TEST BANK for International Financial Management
9th Edition by Cheol Eun, Bruce Resnick and Tuugi
Chuluun. ISBN-13: 9781260013870
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
answers 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
Test Bank
yk Page 1yk
, 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 anywhere
where 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
Test Bank
yk Page 2 yk
, 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
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5) Japan has experienced large trade surpluses. Japanese investors have responded to this by
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A) liquidating their positions in stocks to buy dollar-denominated bonds.
yk yk yk yk yk yk yk yk
B) investing heavily in U.S. and other foreign financial markets.
yk yk yk yk yk yk yk yk
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.
yk yk yk yk yk yk yk yk yk
6) Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate is
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
$1.25 = €1.00. One year later the exchange rate is the same, but the Italian government has
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
expropriated your firm's assets paying only €80,000 in compensation. This is an example of
yk yk yk yk yk yk yk yk yk yk yk yk yk yk
A) exchange rate risk. yk yk
B) political risk. yk
C) market imperfections. yk
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
yk yk yk yk yk yk yk yk yk
Test Bank
yk Page 3 yk
, 7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2.
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
yk One year later, the stock rises to £60. You are happy with your 20 percent return on the stock, but
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
when you sell the stock and exchange your £60 for dollars, you only get $45 since the pound has
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
yk fallen to £1 = $0.75. This loss of value is an example of
yk yk yk yk yk yk yk yk yk yk yk yk
A) exchange rate risk. yk yk
B) political risk. yk
C) market imperfections. yk
D) weakness in the dollar. yk yk yk
8) Suppose that Great Britain is a major export market for your firm, a U.S.-based MNC. If
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
yk the British pound depreciates against the U.S. dollar,
yk yk yk yk yk yk yk
A) your firm will be able to charge more in dollar terms while keeping pound prices
yk yk yk yk yk yk yk yk yk yk yk yk yk yk
stable.
B) your firm may be priced out of the U.K. market, to the extent that your dollar costs
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
stay constant and your pound prices will rise.
yk yk yk yk yk yk yk
C) to protect U.K. market share, your firm may have to cut the dollar price of your goods to
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
yk keep the pound price the same.
yk yk yk yk yk
D) your firm may be priced out of the U.K. market, to the extent that your dollar costs
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
yk stay constant and your pound prices will rise, and to protect U.K. market share, your firm may
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
yk have to cut the dollar price of your goods to keep the pound price the same.
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
9) Suppose Mexico is a major export market for your U.S.-based company and the Mexican
yk yk yk yk yk yk yk yk yk yk yk yk yk
yk peso appreciates drastically against the U.S. dollar. This means
yk yk yk yk yk yk yk yk
Test Bank yk Page 4 yk
9th Edition by Cheol Eun, Bruce Resnick and Tuugi
Chuluun. ISBN-13: 9781260013870
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
answers 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
Test Bank
yk Page 1yk
, 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 anywhere
where 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
Test Bank
yk Page 2 yk
, A) allows investors to diversify their portfolios internationally.
yk yk yk yk yk yk
B) allows minority investors to buy and sell stocks.
yk yk yk yk yk yk yk
C) has increased the cost of capital for firms.
yk yk yk yk yk yk yk
D) none of the options
yk yk yk
5) Japan has experienced large trade surpluses. Japanese investors have responded to this by
yk yk yk yk yk yk yk yk yk yk yk yk
A) liquidating their positions in stocks to buy dollar-denominated bonds.
yk yk yk yk yk yk yk yk
B) investing heavily in U.S. and other foreign financial markets.
yk yk yk yk yk yk yk yk
C) lobbying the U.S. government to depreciate its currency.
yk yk yk yk yk yk yk
D) lobbying the Japanese government to allow the yen to appreciate.
yk yk yk yk yk yk yk yk yk
6) Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate is
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
$1.25 = €1.00. One year later the exchange rate is the same, but the Italian government has
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
expropriated your firm's assets paying only €80,000 in compensation. This is an example of
yk yk yk yk yk yk yk yk yk yk yk yk yk yk
A) exchange rate risk. yk yk
B) political risk. yk
C) market imperfections. yk
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
yk yk yk yk yk yk yk yk yk
Test Bank
yk Page 3 yk
, 7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2.
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
yk One year later, the stock rises to £60. You are happy with your 20 percent return on the stock, but
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
when you sell the stock and exchange your £60 for dollars, you only get $45 since the pound has
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
yk fallen to £1 = $0.75. This loss of value is an example of
yk yk yk yk yk yk yk yk yk yk yk yk
A) exchange rate risk. yk yk
B) political risk. yk
C) market imperfections. yk
D) weakness in the dollar. yk yk yk
8) Suppose that Great Britain is a major export market for your firm, a U.S.-based MNC. If
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
yk the British pound depreciates against the U.S. dollar,
yk yk yk yk yk yk yk
A) your firm will be able to charge more in dollar terms while keeping pound prices
yk yk yk yk yk yk yk yk yk yk yk yk yk yk
stable.
B) your firm may be priced out of the U.K. market, to the extent that your dollar costs
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
stay constant and your pound prices will rise.
yk yk yk yk yk yk yk
C) to protect U.K. market share, your firm may have to cut the dollar price of your goods to
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
yk keep the pound price the same.
yk yk yk yk yk
D) your firm may be priced out of the U.K. market, to the extent that your dollar costs
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
yk stay constant and your pound prices will rise, and to protect U.K. market share, your firm may
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
yk have to cut the dollar price of your goods to keep the pound price the same.
yk yk yk yk yk yk yk yk yk yk yk yk yk yk yk
9) Suppose Mexico is a major export market for your U.S.-based company and the Mexican
yk yk yk yk yk yk yk yk yk yk yk yk yk
yk peso appreciates drastically against the U.S. dollar. This means
yk yk yk yk yk yk yk yk
Test Bank yk Page 4 yk
