International Financial Management 9th Edition
,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.
4) Recently, financial markets have become highly integrated. This development
International Financial Management 9th Edition
, A) allows investors to diversify their portfolios internationally.
G G G G G G
B) allows minority investors to buy and sell stocks.
G G G G G G G
C) has increased the cost of capital for firms.
G G G G G G G
D) none of the options G G G
5) Japan has experienced large trade surpluses. Japanese investors have responded to
G G G G G G G G G G
Gthis by G
A) liquidating their positions in stocks to buy dollar-denominated bonds.
G G G G G G G G
B) investing heavily in U.S. and other foreign financial markets.
G G G G G G G G
C) lobbying the U.S. government to depreciate its currency.
G G G G G G G
D) lobbying the Japanese government to allow the yen to appreciate.
G G G G G G G G G
6) Suppose your firm invests $100,000 in a project in Italy. At the time the exchange
G G G G G G G G G G G G G G
rate is
G G
$1.25 = €1.00. One year later the exchange rate is the same, but the Italian
G G G G G G G G G G G G G G
Ggovernment has expropriated your firm's assets paying only €80,000 in
G G G G G G G G G
Gcompensation. This is an example of
G G G G G
A) exchange rate risk. G G
B) political risk. G
C) market imperfections. G
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
G G G G G G G G G G
International Financial Management 9th Edition
, 7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1
G G G G G G G G G G G G G G G
G= $2. One year later, the stock rises to £60. You are happy with your 20 percent return
G G G G G G G G G G G G G G G G G
Gon the stock, but when you sell the stock and exchange your £60 for dollars, you only
G G G G G G G G G G G G G G G G
Gget $45 since the pound has fallen to £1 = $0.75. This loss of value is an example of
G G G G G G G G G G G G G G G G G G
A) exchange rate risk. G G
B) political risk. G
C) market imperfections. G
D) weakness in the dollar. G G G
8) Suppose that Great Britain is a major export market for your firm, a U.S.-based
G G G G G G G G G G G G G
GMNC. Ifthe British pound depreciates against the U.S. dollar,
G G G G G G G G G
A) your firm will be able to charge more in dollar terms while keeping pound prices
G G G G G G G G G G G G G G
stable
.
B) your firm may be priced out of the U.K. market, to the extent that your dollar
G G G G G G G G G G G G G G G
costs
G
stay constant and your pound prices will rise.
G G G G G G G
C) to protect U.K. market share, your firm may have to cut the dollar price of
G G G G G G G G G G G G G G
Gyour goods to keep the pound price the same.
G G G G G G G G
D) your firm may be priced out of the U.K. market, to the extent that your
G G G G G G G G G G G G G G
Gdollar costs stay constant and your pound prices will rise, and to protect U.K. market
G G G G G G G G G G G G G G
Gshare, your firm mayhave to cut the dollar price of your goods to keep the pound
G G G G G G G G G G G G G G G G
Gprice the same. G G
9) Suppose Mexico is a major export market for your U.S.-based company and the
G G G G G G G G G G G G
GMexicanpeso appreciates drastically against the U.S. dollar. This means
G G G G G G G G G
International Financial Management 9th Edition
,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.
4) Recently, financial markets have become highly integrated. This development
International Financial Management 9th Edition
, A) allows investors to diversify their portfolios internationally.
G G G G G G
B) allows minority investors to buy and sell stocks.
G G G G G G G
C) has increased the cost of capital for firms.
G G G G G G G
D) none of the options G G G
5) Japan has experienced large trade surpluses. Japanese investors have responded to
G G G G G G G G G G
Gthis by G
A) liquidating their positions in stocks to buy dollar-denominated bonds.
G G G G G G G G
B) investing heavily in U.S. and other foreign financial markets.
G G G G G G G G
C) lobbying the U.S. government to depreciate its currency.
G G G G G G G
D) lobbying the Japanese government to allow the yen to appreciate.
G G G G G G G G G
6) Suppose your firm invests $100,000 in a project in Italy. At the time the exchange
G G G G G G G G G G G G G G
rate is
G G
$1.25 = €1.00. One year later the exchange rate is the same, but the Italian
G G G G G G G G G G G G G G
Ggovernment has expropriated your firm's assets paying only €80,000 in
G G G G G G G G G
Gcompensation. This is an example of
G G G G G
A) exchange rate risk. G G
B) political risk. G
C) market imperfections. G
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
G G G G G G G G G G
International Financial Management 9th Edition
, 7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1
G G G G G G G G G G G G G G G
G= $2. One year later, the stock rises to £60. You are happy with your 20 percent return
G G G G G G G G G G G G G G G G G
Gon the stock, but when you sell the stock and exchange your £60 for dollars, you only
G G G G G G G G G G G G G G G G
Gget $45 since the pound has fallen to £1 = $0.75. This loss of value is an example of
G G G G G G G G G G G G G G G G G G
A) exchange rate risk. G G
B) political risk. G
C) market imperfections. G
D) weakness in the dollar. G G G
8) Suppose that Great Britain is a major export market for your firm, a U.S.-based
G G G G G G G G G G G G G
GMNC. Ifthe British pound depreciates against the U.S. dollar,
G G G G G G G G G
A) your firm will be able to charge more in dollar terms while keeping pound prices
G G G G G G G G G G G G G G
stable
.
B) your firm may be priced out of the U.K. market, to the extent that your dollar
G G G G G G G G G G G G G G G
costs
G
stay constant and your pound prices will rise.
G G G G G G G
C) to protect U.K. market share, your firm may have to cut the dollar price of
G G G G G G G G G G G G G G
Gyour goods to keep the pound price the same.
G G G G G G G G
D) your firm may be priced out of the U.K. market, to the extent that your
G G G G G G G G G G G G G G
Gdollar costs stay constant and your pound prices will rise, and to protect U.K. market
G G G G G G G G G G G G G G
Gshare, your firm mayhave to cut the dollar price of your goods to keep the pound
G G G G G G G G G G G G G G G G
Gprice the same. G G
9) Suppose Mexico is a major export market for your U.S.-based company and the
G G G G G G G G G G G G
GMexicanpeso appreciates drastically against the U.S. dollar. This means
G G G G G G G G G
International Financial Management 9th Edition
