Deck 21: International Financial Management

Question 1

While the production of goods and services has become globalized, American consumers only purchase domestic goods.

Answer 1

False

Question 2

Royal Dutch Shell is a transnational corporation.

Answer 2

True

Question 3

Stockholder wealth maximization is the stated goal for firms in all countries around the world.

Answer 3

False

Question 4

Country risk has no effect on a firm's cash flows.

Question 5

Cultural views shape business practices and people's attitudes toward business.

Question 6

Differences in legal systems and tax codes do not affect the way firms operate in foreign countries.

Question 7

When a U.S. bank in Chicago gives a quote of £0.5089/$, it is a direct quote.

Question 8

English is the world's social language.

Question 9

Japanese managers focus on maximizing market share rather than shareholder wealth.

Question 10

Legal systems can vary on simple matters, such as opening a business, selecting a site location, and hiring employees.

Question 11

A transnational corporation is a business firm that operates in more than one country but is headquartered or based in its home country.

Question 12

The production of goods and services has become highly globalized due to the emergence of large multinational companies.

Question 13

Tokyo is the largest foreign exchange trading center.

Question 14

Globalization refers to the removal of barriers to free trade and the closer integration of national economies.

Question 15

Integration of the financial system globally is a result of deregulation of foreign exchange markets, money and capital markets, and banking systems.

Question 16

English is the language for international business, but not the world's social language.

Question 17

European firms focus on maximizing market share rather than shareholder wealth.

Question 18

The foreign exchange market is a group of international markets connected electronically where currencies are bought and sold in wholesale amounts.

Question 19

Both China and the nations that formerly made up the Soviet Union are currently moving toward centrally planned economies.

Question 20

The European manager's goal is to earn as much wealth as possible for a firm while considering the overall welfare of both the stockholders and stakeholders.

Question 21

Economic benefits provided by the foreign exchange markets include

A) a mechanism to transfer purchasing power from individuals who deal in one currency to people who deal in a different currency.
B) a way for corporations to pass the risk associated with foreign exchange price fluctuations to professional risk-takers.
C) a channel for importers and exporters to acquire credit for international business transactions.
D) All of these

Question 22

Eurocredits refer to long-term loans of a Eurocurrency made to multinational corporations and governments of poor credit quality.

Question 23

To convert a project's future cash flows into another currency, we need to project or forecast the exchange rate.

Question 24

Eurodollars and other Eurocurrency bonds have characteristics that are identical to similar U.S corporate bonds.

Question 25

A Eurodollar is defined as a U.S. dollar deposited in a bank outside the United States.

Question 26

Most companies find it easier to estimate the incremental cash flows for foreign projects than for domestic projects.

Question 27

Which of the following statements about the goal of a firm is true?

A) Corporate wealth maximization is the accepted goal for firms in India.
B) Firms in Australia focus on maximizing corporate wealth.
C) The goal of a Japanese business manager is to increase the wealth and growth of the keiretsu.
D) Private-sector firms in China focus on providing full employment in the economy.

Question 28

Factors that can cause international business transactions to differ from domestic deals DO NOT include:

A) exchange rate risk, legal systems, and country risk.
B) legal systems, cultural factors, and economic systems.
C) Time value of money, expected returns procedures, and size of market.
D) economic systems, cultural factors, and country risk

Question 29

The decision to accept positive NPV international projects increases the value of a firm, and it should be consistent with maximizing stockholder wealth.

Question 30

Which of the following statements about the goal of a firm is true?

A) Stockholder value maximization is the accepted goal for firms in India.
B) Firms in Germany focus on maximizing corporate wealth.
C) The goal of a Japanese business manager is to increase the wealth and growth of the keiretsu.
D) All of these

Question 31

A directly quoted exchange rate is the amount of foreign currency exchanged for one dollar.

Question 32

American banks were encouraged by the US government to offer services overseas in order to act as engines of territorial and economic expansion.

Question 33

The bid quote is the rate at which the dealer will sell foreign currency.

Question 34

If a firm is located in a country with a relatively unstable political environment, management will require a lower rate of return on capital projects.

