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International Financial Management 9th Edition

,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 nn nn nn nn




B) Market imperfections nn




C) Expanded opportunity set nn nn




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. nn nn




B) adverse change in tax rules. nn nn nn nn




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 productionnn nn nn nn nn nn nn nn




nn 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

, 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 nn nn nn




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 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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has expropriated your firm's assets paying only €80,000 in compensation. This is an
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example of
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A) exchange rate risk. nn nn




B) political risk. nn




C) market imperfections. nn




D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
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International Financial Management 9th Edition

, 7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 =
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nn $2. One year later, the stock rises to £60. You are happy with your 20 percent return on the
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nn stock, but when you sell the stock and exchange your £60 for dollars, you only get $45 since
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the poundhas fallen to £1 = $0.75. This loss of value is an example of
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A) exchange rate risk. nn nn




B) political risk. nn




C) market imperfections. nn




D) weakness in the dollar. nn nn nn




8) Suppose that Great Britain is a major export market for your firm, a U.S.-based
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nn 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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nn 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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nn costs stay constant and your pound prices will rise, and to protect U.K. market share,
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nn your firm mayhave 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
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nn Mexicanpeso appreciates drastically against the U.S. dollar. This means
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International Financial Management 9th Edition