International Financial Management 9th Edition
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,MULTIPLE CHOICE - Choose the one alternative that best completes the s tatement or
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answers 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 bn bn bn bn
B) Market imperfections bn
C) Expanded opportunity set bn bn
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. bn bn
B) adverse change in tax rules. bn bn bn bn
C) the opposition partybeing 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. bn bn bn bn
C) multinational corporations' efforts to source inputs and locate p roduction bn bn bn bn bn bn n
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bn anywherewhere 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 i ntegrated. This development
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International Financial Management 9th Edition bn bn bn bn
, A) allows investors to diversifytheir p ortfolios 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 by
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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 has
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expropriated your firm's assets paying only €80,000 in compensation. This is an example of
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A) exchange rate risk. bn bn
B) political risk. bn
C) market imperfections. bn
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
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International Financial Management 9th Edition bn bn bn bn
, 7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2. One
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bn year later, the stock rises to £60. You are happy with your 20 percent return on the stock, but
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bn when you sell the stock and exchange your £60 for dollars, you only get $45 since the poundhas
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b
bn fallen to £1 = $0.75. This loss of value is an example of
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A) exchange rate risk. bn bn
B) political risk. bn
C) market imperfections. bn
D) weakness in the dollar. bn bn bn
8) Suppose that Great Britain is a major export m arket for your firm, a U.S.-based MNC. If
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the British pound depreciates against the U.S. dollar,
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A) your firm will be able to charge m ore in dollar terms while keeping p ound p rices
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stable
.
B) your firm maybe 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. m arket share, your firm may have to cut the dollar price of your goods
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to 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 costs
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bn stay constant and your p ound prices will rise, and to protect U.K. market share, your firm may
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have 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.-based company and the Mexican
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peso appreciates drastically against the U.S. dollar. T his means
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International Financial Management 9th Edition bn bn bn bn
bn bn bn bn
,MULTIPLE CHOICE - Choose the one alternative that best completes the s tatement or
bn bn bn bn n
b bn bn bn bn bn bn bn
answers the question.
n
b bn bn
1) What major dimension sets apart international finance from domestic finance?
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A) Foreign exchange and political risks bn bn bn bn
B) Market imperfections bn
C) Expanded opportunity set bn bn
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. bn bn
B) adverse change in tax rules. bn bn bn bn
C) the opposition partybeing elected.
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b bn
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.
bn bn bn bn bn bn bn bn
B) skilled labor being highly mobile. bn bn bn bn
C) multinational corporations' efforts to source inputs and locate p roduction bn bn bn bn bn bn n
b bn
bn anywherewhere costs are lower and profits higher.
n
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D) common tastes worldwide for the same goods and services.
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b bn bn bn bn
4) Recently, financial markets have become highly i ntegrated. This development
bn bn bn bn bn bn n
b bn
International Financial Management 9th Edition bn bn bn bn
, A) allows investors to diversifytheir p ortfolios internationally.
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b bn bn
B) allows minority investors to buy and sell stocks.
bn n
b bn bn bn bn bn
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 by
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A) liquidating their positions in stocks to buy dollar-denominated bonds.
bn n
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b bn
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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b bn
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
bn bn bn bn bn bn n
b bn bn bn bn bn bn bn bn bn
$1.25 = €1.00. One year later the exchange rate is the same, but the Italian government has
bn bn bn bn bn bn bn bn bn bn bn bn bn bn bn bn
expropriated your firm's assets paying only €80,000 in compensation. This is an example of
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A) exchange rate risk. bn bn
B) political risk. bn
C) market imperfections. bn
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
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International Financial Management 9th Edition bn bn bn bn
, 7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2. One
bn bn bn bn bn bn bn bn bn bn bn bn bn bn bn bn bn bn
bn year later, the stock rises to £60. You are happy with your 20 percent return on the stock, but
bn bn bn bn bn bn bn bn bn bn bn bn bn bn bn bn bn bn
bn when you sell the stock and exchange your £60 for dollars, you only get $45 since the poundhas
bn bn bn bn bn bn bn bn bn n
b bn bn bn bn bn bn bn n
b
bn fallen to £1 = $0.75. This loss of value is an example of
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A) exchange rate risk. bn bn
B) political risk. bn
C) market imperfections. bn
D) weakness in the dollar. bn bn bn
8) Suppose that Great Britain is a major export m arket for your firm, a U.S.-based MNC. If
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the British pound depreciates against the U.S. dollar,
n
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A) your firm will be able to charge m ore in dollar terms while keeping p ound p rices
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stable
.
B) your firm maybe 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. m arket share, your firm may have to cut the dollar price of your goods
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b bn bn bn bn bn bn bn bn bn
to 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 costs
bn bn bn bn bn bn bn bn bn bn bn bn bn bn bn bn
bn stay constant and your p ound prices will rise, and to protect U.K. market share, your firm may
bn bn bn bn bn bn bn bn bn bn bn bn bn bn bn bn
have to cut the dollar price of your goods to keep the pound price the same.
n
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9) Suppose Mexico is a major export market for your U.S.-based company and the Mexican
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b n
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peso appreciates drastically against the U.S. dollar. T his means
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International Financial Management 9th Edition bn bn bn bn
