International Financial Management 9th Edition
,MULTIPLE CHOICE - Choose the one alternative that best completes the statement
oranswers the question.
1) What major dimension sets apart international finance from domestic finance?
A) Foreign exchange and political risks
B) Market imperfections
C) Expanded opportunity set
D) all of the options
2) An example(s) of a political risk is
A) expropriation of assets.
B) adverse change in tax rules.
C) the opposition party being elected.
D) both the expropriation of assets and adverse changes in tax rules are correct.
3) Production of goods and services has become globalized to a large extent as a result of
A) natural resources wbeing wdepleted win wone wcountry wafter wanother.
B) skilled wlabor wbeing whighly wmobile.
C) multinational wcorporations' wefforts wto wsource winputs wand wlocate
wproduction wanywherewwhere wcosts ware wlower wand wprofits whigher.
D) common wtastes wworldwide wfor wthe wsame wgoods wand wservices.
4) Recently, wfinancial wmarkets whave wbecome whighly wintegrated. wThis wdevelopment
International Financial Management 9th Edition
, A) allows winvestors wto wdiversify wtheir wportfolios winternationally.
B) allows wminority winvestors wto wbuy wand wsell wstocks.
C) has wincreased wthe wcost wof wcapital wfor wfirms.
D) none wof wthe woptions
5) Japan whas wexperienced wlarge wtrade wsurpluses. wJapanese winvestors whave
wresponded wto wthis wby
A) liquidating wtheir wpositions win wstocks wto wbuy wdollar-denominated wbonds.
B) investing wheavily win wU.S. wand wother wforeign wfinancial wmarkets.
C) lobbying wthe wU.S. wgovernment wto wdepreciate wits wcurrency.
D) lobbying wthe wJapanese wgovernment wto wallow wthe wyen wto wappreciate.
6) Suppose wyour wfirm winvests w$100,000 win wa wproject win wItaly. wAt wthe wtime wthe
wexchange wrate wis
$1.25 w= w€1.00. wOne wyear wlater wthe wexchange wrate wis wthe wsame, wbut wthe
wItalian wgovernment whas wexpropriated wyour wfirm's wassets wpaying wonly w€80,000
win wcompensation. wThis wis wan wexample wof
A) exchange wrate wrisk.
B) political wrisk.
C) market wimperfections.
D) wnone wof wthe woptions, wsince w$100,000 w= w€80,000 w× w$1.25/€1.00.
International Financial Management 9th Edition
, 7) Suppose wyou wstart wwith w$100 wand wbuy wstock wfor w£50 wwhen wthe wexchange
wrate wis w£1 w= w$2. wOne wyear wlater, wthe wstock wrises wto w£60. wYou ware whappy wwith
wyour w20 wpercent wreturn won wthe wstock, wbut wwhen wyou wsell wthe wstock wand
wexchange wyour w£60 wfor wdollars, wyou wonly wget w$45 wsince wthe wpoundwhas wfallen wto
w£1 w= w$0.75. wThis wloss wof wvalue wis wan wexample wof
A) exchange wrate wrisk.
B) political wrisk.
C) market wimperfections.
D) weakness win wthe wdollar.
8) Suppose wthat wGreat wBritain wis wa wmajor wexport wmarket wfor wyour wfirm, wa
wU.S.-based wMNC. wIfwthe wBritish wpound wdepreciates wagainst wthe wU.S. wdollar,
A) your wfirm wwill wbe wable wto wcharge wmore win wdollar wterms wwhile wkeeping
wpound wprices
stable
.
B) your wfirm wmay wbe wpriced wout wof wthe wU.K. wmarket, wto wthe wextent wthat
wyour wdollar wcosts
stay wconstant wand wyour wpound wprices wwill wrise.
C) to wprotect wU.K. wmarket wshare, wyour wfirm wmay whave wto wcut wthe wdollar
wprice wof wyour wgoodswto wkeep wthe wpound wprice wthe wsame.
D) your wfirm wmay wbe wpriced wout wof wthe wU.K. wmarket, wto wthe wextent wthat
wyour wdollar wcosts wstay wconstant wand wyour wpound wprices wwill wrise, wand wto
wprotect wU.K. wmarket wshare, wyour wfirm wmaywhave wto wcut wthe wdollar wprice wof
wyour wgoods wto wkeep wthe wpound wprice wthe wsame.
9) Suppose wMexico wis wa wmajor wexport wmarket wfor wyour wU.S.-based wcompany
International Financial Management 9th Edition
,MULTIPLE CHOICE - Choose the one alternative that best completes the statement
oranswers the question.
