Question 1

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

Accepted Answer

The risk of local management is not directly related to international cash flows, but rather to the management of a specific project or subsidiary in a foreign country. The other options listed (business and financial risks, inflation and foreign exchange risks, and political risks) are all common risks associated with international cash flows.

Question 2

A multi-national corporation (MNC) can give some protection to international cash flows by reducing its liabilities if the currency is appreciating, or by reducing its financial assets if the currency is depreciating.

Accepted Answer

By reducing liabilities in an appreciating currency, the MNC can save money on interest payments. Similarly, by reducing financial assets in a depreciating currency, the MNC can minimize losses due to currency fluctuations.

Question 3

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

Accepted Answer

The spot exchange rate is the rate at which currencies are exchanged on the current date, while the forward exchange rate is agreed upon today for a transaction that will occur at a specified future date.

Question 4

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?

Accepted Answer

The exchange rate adjusts according to the relative inflation rates. The formula is: New Exchange Rate = Old Exchange Rate * (1 + Inflation Rate in Foreign Country) / (1 + Inflation Rate in Home Country). Applying this: 1.20 * (1 + 0.10) / (1 + 0.05) = 1.145.

Question 5

The foreign direct investment (FDI) is a multi-national corporation's transfer of capital, managerial, and technical assets from a host country to its home country.

Accepted Answer

The statement is incorrect. FDI involves the transfer of capital, managerial, and technical assets from a home country to a host country.

Question 6

For foreign bonds, interest rates are usually not directly correlated with the domestic rates prevailing in the respective countries.

Accepted Answer

The answer of For foreign bonds, interest rates are usually...

Question 7

An international bond that is sold primarily in countries other than the country of the currency in which the issue is denominated is called

Accepted Answer

A Eurobond is an international bond that is issued in a currency not native to the country where it is issued.

Question 8

Because of their access to the international bond and equity markets, MNCs may have lower costs of various sources of long-term financing, thus resulting in differences between the capital structures of these firms and those of purely domestic companies.

Accepted Answer

MNCs have access to a wider pool of investors and funding sources, often at lower costs, due to their global reach and reputation. This can lead to differences in their capital structure compared to purely domestic companies, which may not have such access to global markets.

Question 9

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

Accepted Answer

In a fixed exchange rate system, changes in the value of a currency are referred to as revaluation (increase in value) or devaluation (decrease in value) because the government or central bank sets and maintains the exchange rate.

Question 10

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

Accepted Answer

Economic exposure is the risk of an organization's future cash flows being influenced by changes in exchange rates. This risk may arise due to changes in exchange rates between a company's domestic currency and the foreign currency in which it does business, or changes in the exchange rate between two foreign currencies. Economic exposure can affect a company's long-term competitiveness and the value of its cash flows.

Question 11

Comprehensive rules, regulations, and incentives aimed at regulating the inflow of direct foreign investments involving MNCs and at extracting more benefits from their presence are termed

Accepted Answer

National entry control systems are designed to regulate foreign direct investments by multinational corporations (MNCs) and ensure that the host country benefits from their presence through rules, regulations, and incentives.

Question 12

All of the following are positive approaches of coping with political risk EXCEPT

Accepted Answer

License or patent restrictions under international agreement is not a positive approach of coping with political risk as it limits the company's ability to control intellectual property and may hinder future growth opportunities. The other choices, such as using locals in management, joint ventures with local banks, and local sourcing, are positive approaches as they allow for greater understanding and acceptance of local business practices and cultures, and can help mitigate political risk by building relationships and trust with local stakeholders.

Question 13

In general, an international bond is one that is initially sold in the country of the borrower and, then, often distributed in several countries.

Accepted Answer

An international bond is typically issued in a country different from the one in which the borrower resides, and it is often distributed in multiple countries from the outset.

Question 14

Macro political risk and micro political risk in international business refer to the risk

Accepted Answer

Macro political risk affects all foreign firms operating in a country, while micro political risk affects specific firms or industries.

Question 15

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?

Accepted Answer

To find the Euro per Yen exchange rate, we need to divide the Euro per dollar exchange rate by the Yen per dollar exchange rate.

Euro per Yen = Euro per dollar / Yen per dollar
Euro per Yen = (1 Euro / $1.20) / (120 Yen / $1)
Euro per Yen = 0.0083 Euros / Yen

Therefore, the Euro per Yen exchange rate is 0.0083, which is equivalent to 0.0069 rounded to four decimal places. The answer is C.

Question 16

The transfer by a multinational firm of capital, managerial, and technical assets from its home country to a host country is termed

Accepted Answer

The transfer of capital, managerial, and technical assets from a multinational firm's home country to a host country is known as Foreign Direct Investment (FDI). MNC (A) refers to a multinational corporation, while SDI (B) refers to a Social Development Index. CAPM (D) stands for the Capital Asset Pricing Model, which is used to determine an asset's expected return based on its risk.

Question 17

A political risk that might affect all foreign firms in a host country is termed a ________ risk; a political risk that might affect only an individual firm or specific industry in a host country is termed a ________ risk.

Accepted Answer

A macro political risk is a risk that affects all foreign firms in a host country, such as changes in government policies, political instability, or changes in the legal system. On the other hand, a micro political risk is a risk that affects only an individual firm or specific industry in a host country, such as changes in regulations or taxes specific to that industry. Therefore, the best answer is A, as it correctly identifies the types of political risk based on their impact.

Question 18

Foreign exchange risk refers to the risk created by

Accepted Answer

Foreign exchange risk is the risk created by the varying exchange rate between two currencies. This risk arises when a company conducts international business transactions, and is exposed to fluctuations in exchange rates that can affect the value of their assets, liabilities, cash flows, and profits. The risk can be managed through various techniques, such as hedging, diversification, and currency swaps. The other choices refer to different types of risks, such as political risk and expropriation risk, which are also important for MNCs to consider when doing business abroad.

Question 19

Foreign bond is an international bond that is sold primarily in countries other than the country of the currency in which the issue is denominated.

Accepted Answer

The answer of Foreign bond is an international bond that...

Question 20

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

Accepted Answer

This scenario describes accounting exposure, which is the risk that arises from changes in exchange rates affecting the value of a company's financial statements prepared in a foreign currency. Economic exposure refers to the risk of changes in exchange rates affecting a company's future cash flows, while macro and micro political risks refer to the impact of political events or instability on a company's operations in a foreign country.

Quiz 19: International Managerial Finance