Question 35

In 2010, the three largest foreign exchange markets based on daily volume were:

A) London, New York, and Tokyo.
B) New York, Tokyo, and Zurich.
C) London, Tokyo, and Zurich.
D) London, New York, and Singapore.

Question 36

To convert a project's future cash flows into another currency, we need to use today's spot exchange rate.

Question 37

Which of the following statements about multinational firms is NOT true?

A) A multinational corporation is a business firm that operates in more than one country but is headquartered or based in its home country.
B) Multinational corporations are owned by domestic stockholders only.
C) Multinational corporations may purchase raw materials from one country, obtain financing from a capital market in another country, and produce finished goods with labor and capital equipment from a third country.
D) All of these

Question 38

Evidence of globalization include

A) consumers in many countries buy goods that are purchased from a number of countries, other than just their own.
B) goods and services are produced around the world.
C) a highly integrated the financial system.
D) All of these

Question 39

The major participants in the foreign exchange markets are

A) multinational commercial banks, large investment banking firms, and domestic firms.
B) multinational commercial banks, local banks and domestic firms.
C) multinational commercial banks, large investment banking firms, and small currency boutiques.
D) None of these

Question 40

Which of the following statements is true?

A) Equilibrium occurs at the price at which the quantity of the currency demanded exactly equals the quantity supplied.
B) When pounds become less expensive in relation to dollars, British products become less expensive for Americans to buy.
C) According to a British buyer, the lower the dollar price of pounds, the more pounds that have to be exchanged for dollars to buy foreign goods.
D) All of these

Question 41

Tantrix, Inc. purchased its inventory from an Indian manufacturer at a cost of Rs.5,325,000. The dollar cost of this payable is $125,634.07 at today's spot rate. What is the spot rate today?

A) $4.2385/Rs.
B) $42.3850/Rs.
C) Rs.42.3850/$
D) Rs.4.2385/$

Question 42

The difference between the forward rate and the spot rate is called the

A) cross exchange rate.
B) forward premium or forward discount.
C) indirect quote.
D) direct quote.

Question 43

If the spot rate is quoted as $0.009369/¥, what is the exchange rate in terms of yen per dollar? (Round your final answer to the four decimal places.)

A) ¥0.009369/$
B) ¥0.936900/$
C) ¥106.7350/$
D) ¥16.7350/$

Question 44

Given that the spot rate is $1.5136/€ and the 90-day forward quote is $1.4974/€, we can say that

A) the U.S. dollar is at a forward premium against the Euro.
B) the U.S. dollar is at a forward discount against the Euro.
C) the Euro is at a forward premium against the U.S. dollar.
D) the dollar is at neither a premium nor a discount against the Euro.

Question 45

Celio, Inc. sold equipment to a French firm and will receive €1,249,425 in 30 days. If the company entered a forward contract to sell the euros at the 30-day forward rate of $1.5512/€, what is revenue received in dollars? (Round your final answer to the nearest dollar.)

A) $1,249,425
B) $805,457
C) $1,938,108
D) $1,312,224

Question 46

A foreign exchange dealer is willing to buy the New Zealand dollar (NZ$) at $0.7621/NZ$ and will sell it at a rate of $0.7714/NZ$. What is the percentage bid-ask spread on the Danish krone? (Round your final answer to two decimal place places.)

A) 0.26%
B) 2.13%
C) 0.96%
D) 1.21%

Question 47

The bid quote represents the rate at which

A) the dealer will buy foreign currency from you.
B) the dealer will sell foreign currency to you.
C) the dealer will buy domestic currency from you.
D) the dealer will sell domestic currency to the exchange.

Question 48

Given that the spot rate is ¥106.74/$ and the 180-day forward quote is ¥100.37/$, we can say that

A) the U.S. dollar is at a forward premium against the Yen.
B) the Yen is at a forward premium against the U.S. dollar.
C) the Yen is at a forward discount against the U.S. dollar.
D) the U.S. dollar is at neither a premium nor a discount against the Yen.

