Question 1

Which of the following statements is not true about American Depositary Receipts (ADRs)?

Accepted Answer

Most ADRs actually trade on the over-the-counter market, not on the New York Stock Exchange.

Question 2

The Eurobond market has which of the following characteristics?

Accepted Answer

Eurobond markets typically have less stringent disclosure requirements compared to domestic markets like those in Canada. Eurobonds are not necessarily denominated in euros or the currency of the country where they are sold, and they are not underwritten by the European Central Bank.

Question 3

Assume that you had dollar quotes for the Japanese yen and the British pound.If you want to know the yen/pound exchange rate,you would rely on:

Accepted Answer

Cross rates are used to calculate the exchange rate between two currencies when those currencies are not directly quoted against each other. In this case, the Japanese yen and the British pound are not directly quoted against each other, so you would need to use cross rates to calculate their exchange rate.

Question 4

The CPA Canada Handbook recommends when a foreign operation is designated as integrated:

Accepted Answer

When a foreign operation is designated as integrated, its transactions should be captured as if they had been performed by the parent company. This is because the integrated foreign operation is considered to be an extension of the parent company and its activities are closely linked to the activities of the parent company. This approach provides a more accurate representation of the financial position and performance of the parent company as a whole. Options A, B, and C are not relevant to the designation of a foreign operation as integrated.

Question 5

Which of the following statements is true about international equity (stock)markets?

Accepted Answer

Some foreign investors may indeed prefer dividend income due to risk aversion, contrasting with others who might seek capital gains.

Question 6

Legal,political,and economic factors are most conducive to which form of multinational corporation (MNC)organization?

Accepted Answer

The answer of Legal,political,and economic factors are most conducive to...

Question 7

A firm exposed to exchange rate risk can hedge its risk by all of the following except:

Accepted Answer

Speculating in foreign currency would not hedge the exchange rate risk, but rather increase it as it involves taking a position on the future direction of exchange rates. A firm can hedge its exchange rate risk by using the forward exchange market, where it can lock in a future exchange rate, borrowing in international markets denominated in the same currency as the expected revenue, or utilizing foreign currency futures markets to buy or sell currency at a fixed price in the future.

Question 8

As exchange rates change,they:

Accepted Answer

As exchange rates change, the relative value of one currency to another will change, which affects the purchasing power between countries. For example, if the exchange rate of US dollars and Japanese yen changes from 1 USD = 110 JPY to 1 USD = 100 JPY, then the purchasing power of the US dollar has increased in Japan while the purchasing power of the Japanese yen has decreased in the US. This can potentially affect trade and investment decisions between the two countries. Option A is incorrect because a change in exchange rates can increase translation exposure as well as reduce it depending on the circumstances. Option B is incorrect because exchange rates can affect imports and exports as they can affect the cost of goods and services in different currencies. Option C is incorrect because exchange rates can affect the flow of funds between countries in terms of investment decisions and currency conversions.

Question 9

In a parallel loan arrangement:

Accepted Answer

In a parallel loan arrangement, the parent firms lend to each other's affiliates in their respective currencies. Therefore, the Canadian parent firm lends dollars to the Dutch affiliate while the Dutch parent lends euros to the Canadian affiliate. This minimizes foreign exchange risk for both parties as the loans are in the currencies in which the affiliates operate. Choice A is incorrect because the currencies are lent in the wrong direction. Choice C is incorrect because the Canadian parent cannot lend euros as it operates in dollars. Choice D is also incorrect as the parent firms do not lend funds to each other directly.

Question 10

If in 2012,the Canadian dollar's exchange rate with the Sudanese dinar was .0069 dollars per dinar and in 2015,the exchange rate was .0062 dollars per dinar,it would indicate that in the period from 2012 to 2015,the dollar:

Accepted Answer

The answer of If in 2012,the Canadian dollar's exchange rate...

Question 11

For a Canadian company,foreign business operations are more complex because the:

Accepted Answer

The structure and operations of financial markets may be different in the host country compared to Canada, which can make foreign business operations more complex. This can include differences in regulations, accounting practices, and financial reporting requirements, among other factors. It is important for Canadian companies to navigate these differences in order to successfully operate in foreign markets.

Question 12

The lower borrowing costs in the Eurocurrency market as compared to Canada are often attributed to:

Accepted Answer

The lower borrowing costs in the Eurocurrency market are often attributed to smaller overhead costs and the absence of reserve requirements abroad. These factors allow Eurocurrency lenders to offer lower interest rates compared to domestic lenders. Factors such as inflation and money growth also contribute to interest rates, but in this case, the absence of regulatory costs plays a more significant role.

Question 13

Which of the following kinds of risk are NOT uniquely associated with MNCs?

Accepted Answer

Business risk is not uniquely associated with MNCs as it is a general risk that any business can face, such as market demand, competition, and technology changes. The other options are uniquely associated with MNCs as exchange rate risk refers to fluctuations in currency values, political risk relates to changes in governmental policies or instability in a foreign country, and translation risk involves converting financial statements from one currency to another.

Question 14

A particular country's pattern of exporting more than is being imported is likely to:

Accepted Answer

When a country exports more than it imports, it creates a higher demand for its currency as foreign buyers need to purchase the country's currency to pay for the exports. This can lead to an appreciation of the country's currency, which may depress other countries' currencies relative to it.

Question 15

When Country A's currency strengthens against Country B's,citizens of Country A will:

Accepted Answer

When Country A's currency strengthens against Country B's, it effectively means that citizens of Country A can buy more of Country B's currency for less. This means that when citizens of Country A want to buy products made in Country B, they will need to pay less of their own currency to acquire the necessary amount of Country B's currency to make the purchase. As a result, they will pay less overall to buy Country B's products.

Question 16

In the Eurobond market:

Accepted Answer

The Eurobond market refers to securities that are denominated in a currency that is different from that of the nation in which the bonds are issued. This allows issuers to tap into a global investor base and diversify their funding sources. Interest rates and disclosure requirements can vary depending on the specific issuance. The British pound is not necessarily the most important currency in the Eurobond market.

Question 17

The belief that shifts in exchange rates result from increasing or decreasing demand for a country's exports (or the corresponding opposite movements in supply of a country's imports)form the basis for the:

Accepted Answer

The belief that shifts in exchange rates result from increasing or decreasing demand for a country's exports (or the corresponding opposite movements in supply of a country's imports) forms the basis for the balance of payments theory of exchange rates, which asserts that a country's current account and capital account balances, which represent its exports and imports, are the main drivers of exchange rate movements.

Question 18

Considerations in a global cash management system include all of the following except:

Accepted Answer

Obtaining insurance against political risks is not a direct consideration in a global cash management system, which focuses more on cash allocation, centralization, and estimating cash needs.

Question 19

Eurocurrency are:

Accepted Answer

Eurocurrency refers to any currency deposited in banks outside its home market. Canadian dollars deposited in foreign banks fit this definition.

Question 20

The International Finance Corporation (IFC)is:

Accepted Answer

The International Finance Corporation (IFC) is a member of the World Bank Group and its primary role is to provide financing to private sector businesses in developing countries. Its focus is on supporting sustainable economic growth and poverty reduction by providing capital, advice, and technical assistance to businesses that operate in emerging markets.

Quiz 21: International Financial Management

Which of the following statements is not true about American Depositary Receipts (ADRs) ?