Deck 25: Present Value of an Annuity of 1 at Compound Interest

Question 1

The risk attached to international cash flows are all of the following EXCEPT

A) inflation and foreign exchange risks.
B) business and financial risks.
C) political risks.
D) risk of local management.

Answer 1

D

Question 2

As a foreign exchange hedging tool, options have all of the following characteristics EXCEPT

A) specifies price.
B) the right to buy or sell an amount of foreign currency.
C) specifies time period.
D) represents an obligation to buy or sell.

Answer 2

D

Question 3

If the exchange rate between the U.S. dollar and the Euro is $1.20 per Euro and the annual rate of inflation is 5 percent in the United States and 10 percent in Europe, what will be U.S. dollar per Euro exchange rate in one year?

A) 0.7955
B) 1.145
C) 0.8730
D) 1.257

Answer 3

B

Question 4

The functional currency is the currency of the economic environment in which a business entity primarily generates and expends cash, and in which its accounts are maintained.

Question 5

The risk of an investment in a Eurodollar deposit is partially due to

A) the fact that these instruments only pay interest at maturity.
B) the fact that the center of the Eurodollar market is in London.
C) the presence of some foreign exchange risk.
D) the fact that the majority of these deposits are not in the form of U.S. dollars.

Question 6

If the exchange rate between the U.S. dollar and the Euro is $1.20 per Euro and the exchange rate between the U.S. dollar and the Japanese yet is 120 Yen per dollar, then what is the Euro per Yen exchange rate?

A) 144.00
B) 100.00
C) 0.0100
D) 0.0069

Question 7

All of the following are considered to be major or "hard" currencies EXCEPT

A) the Japanese yen.
B) the U.S. dollar.
C) the Mexican peso.
D) the British pound.

Question 8

Countries that experience high inflation rates will see their currencies decline in value relative to the currencies of countries with lower inflation rates.

Question 9

For currencies, changes in the value of foreign exchange rates are called .

A) floating; revaluation or devaluation
B) floating; appreciation
C) fixed; appreciation or depreciation
D) fixed; revaluation or devaluation

Question 10

When fewer units of a foreign currency are required to buy one euro, the currency is said to have with respect to the euro.

A) depreciated
B) consolidated
C) remained fixed
D) appreciated

Question 11

As a foreign exchange hedge, currency swaps have all of the following characteristics EXCEPT

A) principal amounts are reversed at the spot rate at maturity.
B) principal amounts are reversed at a pre- agreed rate at maturity.
C) an initial exchange by two parties of two principal amounts in two different currencies.
D) each party pays the other's interest payment.

Question 12

If the exchange rate between the U.S. dollar and the Euro is $1.20 per Euro and the annual rate of inflation is 5 percent in the United States and 10 percent in Europe, what will be U.S. dollar per Euro exchange rate in one year?

A) 1.257
B) 1.145
C) 0.8730
D) 0.7955

Question 13

Between two major currencies, the spot exchange rate is the rate and the forward exchange rate is the rate .

A) at some specified future date; today
B) on that date; at some specified future date
C) today; on that date
D) on that date; today

Question 14

The risk resulting from the effects of changes in foreign exchange rates on the firm's value is

A) macro political risk.
B) economic exposure.
C) accounting exposure.
D) micro political risk.

Question 15

In doing business in foreign countries, financing operations in the local market not only improves the company's business ties to the host community but also minimizes exchange rate risk.

Question 16

Foreign exchange risk refers to the risk created by .

A) the potential seizure of an MNC's operations in a host country.
B) the varying exchange rate between two currencies.
C) the potential nationalization of the MNC's operations by a host government.
D) the fixed exchange rate between two currencies.

Question 17

When more units of a foreign currency are required to buy one euro, the currency is said to have appreciated with respect to the euro.

Question 18

The forward exchange rate is the rate of exchange between two currencies on any given day.

Question 19

The risk resulting from the effects of changes in foreign exchange rates on the translated value of a firm's accounts denominated in a given foreign currency is

A) economic exposure.
B) accounting exposure.
C) micro political risk.
D) macro political risk.

Question 20

Three basic types of risk associated with international cash flows are 1) business and financial risks,2) inflation and foreign exchange risks, and 3) political risks.

Question 21

Hedging strategies are techniques used to offset or protect against risk; in the international context these include borrowing or lending in different currencies, undertaking contracts in the forward, futures, and/or options markets, and also swapping assets/liabilities with other parties.

Question 22

Although several economic and political factors can influence foreign exchange rate movements, by far the most important explanation for long- term changes in exchange rates is a differing inflation rate between two countries.

Question 23

When more units of a foreign currency are required to buy one euro, the currency is said to have appreciated with respect to the euro.

Question 24

The spot exchange rate is the rate of exchange between two currencies at some specified future date.

Question 25

In international trade when a U.S. company sells a product in France, the U.S. company experiences an exchange rate gain if the franc depreciates against the dollar before the U.S. exporter collects on its accounts receivable.

Question 26

Exchange rate risk hedging tools include forward contracts, options, interest rate swaps, currency swaps, and hybrid securities.

Question 27

Fluctuations in foreign exchange markets can affect foreign revenues and profits of a multinational company, but they have no impact on its overall value.

Question 28

Although several economic and political factors can influence foreign exchange rate movements, by far the most important explanation for long- term changes in exchange rates is fiscal policy that a country adopts.

Question 29

Economic exposure is the risk resulting from the effects of changes in foreign exchange rates on the firm's value.

Question 30

Exchange rate risk hedging tools include Monte Carlo swaps, synthetic insurance contracts, and inventory swaps.