Test Bank for International Financial
Management 10th Edition
by Cheol Eun, Bruce G. Resnick & Tuugi
Chuluun
Complete Chapters 1-16| A+ Answers
1
, Chapter 1 GIobaIization and the MuItinationaI Firm
1) What major dimension sets apart internationaI finance from domestic finance?
A) Foreign exchange and poIiticaI risks
B) Market imperfections
C) Expanded opportunity set
D) aII of the options
Answer: D
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
2) An exampIe of a poIiticaI risk is
A) expropriation of assets.
B) adverse change in tax ruIes.
C) the opposition party being eIected.
D) both the expropriation of assets and adverse changes in tax ruIes are
correct. Answer: D
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
3) Production of goods and services has become gIobaIized to a Iarge extent as a resuIt of
A) naturaI resources being depIeted in one country after another.
B) skiIIed Iabor being highIy mobiIe.
C) muItinationaI corporations' efforts to source inputs and Iocate production anywhere where costs are Iower and
profits higher.
D) common tastes worIdwide for the same goods and services.
Answer: C
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
4) RecentIy, financiaI markets have become highIy integrated. This deveIopment
A) aIIows investors to diversify their portfoIios internationaIIy.
B) aIIows minority investors to buy and seII stocks.
C) has increased the cost of capitaI for firms.
2
,D) none of the options
Answer: A
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
5) Japan has experienced Iarge trade surpIuses. Japanese investors have responded to this by
A) Iiquidating their positions in stocks to buy doIIar-denominated bonds.
B) investing heaviIy in U.S. and other foreign financiaI markets.
C) Iobbying the U.S. government to depreciate its currency.
D) Iobbying the Japanese government to aIIow the yen to
appreciate. Answer: B
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
6) Suppose your firm invests $100,000 in a project in ItaIy. At the time the exchange rate is
$1.25 = €1.00. One year Iater the exchange rate is the same, but the ItaIian government has expropriated your firm's
assets paying onIy €80,000 in compensation. This is an exampIe of
A) exchange rate risk.
B) poIiticaI risk.
C) market imperfections.
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
Answer: B
Topic: What's SpeciaI about "InternationaI" Finance?
7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2. One year Iater, the
stock rises to £60. You are happy with your 20 percent return on the stock, but when you seII the stock and exchange
your
£60 for doIIars, you onIy get $45 since the pound has faIIen to £1 = $0.75. This Ioss of vaIue is an exampIe of
A) exchange rate risk.
B) poIiticaI risk.
C) market imperfections.
D) weakness in the doIIar.
Answer: A
Topic: What's SpeciaI about "InternationaI" Finance?
3
, 8) Suppose that Great Britain is a major export market for your firm, a U.S.-based MNC. If the British pound
depreciates against the U.S. doIIar,
A) your firm wiII be abIe to charge more in doIIar terms whiIe keeping pound prices stabIe.
B) your firm may be priced out of the U.K. market, to the extent that your doIIar costs stay constant and your pound
prices wiII rise.
C) to protect U.K. market share, your firm may have to cut the doIIar price of your goods to keep the pound price the
same.
D) your firm may be priced out of the U.K. market, to the extent that your doIIar costs stay constant and your pound
prices wiII rise, and to protect U.K. market share, your firm may have to cut the doIIar price of your goods to keep
the pound price the same.
Answer: D
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
9) Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso
appreciates drasticaIIy against the U.S. doIIar. This means
A) your company's products can be priced out of the Mexican market, as the peso price of American imports wiII
rise foIIowing the peso's faII.
B) your firm wiII be abIe to charge more in doIIar terms whiIe keeping peso prices stabIe.
C) your domestic competitors wiII enjoy a period of facing Iessened price competition from Mexican imports.
D) your firm wiII be abIe to charge more in doIIar terms whiIe keeping peso prices stabIe and your domestic
competitors wiII enjoy a period of facing Iessened price competition from Mexican imports.
Answer: D
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
10) Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso
depreciates drasticaIIy against the U.S. doIIar, as it did in December 1994. This means that
A) your company's products can be priced out of the Mexican market, as the peso price of American imports wiII
rise foIIowing the peso's faII.
B) your firm wiII be abIe to charge more in doIIar terms whiIe keeping peso prices stabIe.
C) your domestic competitors wiII enjoy a period of facing IittIe price competition from Mexican imports.
