IBUS 401-FINAL COMPLETE
QUESTIONS & SOLUTIONS(RATED A+)
For the MNC, agency costs are typically:
a. Non-existent
b. Larger than agency costs of small purely domestic firm
c. Smaller than agency costs of a small purely domestic firm
d. The same as agency costs of a small purely domestic fir - ANSWER Larger than the
agency cost of small purely domestic firm
If a US based MNC focused completely on exporting, then its valuation would likely be
adversely affected if most currencies were expected to appreciate against the dollar
over time.
a. True
b. False - ANSWER False
Which of the following industries would most likely take advantage of lower costs in
some less developed foreign countries?
a. Assembly line production
b. Specialized professional services
c. Nuclear missile planning
d. Planning for more sophisticated computer technology - ANSWER a. Assembly line
production
Saller Co. has a subsidiary in Mexico. The expected cash flows in pesos to be received
in the future from this subsidiary
have not changed since last month, but the valuation of Saller Co. has declined last
month. What could've caused this
decline in value?
a. A weaker Mexican economy
b. Lower Mexican interest rates
c. Depreciation of the Mexican peso
d. Appreciation of the Mexican peso - ANSWER c. Depreciation of the Mexican peso
As a result of the European Union, restrictions on exports between _______ were
reduced or eliminated.
a. Member countries and the US
b. Member countries
c. Member countries and European non-members
d. None of the above - ANSWER b. member countries
A weak home currency may not be a perfect solution to correct a balance of trade deficit
because:
a. It reduces the prices of imports paid by local companies
,b. It increases the price of exports by local companies
c. It prevents international trade transactions from being prearranged
d. Foreign companies may reduce the prices of their products to stay competitive -
ANSWER d. Foreign companies may reduce the prices of their products to stay
competitive
Without the international capital flows, there would be ______ funding available in the
US across all risk levels, and the cost of funding would be _____.
a. More; lower
b. More; higher
c. Less; lower
d. Less; higher - ANSWER d. Less; higher
The _____, an accord among 117 nations, called for lower tariffs around the world.
a. General agreement on Tariffs and Trade (GATT)
b. North American Free Trade Agreement (NAFTA)
c. Single European Act of 1987
d. European Union Accord
e. None of the above - ANSWER a. General agreement on Tariffs and Trade (GATT)
A weakening of the US dollar with respect to the British pound would likely reduce US
exports to the UK and increase
US imports from the UK.
a. True
b. False - ANSWER b. false
From 1944 to 1971, the exchange rate between any two currencies was typically:
a. Fixed within narrow boundaries
b. Floating, but subject to central bank intervention
c. Floating, and not subject to central bank intervention
d. Non existent; that is currencies were not exchanged, but gold was used to pay for all
foreign transa - ANSWER a. Fixed within narrow boundaries
Assume that a bank's bid rate on Japanese yen $.0041 and its ask rate is $.0043. Its
bid-ask percentage spread is:
a. About 4.99%
b. About 4.88%
c. About 4.65%
d. About 4.43% - ANSWER c. About 4.65%
A currency put option provides the right, but not the obligation, to buy a specific
currency at a specific price within a
specific period of time
a. True
b. False - ANSWER b. False
, 13. Futures contracts are sold on exchanges and are consequently ____ than forward
contracts, which can be _____ to satisfy and MNC's needs.
a. More standardized; standardized
b. More standardized; custom-tailored
c. More custom-tailored, standardized - ANSWER b. More standardized; custom-
tailored
An MNC's short-term financing decisions are satisfied in the _____ market, while its
medium debt financing decisions are satisfied in the _____ market.
a. International money; international credit
b. International money; international bond
c. International credit, international money
d. International bond; international credit
e. International money; international stock - ANSWER a. International money;
international credit
The value of the Australian dollar (A$) today is $0.73. Yesterday, the value of the
Australian dollar was $0.69. The
Australian dollar _____ by _____ %.
a. Depreciated; 5.80
b. Depreciated; 4.00
c. Appreciated; 5.80
d. Appreciated; 4.00 - ANSWER c. Appreciated; 5.80
Relatively high Japanese inflation may result in an increase in the supply of yen for sale
and a reduction in the demand for yen, other things being equal.
a. True
b. False - ANSWER True
Assume that a bank's bid rate on Swiss francs is $.45 and its ask rate is $.47. Its bid-
ask percentage spread is:
a. About 4.44%
b. About 4.26%
c. About 4.03%
d. About 4.17 - ANSWER b. About 4.26%
If a US firm desires to avoid the risk from exchange rate fluctuations, and it will need
C$200,000 in 90 days to make payment on imports from Canada, it could:
a. Obtain a 90-day forward purchase contract for Canadian dollars
b. Obtain a 90-day forward sale contract for Canadian dollars
c. Purchase Canadian dollars 90 days from now at the spot rate
d. Sell Canadian dollars 90 days from now - ANSWER a. Obtain a 90-day forward
purchase contract for Canadian dollars
QUESTIONS & SOLUTIONS(RATED A+)
For the MNC, agency costs are typically:
a. Non-existent
b. Larger than agency costs of small purely domestic firm
c. Smaller than agency costs of a small purely domestic firm
d. The same as agency costs of a small purely domestic fir - ANSWER Larger than the
agency cost of small purely domestic firm
If a US based MNC focused completely on exporting, then its valuation would likely be
adversely affected if most currencies were expected to appreciate against the dollar
over time.
