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 being depleted in one country after another.
B) skilled labor being highly mobile.
C) multinational corporations' efforts to source inputs and locate production
anywherewhere costs are lower and profits higher.
D) common tastes worldwide for the same goods and services.
International Financial Management 9th Edition
,4) Recently, financial markets have become highly integrated. This development
International Financial Management 9th Edition
, A) allows investors to diversify their portfolios internationally.
B) allows minority investors to buy and sell stocks.
C) has increased the cost of capital for firms.
D) none of the options
5) Japan has experienced large trade surpluses. Japanese investors have responded to this
by
A) liquidating their positions in stocks to buy dollar-denominated bonds.
B) investing heavily in U.S. and other foreign financial markets.
C) lobbying the U.S. government to depreciate its currency.
D) lobbying the Japanese government to allow the yen to appreciate.
6) Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate
is
$1.25 = €1.00. One year later the exchange rate is the same, but the Italian government
has expropriated your firm's assets paying only €80,000 in compensation. This is an
example of
A) exchange rate risk.
B) political risk.
C) market imperfections.
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
International Financial Management 9th Edition
, 7) Suppose zyou zstart zwith z$100 zand zbuy zstock zfor z£50 zwhen zthe zexchange zrate
zis z£1 z= z$2. zOne zyear zlater, zthe zstock zrises zto z£60. zYou zare zhappy zwith zyour z20
zpercent zreturn zon zthe zstock, zbut zwhen zyou zsell zthe zstock zand zexchange zyour z£60 zfor
zdollars, zyou zonly zget z$45 zsince zthe zpoundzhas zfallen zto z£1 z= z$0.75. zThis zloss zof
zvalue zis zan zexample zof
A) exchange zrate zrisk.
B) political zrisk.
C) market zimperfections.
D) weakness zin zthe zdollar.
8) Suppose zthat zGreat zBritain zis za zmajor zexport zmarket zfor zyour zfirm, za zU.S.-
based zMNC. zIfzthe zBritish zpound zdepreciates zagainst zthe zU.S. zdollar,
A) your zfirm zwill zbe zable zto zcharge zmore zin zdollar zterms zwhile zkeeping zpound
zprices
stable
.
B) your zfirm zmay zbe zpriced zout zof zthe zU.K. zmarket, zto zthe zextent zthat zyour
zdollar zcosts
stay zconstant zand zyour zpound zprices zwill zrise.
C) to zprotect zU.K. zmarket zshare, zyour zfirm zmay zhave zto zcut zthe zdollar zprice
zof zyour zgoodszto zkeep zthe zpound zprice zthe zsame.
D) your zfirm zmay zbe zpriced zout zof zthe zU.K. zmarket, zto zthe zextent zthat zyour
zdollar zcosts zstay zconstant zand zyour zpound zprices zwill zrise, zand zto zprotect zU.K.
zmarket zshare, zyour zfirm zmayzhave zto zcut zthe zdollar zprice zof zyour zgoods zto zkeep
zthe zpound zprice zthe zsame.
9) Suppose zMexico zis za zmajor zexport zmarket zfor zyour zU.S.-based zcompany zand
International Financial Management 9th Edition
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 being depleted in one country after another.
B) skilled labor being highly mobile.
C) multinational corporations' efforts to source inputs and locate production
anywherewhere costs are lower and profits higher.
D) common tastes worldwide for the same goods and services.
International Financial Management 9th Edition
,4) Recently, financial markets have become highly integrated. This development
International Financial Management 9th Edition
, A) allows investors to diversify their portfolios internationally.
B) allows minority investors to buy and sell stocks.
C) has increased the cost of capital for firms.
D) none of the options
5) Japan has experienced large trade surpluses. Japanese investors have responded to this
by
A) liquidating their positions in stocks to buy dollar-denominated bonds.
B) investing heavily in U.S. and other foreign financial markets.
C) lobbying the U.S. government to depreciate its currency.
D) lobbying the Japanese government to allow the yen to appreciate.
6) Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate
is
$1.25 = €1.00. One year later the exchange rate is the same, but the Italian government
has expropriated your firm's assets paying only €80,000 in compensation. This is an
example of
A) exchange rate risk.
B) political risk.
C) market imperfections.
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
International Financial Management 9th Edition
, 7) Suppose zyou zstart zwith z$100 zand zbuy zstock zfor z£50 zwhen zthe zexchange zrate
zis z£1 z= z$2. zOne zyear zlater, zthe zstock zrises zto z£60. zYou zare zhappy zwith zyour z20
zpercent zreturn zon zthe zstock, zbut zwhen zyou zsell zthe zstock zand zexchange zyour z£60 zfor
zdollars, zyou zonly zget z$45 zsince zthe zpoundzhas zfallen zto z£1 z= z$0.75. zThis zloss zof
zvalue zis zan zexample zof
A) exchange zrate zrisk.
B) political zrisk.
C) market zimperfections.
D) weakness zin zthe zdollar.
8) Suppose zthat zGreat zBritain zis za zmajor zexport zmarket zfor zyour zfirm, za zU.S.-
based zMNC. zIfzthe zBritish zpound zdepreciates zagainst zthe zU.S. zdollar,
A) your zfirm zwill zbe zable zto zcharge zmore zin zdollar zterms zwhile zkeeping zpound
zprices
stable
.
B) your zfirm zmay zbe zpriced zout zof zthe zU.K. zmarket, zto zthe zextent zthat zyour
zdollar zcosts
stay zconstant zand zyour zpound zprices zwill zrise.
C) to zprotect zU.K. zmarket zshare, zyour zfirm zmay zhave zto zcut zthe zdollar zprice
zof zyour zgoodszto zkeep zthe zpound zprice zthe zsame.
D) your zfirm zmay zbe zpriced zout zof zthe zU.K. zmarket, zto zthe zextent zthat zyour
zdollar zcosts zstay zconstant zand zyour zpound zprices zwill zrise, zand zto zprotect zU.K.
zmarket zshare, zyour zfirm zmayzhave zto zcut zthe zdollar zprice zof zyour zgoods zto zkeep
zthe zpound zprice zthe zsame.
9) Suppose zMexico zis za zmajor zexport zmarket zfor zyour zU.S.-based zcompany zand
International Financial Management 9th Edition
