Question 1

If one U.S. dollar buys 1.64 Canadian, how many U.S. dollars can you purchase for one Canadian dollar?

Accepted Answer

To find out how many U.S. dollars you can purchase with one Canadian dollar, you need to take the reciprocal of the exchange rate. That means 1/1.64 = 0.61 U.S. dollars per Canadian dollar. Therefore, the answer is C.

Question 2

In 1985, a particular Japanese imported automobile sold for 1,476,000 yen or $8,200. If the car still sells for the same amount of yen today but the current exchange rate is 144 yen per dollar, what is the car selling for today in U.S. dollars?

Accepted Answer

1,476,000 yen / 144 yen per dollar = $10,250

Question 3

In Japan, 90-day securities have a 4 percent annualized return and 180-day securities have a 5 percent annualized return. In the United States, 90- day securities have a 4 percent annualized return and 180-day securities have an annualized return of 4.5 percent. All securities are of equal risk. Japanese securities are denominated in terms of the Japanese yen. Assuming that interest rate parity holds in all markets, which of the following statements is most correct?

Accepted Answer

The answer of In Japan, 90-day securities have a 4...

Question 4

A year ago, MC Hammer Company had inventory in Britain valued at 240,000 pounds. The exchange rate for dollars to pounds was 1£ = 2 U.S. dollars. This year the exchange rate is 1£ = 1.82 U.S. dollars. The inventory in Britain is still valued at 240,000 pounds. What is the gain or loss in inventory value in U.S. dollars as a result of the change in exchange rates?

Accepted Answer

First, we need to convert the value of inventory in pounds to U.S. dollars using the old exchange rate: 
240,000 pounds x 2 dollars/pound = $480,000 
Then, we need to convert the value using the new exchange rate: 
240,000 pounds x 1.82 dollars/pound = $436,800 
The difference between the two values is: 
$480,000 - $436,800 = $43,200 
Therefore, the gain or loss in inventory value in U.S. dollars as a result of the change in exchange rates is a loss of $43,200.

Question 5

Suppose that 144 yen could be purchased in the foreign exchange market for one U.S. dollars today. If the yen is expected to depreciate by 8 percent tomorrow, how many yen could one U.S. dollar buy tomorrow?

Accepted Answer

If the yen depreciates by 8%, it means the value of the yen decreases, allowing more yen to be bought with one U.S. dollar. 144 yen * (1 + 0.08) = 155.52 yen, which rounds to 155.5 yen.

Question 6

Suppose exchange rates between U.S. dollars and Swiss francs is SF 1.41 = $1.00 and the exchange rate between the U.S. dollar and the euro is $1.00 = 1.64 euros. What is the cross-rate of Swiss francs to euros?

Accepted Answer

To find the cross-rate of Swiss francs to euros, first convert 1 Swiss franc to U.S. dollars: 1 SF = 1/1.41 USD. Then convert that amount to euros using the USD to euro rate: (1/1.41) USD * 1.64 euros/USD = 1.64/1.41 euros. Simplifying gives approximately 0.86 euros per Swiss franc.

Question 7

The cash flows relevant for the analysis of a foreign investment should, from the parent company's perspective, include the financial cash flows that the subsidiary can legally send back to the parent company and the cash flows which must remain in the foreign country.

Accepted Answer

The answer of The cash flows relevant for the analysis...

Question 8

Which of the following statements is false?

Accepted Answer

The term Eurobond does not apply only to foreign bonds denominated in U.S. currency. In fact, the term Eurobond refers specifically to bonds denominated in a currency other than that of the country in which they are issued.

Question 9

If the inflation rate in the United States is greater than the inflation rate in Sweden, other things held constant, the Swedish currency will

Accepted Answer

If the inflation rate in the United States is greater than the inflation rate in Sweden, the value of the U.S. dollar will decrease relative to the Swedish krona. Therefore, the Swedish currency will appreciate against the U.S. dollar.

Question 10

Which of the following are reasons why companies move into international operations?