a. True
b. False - ANSWER False
Which of the following industries would most likely take advantage of lower costs in
some less developed foreign countries?
a. Assembly line production
b. Specialized professional services
c. Nuclear missile planning
d. Planning for more sophisticated computer technology - ANSWER a. Assembly line
production
Saller Co. has a subsidiary in Mexico. The expected cash flows in pesos to be received
in the future from this subsidiary
have not changed since last month, but the valuation of Saller Co. has declined last
month. What could've caused this
decline in value?
a. A weaker Mexican economy
b. Lower Mexican interest rates
c. Depreciation of the Mexican peso
d. Appreciation of the Mexican peso - ANSWER c. Depreciation of the Mexican peso
As a result of the European Union, restrictions on exports between _______ were
reduced or eliminated.
a. Member countries and the US
b. Member countries
c. Member countries and European non-members
d. None of the above - ANSWER b. member countries
A weak home currency may not be a perfect solution to correct a balance of trade deficit
because:
a. It reduces the prices of imports paid by local companies
,b. It increases the price of exports by local companies
c. It prevents international trade transactions from being prearranged
d. Foreign companies may reduce the prices of their products to stay competitive -
ANSWER d. Foreign companies may reduce the prices of their products to stay
competitive
Without the international capital flows, there would be ______ funding available in the
US across all risk levels, and the cost of funding would be _____.
a. More; lower
b. More; higher
c. Less; lower
d. Less; higher - ANSWER d. Less; higher
The _____, an accord among 117 nations, called for lower tariffs around the world.
a. General agreement on Tariffs and Trade (GATT)
b. North American Free Trade Agreement (NAFTA)
c. Single European Act of 1987
d. European Union Accord
e. None of the above - ANSWER a. General agreement on Tariffs and Trade (GATT)
A weakening of the US dollar with respect to the British pound would likely reduce US
exports to the UK and increase
US imports from the UK.
a. True
b. False - ANSWER b. false
From 1944 to 1971, the exchange rate between any two currencies was typically:
a. Fixed within narrow boundaries
b. Floating, but subject to central bank intervention
c. Floating, and not subject to central bank intervention
d. Non existent; that is currencies were not exchanged, but gold was used to pay for all
foreign transa - ANSWER a. Fixed within narrow boundaries
Assume that a bank's bid rate on Japanese yen $.0041 and its ask rate is $.0043. Its
bid-ask percentage spread is:
a. About 4.99%
b. About 4.88%
c. About 4.65%
d. About 4.43% - ANSWER c. About 4.65%
A currency put option provides the right, but not the obligation, to buy a specific
currency at a specific price within a
specific period of time
a. True
b. False - ANSWER b. False
, 13. Futures contracts are sold on exchanges and are consequently ____ than forward
contracts, which can be _____ to satisfy and MNC's needs.
a. More standardized; standardized
b. More standardized; custom-tailored
c. More custom-tailored, standardized - ANSWER b. More standardized; custom-
tailored
An MNC's short-term financing decisions are satisfied in the _____ market, while its
medium debt financing decisions are satisfied in the _____ market.
a. International money; international credit
b. International money; international bond
c. International credit, international money
d. International bond; international credit
e. International money; international stock - ANSWER a. International money;
international credit
The value of the Australian dollar (A$) today is $0.73. Yesterday, the value of the
Australian dollar was $0.69. The
Australian dollar _____ by _____ %.
a. Depreciated; 5.80
b. Depreciated; 4.00
c. Appreciated; 5.80
d. Appreciated; 4.00 - ANSWER c. Appreciated; 5.80
Relatively high Japanese inflation may result in an increase in the supply of yen for sale
and a reduction in the demand for yen, other things being equal.
a. True
b. False - ANSWER True
Assume that a bank's bid rate on Swiss francs is $.45 and its ask rate is $.47. Its bid-
ask percentage spread is:
a. About 4.44%
b. About 4.26%
c. About 4.03%
d. About 4.17 - ANSWER b. About 4.26%
If a US firm desires to avoid the risk from exchange rate fluctuations, and it will need
C$200,000 in 90 days to make payment on imports from Canada, it could:
a. Obtain a 90-day forward purchase contract for Canadian dollars
b. Obtain a 90-day forward sale contract for Canadian dollars
c. Purchase Canadian dollars 90 days from now at the spot rate
d. Sell Canadian dollars 90 days from now - ANSWER a. Obtain a 90-day forward
purchase contract for Canadian dollars