1) What major dimension sets apart international finance from domestic finance?
A) Foreign exchange and political risks
B) Market imperfections
C) Expanded opportunity set
D) all of the options
2) An example(s) of a political risk is
A) expropriation of assets.
B) adverse change in tax rules.
C) the opposition party being elected.
D) both the expropriation of assets and adverse changes in tax rules are correct.
3) Production of goods and services has become globalized to a large extent as a result of
A) natural resources wbeing wdepleted win wone wcountry wafter wanother.
B) skilled wlabor wbeing whighly wmobile.
C) multinational wcorporations' wefforts wto wsource winputs wand wlocate
wproduction wanywherewwhere wcosts ware wlower wand wprofits whigher.
D) common wtastes wworldwide wfor wthe wsame wgoods wand wservices.
4) Recently, wfinancial wmarkets whave wbecome whighly wintegrated. wThis wdevelopment
International Financial Management 9th Edition
, A) allows winvestors wto wdiversify wtheir wportfolios winternationally.
B) allows wminority winvestors wto wbuy wand wsell wstocks.
C) has wincreased wthe wcost wof wcapital wfor wfirms.
D) none wof wthe woptions
5) Japan whas wexperienced wlarge wtrade wsurpluses. wJapanese winvestors whave
wresponded wto wthis wby
A) liquidating wtheir wpositions win wstocks wto wbuy wdollar-denominated wbonds.
B) investing wheavily win wU.S. wand wother wforeign wfinancial wmarkets.
C) lobbying wthe wU.S. wgovernment wto wdepreciate wits wcurrency.
D) lobbying wthe wJapanese wgovernment wto wallow wthe wyen wto wappreciate.
6) Suppose wyour wfirm winvests w$100,000 win wa wproject win wItaly. wAt wthe wtime wthe
wexchange wrate wis
$1.25 w= w€1.00. wOne wyear wlater wthe wexchange wrate wis wthe wsame, wbut wthe
wItalian wgovernment whas wexpropriated wyour wfirm's wassets wpaying wonly w€80,000
win wcompensation. wThis wis wan wexample wof
A) exchange wrate wrisk.
B) political wrisk.
C) market wimperfections.
D) wnone wof wthe woptions, wsince w$100,000 w= w€80,000 w× w$1.25/€1.00.
International Financial Management 9th Edition
, 7) Suppose wyou wstart wwith w$100 wand wbuy wstock wfor w£50 wwhen wthe wexchange
wrate wis w£1 w= w$2. wOne wyear wlater, wthe wstock wrises wto w£60. wYou ware whappy wwith
wyour w20 wpercent wreturn won wthe wstock, wbut wwhen wyou wsell wthe wstock wand
wexchange wyour w£60 wfor wdollars, wyou wonly wget w$45 wsince wthe wpoundwhas wfallen wto
w£1 w= w$0.75. wThis wloss wof wvalue wis wan wexample wof
A) exchange wrate wrisk.
B) political wrisk.
C) market wimperfections.
D) weakness win wthe wdollar.
8) Suppose wthat wGreat wBritain wis wa wmajor wexport wmarket wfor wyour wfirm, wa
wU.S.-based wMNC. wIfwthe wBritish wpound wdepreciates wagainst wthe wU.S. wdollar,
A) your wfirm wwill wbe wable wto wcharge wmore win wdollar wterms wwhile wkeeping
wpound wprices
stable
.
B) your wfirm wmay wbe wpriced wout wof wthe wU.K. wmarket, wto wthe wextent wthat
wyour wdollar wcosts
stay wconstant wand wyour wpound wprices wwill wrise.
C) to wprotect wU.K. wmarket wshare, wyour wfirm wmay whave wto wcut wthe wdollar
wprice wof wyour wgoodswto wkeep wthe wpound wprice wthe wsame.
D) your wfirm wmay wbe wpriced wout wof wthe wU.K. wmarket, wto wthe wextent wthat
wyour wdollar wcosts wstay wconstant wand wyour wpound wprices wwill wrise, wand wto
wprotect wU.K. wmarket wshare, wyour wfirm wmaywhave wto wcut wthe wdollar wprice wof
wyour wgoods wto wkeep wthe wpound wprice wthe wsame.
9) Suppose wMexico wis wa wmajor wexport wmarket wfor wyour wU.S.-based wcompany
International Financial Management 9th Edition