Question 49

Starling Corp. purchased some components from a Mexican manufacturer. They have to pay 110 million Mexican Pesos for the goods today. The spot rate today is MP10.3540/$. What is the dollar cost of this payable? (Round your final answer to the nearest dollar.)

A) $110,000,000
B) $10,623,913
C) $11,110,235
D) $1,138,940,000

Question 50

Which of the following is an indirect quote from an American perspective?

A) £0.5125/$
B) $0.006900/¥
C) $1.5637/€
D) ¥115.23/€

Question 51

The ask quote represents the rate at which

A) the dealer will buy foreign currency from you.
B) the dealer will sell foreign currency to you.
C) the dealer will buy domestic currency from the exchange.
D) the dealer will sell domestic currency to you.

Question 52

A European quote is the same as

A) an American quote.
B) an indirect quote.
C) a bidding quote.
D) a cross quote.

Question 53

John Travers is planning a holiday to Thailand but is concerned that the U.S. dollar will depreciate before he makes his trip. His travel agent has planned a trip for him for a total cost of 41,250 Thai baht. John plans to purchase the bahts forward and is given a dollar estimate of $1,247.17 based on the 30-day forward quote. What is the forward rate?

A) THB41.2500/$
B) THB33.0749/$
C) $0.0242/THB
D) $1.2471/THB

Question 54

Venkat Ram purchased a pair of dress shoes in Italy for €131.25. If the spot exchange rate is $1.5621/€, what did the shoes cost in dollars? (Round your final answer to two decimal places.)

A) $205.03
B) $84.02
C) €131.25
D) €84.02

Question 55

Suppose a Tata Nano car is priced at Rs.100,000 in New Delhi and $3,129 in New York. In which place is the car more expensive if the spot rate is $0.0242/Rs.?

A) In New Delhi
B) In New York
C) It is same in both places.
D) It cannot be determined.

Question 56

Banco Herrero wants to make a bid-ask spread of 0.55 percent on its foreign exchange transactions. If the ask rate on the Mexican peso (MP) is MP10.4192/$, what does the bid rate have to be? (Do not round your intermediate calculation. Round your final answer to four decimal places.)

A) MP10.3619/$
B) MP10.4192/$
C) MP10.4249/$
D) MP10.2165/$

Question 57

A local bank has requested foreign exchange quotes for the Swedish krona from Citibank. Citibank quotes a bid rate of $0.1652/SK and an ask rate of $0.1667/SK. What is the percentage bid-ask spread? (Round your final percentage answer to one decimal place.)

A) 1.2%
B) 2.1%
C) 0.9%
D) 0.65%

Question 58

Baljit, Inc. purchased machinery from a Japanese firm and will have to pay ¥278.45 million in 90 days. The bank quotes a forward rate of ¥105.46/$ to buy the required yen. What is the cost to Baljit in U.S. dollars? (Round your final answer to the nearest dollar.)

A) $2,640,338
B) $2,784,500
C) $2,936,534
D) $2,714,300

Question 59

If the foreign exchange rate is the price in foreign currency for a dollar, then the exchange rate quote is called

A) an American quote.
B) an indirect quote.
C) a direct quote.
D) a cross quote.

Question 60

Bartman, Corp. observes that the Swiss franc (SF) is quoted at $0.6164/SF, while the Swedish krona (SK) is quoted at $0.1981/SK. What is the SK/SF cross rate? (Round your final answer to four decimal places.)

A) SK0.3214/SF
B) SK3.1116/SF
C) SK0.4183/SF
D) SK2.1467/SF

Question 61

Which of the following statements about Eurocredits is true?

A) The international banking system gathers funds from businesses and governments in the Eurocurrency market and then allocates funds to banks that have the most profitable lending opportunities.
B) Eurocredits are denominated in all major Eurocurrencies, although the dollar is the overwhelming favorite.
C) Eurocredits are short- to medium-term loans made to multinational corporations and governments of medium to high credit quality.
D) All of these

Question 62

The ways that a foreign government can adversely affect the risk of a foreign project include all of the following EXCEPT

A) change tax laws in a way that adversely impacts the firm.
B) impose laws related to labor, wages, and prices that are more restrictive than those applicable for domestic firms.
C) remove tariffs and quotas on any imports.
D) disallow any remittance of funds from the subsidiary to the parent firm for either a limited period of time or the duration of the project.

