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B) skilled labor being highly mobile.gs gs gs gs




C) multinational corporations' efforts to source inputs and locate production anyw
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herewhere costs are lower and profits higher.
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D) common tastes worldwide for the same goods and services.
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4) Recently, financial markets have become highly integrated. This development
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International Financial Management 9th Edition gs gs gs gs

, A) allows investors to diversify their portfolios internationally.
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B) allows minority investors to buy and sell stocks.
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C) has increased the cost of capital for firms.
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D) none of the options
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5) Japan has experienced large trade surpluses. Japanese investors have responded to this
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by


A) liquidating their positions in stocks to buy dollar-denominated bonds.
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B) investing heavily in U.S. and other foreign financial markets.
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C) lobbying the U.S. government to depreciate its currency.
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D) lobbying the Japanese government to allow the yen to appreciate.
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6) Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate is
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$1.25 = €1.00. One year later the exchange rate is the same, but the Italian government
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has expropriated your firm's assets paying only €80,000 in compensation. This is an exa
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mple of gs




A) exchange rate risk. gs gs




B) political risk. gs




C) market imperfections. gs




D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
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International Financial Management 9th Edition gs gs gs gs

, 7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2.
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gs One year later, the stock rises to £60. You are happy with your 20 percent return on the stoc
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k, but when you sell the stock and exchange your £60 for dollars, you only get $45 since the p
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oundhas fallen to £1 = $0.75. This loss of value is an example of
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A) exchange rate risk. gs gs




B) political risk. gs




C) market imperfections. gs




D) weakness in the dollar. gs gs gs




8) Suppose that Great Britain is a major export market for your firm, a U.S.-
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based MNC. Ifthe British pound depreciates against the U.S. dollar,
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A) your firm will be able to charge more in dollar terms while keeping pound prices
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stable
.
B) your firm may be priced out of the U.K. market, to the extent that your dollar costs
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stay constant and your pound prices will rise.
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C) to protect U.K. market share, your firm may have to cut the dollar price of your go
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odsto keep the pound price the same.
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D) your firm may be priced out of the U.K. market, to the extent that your dollar co
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sts stay constant and your pound prices will rise, and to protect U.K. market share, your fi
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rm mayhave to cut the dollar price of your goods to keep the pound price the same.
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9) Suppose Mexico is a major export market for your U.S.-
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based company and the Mexicanpeso appreciates drastically against the U.S. dollar. This me
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ans



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