International Financial Management 9th Edition
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,MULTIPLE CHOICE - Choose the one alternative that best completes the statement
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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 aj aj aj aj
B) Market imperfections aj
C) Expanded opportunity set aj aj
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. aj aj
B) adverse change in tax rules. aj aj aj aj
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.
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C) multinational corporations' efforts to source inputs and locate production aj aj aj aj aj aj aj aj
aj 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 integrated. This development
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International Financial Management 9th Edition aj aj aj aj
, 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 aj aj aj
5) Japan has experienced large trade surpluses. Japanese investors have responded to this
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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
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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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aj has expropriated your firm's assets paying only €80,000 in compensation. This is an
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aj example of aj
A) exchange rate risk. aj aj
B) political risk. aj
C) market imperfections. aj
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
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International Financial Management 9th Edition aj aj aj aj
, 7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 =
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aj $2. One year later, the stock rises to £60. You are happy with your 20 percent return on the
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aj stock, but when you sell the stock and exchange your £60 for dollars, you only get $45
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aj since the poundhas fallen to £1 = $0.75. This loss of value is an example of
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A) exchange rate risk. aj aj
B) political risk. aj
C) market imperfections. aj
D) weakness in the dollar. aj aj aj
8) Suppose that Great Britain is a major export market for your firm, a U.S.-based
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aj 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
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aj goodsto 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
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aj costs stay constant and your pound prices will rise, and to protect U.K. market share,
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aj your firm mayhave to cut the dollar price of your goods to keep the pound price the
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aj same.
9) Suppose Mexico is a major export market for your U.S.-based company and the
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aj Mexicanpeso appreciates drastically against the U.S. dollar. This means
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International Financial Management 9th Edition aj aj aj aj
aj aj aj aj
,MULTIPLE CHOICE - Choose the one alternative that best completes the statement
aj aj aj aj aj aj aj aj aj aj aj
oranswers the question.
aj aj aj aj
1) What major dimension sets apart international finance from domestic finance?
aj aj aj aj aj aj aj aj aj
A) Foreign exchange and political risks aj aj aj aj
B) Market imperfections aj
C) Expanded opportunity set aj aj
D) all of the options
aj aj aj
2) An example(s) of a political risk is
aj aj aj aj aj aj
A) expropriation of assets. aj aj
B) adverse change in tax rules. aj aj aj aj
C) the opposition party being elected.
aj aj aj aj
D) both the expropriation of assets and adverse changes in tax rules are correct.
aj aj aj aj aj aj aj aj aj aj aj aj
3) Production of goods and services has become globalized to a large extent as a result of
aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj
A) natural resources being depleted in one country after another.
aj aj aj aj aj aj aj aj
B) skilled labor being highly mobile.
aj aj aj aj
C) multinational corporations' efforts to source inputs and locate production aj aj aj aj aj aj aj aj
aj anywherewhere costs are lower and profits higher.
aj aj aj aj aj aj aj
D) common tastes worldwide for the same goods and services.
aj aj aj aj aj aj aj aj
4) Recently, financial markets have become highly integrated. This development
aj aj aj aj aj aj aj aj
International Financial Management 9th Edition aj aj aj aj
, A) allows investors to diversify their portfolios internationally.
aj aj aj aj aj aj
B) allows minority investors to buy and sell stocks.
aj aj aj aj aj aj aj
C) has increased the cost of capital for firms.
aj aj aj aj aj aj aj
D) none of the options aj aj aj
5) Japan has experienced large trade surpluses. Japanese investors have responded to this
aj aj aj aj aj aj aj aj aj aj aj
by
aj
A) liquidating their positions in stocks to buy dollar-denominated bonds.
aj aj aj aj aj aj aj aj
B) investing heavily in U.S. and other foreign financial markets.
aj aj aj aj aj aj aj aj
C) lobbying the U.S. government to depreciate its currency.
aj aj aj aj aj aj aj
D) lobbying the Japanese government to allow the yen to appreciate.
aj aj aj aj aj aj aj aj aj
6) Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate
aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj
is
aj
$1.25 = €1.00. One year later the exchange rate is the same, but the Italian government
aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj
aj has expropriated your firm's assets paying only €80,000 in compensation. This is an
aj aj aj aj aj aj aj aj aj aj aj aj
aj example of aj
A) exchange rate risk. aj aj
B) political risk. aj
C) market imperfections. aj
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
aj aj aj aj aj aj aj aj aj aj
International Financial Management 9th Edition aj aj aj aj
, 7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 =
aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj
aj $2. One year later, the stock rises to £60. You are happy with your 20 percent return on the
aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj
aj stock, but when you sell the stock and exchange your £60 for dollars, you only get $45
aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj
aj since the poundhas fallen to £1 = $0.75. This loss of value is an example of
aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj
A) exchange rate risk. aj aj
B) political risk. aj
C) market imperfections. aj
D) weakness in the dollar. aj aj aj
8) Suppose that Great Britain is a major export market for your firm, a U.S.-based
aj aj aj aj aj aj aj aj aj aj aj aj aj
aj MNC. Ifthe British pound depreciates against the U.S. dollar,
aj aj aj aj aj aj aj aj aj
A) your firm will be able to charge more in dollar terms while keeping pound prices
aj aj aj aj aj aj aj aj aj aj aj aj aj aj
stable
.
B) your firm may be priced out of the U.K. market, to the extent that your dollar costs
aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj
stay constant and your pound prices will rise.
aj aj aj aj aj aj aj
C) to protect U.K. market share, your firm may have to cut the dollar price of your
aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj
aj goodsto keep the pound price the same.
aj aj aj aj aj aj aj
D) your firm may be priced out of the U.K. market, to the extent that your dollar
aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj
aj costs stay constant and your pound prices will rise, and to protect U.K. market share,
aj aj aj aj aj aj aj aj aj aj aj aj aj aj
aj your firm mayhave to cut the dollar price of your goods to keep the pound price the
aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj aj
aj same.
9) Suppose Mexico is a major export market for your U.S.-based company and the
aj aj aj aj aj aj aj aj aj aj aj aj
aj Mexicanpeso appreciates drastically against the U.S. dollar. This means
aj aj aj aj aj aj aj aj aj
International Financial Management 9th Edition aj aj aj aj