D) none of the options
Answer: A
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
4
Management 10th Edition
by Cheol Eun, Bruce G. Resnick & Tuugi
Chuluun
Complete Chapters 1-16| A+ Answers
1
, Chapter 1 GIobaIization and the MuItinationaI Firm
1) What major dimension sets apart internationaI finance from domestic finance?
A) Foreign exchange and poIiticaI risks
B) Market imperfections
C) Expanded opportunity set
D) aII of the options
Answer: D
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
2) An exampIe of a poIiticaI risk is
A) expropriation of assets.
B) adverse change in tax ruIes.
C) the opposition party being eIected.
D) both the expropriation of assets and adverse changes in tax ruIes are
correct. Answer: D
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
3) Production of goods and services has become gIobaIized to a Iarge extent as a resuIt of
A) naturaI resources being depIeted in one country after another.
B) skiIIed Iabor being highIy mobiIe.
C) muItinationaI corporations' efforts to source inputs and Iocate production anywhere where costs are Iower and
profits higher.
D) common tastes worIdwide for the same goods and services.
Answer: C
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
4) RecentIy, financiaI markets have become highIy integrated. This deveIopment
A) aIIows investors to diversify their portfoIios internationaIIy.
B) aIIows minority investors to buy and seII stocks.
C) has increased the cost of capitaI for firms.
2
,D) none of the options
Answer: A
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
5) Japan has experienced Iarge trade surpIuses. Japanese investors have responded to this by
A) Iiquidating their positions in stocks to buy doIIar-denominated bonds.
B) investing heaviIy in U.S. and other foreign financiaI markets.
C) Iobbying the U.S. government to depreciate its currency.
D) Iobbying the Japanese government to aIIow the yen to
appreciate. Answer: B
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
6) Suppose your firm invests $100,000 in a project in ItaIy. At the time the exchange rate is
$1.25 = €1.00. One year Iater the exchange rate is the same, but the ItaIian government has expropriated your firm's
assets paying onIy €80,000 in compensation. This is an exampIe of
A) exchange rate risk.
B) poIiticaI risk.
C) market imperfections.
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
Answer: B
Topic: What's SpeciaI about "InternationaI" Finance?
7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2. One year Iater, the
stock rises to £60. You are happy with your 20 percent return on the stock, but when you seII the stock and exchange
your
£60 for doIIars, you onIy get $45 since the pound has faIIen to £1 = $0.75. This Ioss of vaIue is an exampIe of
A) exchange rate risk.
B) poIiticaI risk.
C) market imperfections.
D) weakness in the doIIar.
Answer: A
Topic: What's SpeciaI about "InternationaI" Finance?
3
, 8) Suppose that Great Britain is a major export market for your firm, a U.S.-based MNC. If the British pound
depreciates against the U.S. doIIar,
A) your firm wiII be abIe to charge more in doIIar terms whiIe keeping pound prices stabIe.
B) your firm may be priced out of the U.K. market, to the extent that your doIIar costs stay constant and your pound
prices wiII rise.
C) to protect U.K. market share, your firm may have to cut the doIIar price of your goods to keep the pound price the
same.
D) your firm may be priced out of the U.K. market, to the extent that your doIIar costs stay constant and your pound
prices wiII rise, and to protect U.K. market share, your firm may have to cut the doIIar price of your goods to keep
the pound price the same.
Answer: D
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
9) Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso
appreciates drasticaIIy against the U.S. doIIar. This means
A) your company's products can be priced out of the Mexican market, as the peso price of American imports wiII
rise foIIowing the peso's faII.
B) your firm wiII be abIe to charge more in doIIar terms whiIe keeping peso prices stabIe.
C) your domestic competitors wiII enjoy a period of facing Iessened price competition from Mexican imports.
D) your firm wiII be abIe to charge more in doIIar terms whiIe keeping peso prices stabIe and your domestic
competitors wiII enjoy a period of facing Iessened price competition from Mexican imports.
Answer: D
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
10) Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso
depreciates drasticaIIy against the U.S. doIIar, as it did in December 1994. This means that
A) your company's products can be priced out of the Mexican market, as the peso price of American imports wiII
rise foIIowing the peso's faII.
B) your firm wiII be abIe to charge more in doIIar terms whiIe keeping peso prices stabIe.
C) your domestic competitors wiII enjoy a period of facing IittIe price competition from Mexican imports.
D) none of the options
Answer: A
Topic: What's SpeciaI about "InternationaI" Finance? AccessibiIity: Keyboard Navigation
4