Accepted Answer

All of the reasons listed can be valid motivations for companies to move into international operations. By taking advantage of lower production costs in regions of inexpensive labor, a company can increase their profitability. Developing new markets for finished products allows for growth and expansion of the company's customer base. Better serving primary customers can enhance customer satisfaction and loyalty. Accessing important raw materials abroad can ensure a company's supply chain is not disrupted and they have a competitive advantage.

Question 11

Solartech Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, Solartech agreed to make the bill payable in yen, thus agreeing to take on exchange rate risk for the transaction. The terms were net 6 months. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would Solartech actually receive after it exchanged yen for U.S. dollars?

Accepted Answer

To find the dollar amount Solartech would receive, divide the yen amount by the new exchange rate: 143,500,000 yen / 154.4 yen per dollar = $929,404.

Question 12

Multinational financial management requires that

Accepted Answer

Multinational financial management requires consideration of both the effects of changing currency values and legal and economic differences in financial decisions. Political risk cannot be excluded from multinational corporate financial analyses as it can have a significant impact on financial outcomes. Therefore, only options a and b are correct.

Question 13

If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss francs can one U.S. dollar buy?

Accepted Answer

If one Swiss franc can purchase $0.71 U.S. dollars, then to find out how many Swiss francs can one U.S. dollar buy, we need to take the reciprocal of the exchange rate. 
Reciprocal of 0.71 = 1.41
Therefore, one U.S. dollar can buy 1.41 Swiss francs.

Question 14

The interest rate paid on Eurodollar deposits depends on the particular bank's lending rate and on rates of return available on U.S. money market instruments.

Accepted Answer

The interest rate paid on Eurodollar deposits is influenced by the bank's lending rate and the rates of return on U.S. money market instruments.

Question 15

The cost of capital may be different for a foreign project than for an equivalent domestic project because foreign projects may be more or less risky.

Accepted Answer

The cost of capital for a foreign project depends on various factors, including political risk, exchange rate risk, and regulatory risk, which may increase or decrease the overall risk of the project compared to a domestic project. Therefore, the cost of capital may be different for a foreign project.

Question 16

One British pound can purchase 1.82 U.S. dollars today in the foreign exchange market and currency forecasters predict that the U.S. dollar will depreciate by 12 percent against the pound over the next 30 days. How many dollars will a pound buy in 30 days?

Accepted Answer

1 British pound can currently buy 1.82 U.S. dollars. If the U.S. dollar depreciates by 12%, it will be worth 0.88 times its current value (100% - 12% = 88%). Therefore, in 30 days, 1 British pound can purchase 1.82 x 0.88 = 1.6016 U.S. dollars. Rounded to the nearest cent, this is 2.04 U.S. dollars. So, the answer is D.

Question 17

If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.97 shekels per dollar, then the forward rate for the Israeli shekel is selling at a ________________ to the spot rate.

Accepted Answer

The answer of If the spot rate of the Israeli...

Question 18

Currently, 1 British pound equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62 Swiss francs. What is the cross exchange rate between the pound and the franc?

Accepted Answer

To find the cross exchange rate, we need to multiply the exchange rate of pounds to dollars with the exchange rate of dollars to francs. Therefore, 1 British pound equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62 Swiss francs, so 1 British pound equals 1.62 x 1.62 Swiss francs. Simplifying the calculation, we get 1 British pound equals 2.6244 Swiss francs (rounded to four decimal places).

Question 19

A foreign investor who holds tax exempt Eurobonds paying 9 percent interest is considering investing in an equivalent risk domestic bond in a country with a 28 percent withholding tax on interest paid to foreigners. If 9 percent after-tax is the investor's required return, what before-tax rate would the domestic bond need to pay to provide that after-tax return?

Accepted Answer

To achieve a 9% after-tax return with a 28% withholding tax, the before-tax rate must be 9% / (1 - 0.28) = 12.50%.

Question 20

When considering the risk of foreign investment, higher risk could arise from exchange rate risk and political risk while lower risk might result from international diversification.

Accepted Answer

This statement is true. Exchange rate risk can lead to fluctuations in the value of an investment due to changes in exchange rates, while political risk refers to the potential for a government or other political factor to negatively impact an investment. International diversification can help to mitigate these risks by spreading investments across different countries and currencies.

Quiz 27: Multinational Financial Management