Question 63

Trident Corp. recently purchased machinery parts worth 23.5 million Mexican Pesos (MP). Management needs to know the U.S. dollar cost of the payables. It has access to two quotes for Canadian dollars (C$): C$1.0774/$ and C$0.0981/MP. What will it cost Trident to purchase 23.5 million Mexican pesos? (Do not round your intermediate calculations. Round your final answer to the nearest dollar.)

A) $2,531,890
B) $2,305,350
C) $2,139,735
D) $1,987,325

Question 64

The ways that a foreign government can affect the risk of a foreign project include

A) change tax laws in a way that adversely impacts the firm.
B) impose laws related to labor, wages, and prices that are more restrictive than those applicable for domestic firms.
C) disallow any remittance of funds from the subsidiary to the parent firm for either a limited period of time or the duration of the project.
D) All of these

Question 65

Bank of America quoted the 180-day forward rate on the Japanese yen at $0.009702/¥. The spot rate was quoted at $0.009466/¥. What is the forward premium or discount on the Japanese yen? (Round your final answer to the nearest percentage.)

A) 7% premium
B) 7% discount
C) 5% premium
D) 5% discount

Question 66

Country risk should be incorporated into an international capital budgeting analysis by

A) adjusting the firm's discount rate for the additional risk.
B) increasing cash flow estimates from the project.
C) including the country risk premium to sunk costs.
D) None of these

Question 67

When performing capital budgeting analysis on international projects, managers

A) find it more difficult to estimate the incremental cash flows for foreign projects.
B) have to deal with foreign exchange rate risk on international capital investments.
C) must incorporate a country risk premium when evaluating foreign business activities.
D) All of these

Question 68

Carrington Industries sold equipment to a Mexican firm. Payment of 41,275,000 pesos will be due in 30 days. Carrington has the option of selling the pesos at a 30-day forward rate of $0.09739/peso. If it waits 30 days to sell the pesos, the expected spot rate is $0.09596/peso. How much additional dollar revenue will Carrington gain by selling forward the pesos? (Round your final answer to the nearest dollar.)

A) $24,687
B) $83,838
C) $59,023
D) $31,278

Question 69

Kapona Industries has purchased equipment from a Korean firm for a total cost of 11,500,000 Korean won. The firm has to pay in 90 days. J. P. Morgan has given the firm a 90-day forward quote of $0.0009791/won. Assume that on the day the payment is due, the spot rate is at $0.001004/ won. How much would Kapona save by hedging with a forward contract? (Round your final answer to the nearest dollar.)

A) $687
B) $338
C) $152
D) $286

Question 70

Long-term debt sold by a foreign firm to investors in a foreign country and denominated in that country's currency is called a _____ .

A) Eurobond
B) municipal bond
C) foreign bond
D) currency bond

Question 71

The Euromarkets are

A) vast, largely unregulated money and capital markets existing in Tokyo, Hong Kong, and Singapore.
B) vast, regulated money and capital markets with major financial centers in the United Kingdom.
C) vast, regulated money and capital markets with major financial centers in the euro zone.
D) None of these

Question 72

Which of the following statements about Eurobonds is NOT true?

A) Multinational firms can use Eurobonds to finance international or domestic projects.
B) Eurobonds are bearer bonds.
C) Eurobonds have to be registered.
D) Eurobonds also pay interest annually.

Question 73

Xecor Pharma just received revenues of A$2,372,300 in Australian dollars (A$). The only quotes management received are A$2.0651/£ and $1.8538/£. What is the U.S. dollar value of the company's revenues? (Do not round your intermediate calculation. Round your final answer to the nearest dollar.)

A) $4,397,770
B) $4,899,037
C) $2,129,567
D) $9,081,834

Question 74

The spot rate on the London market was £0.5434/$, while the 90-day forward rate was £0.5519/$. What is the annualized forward premium or discount on the U.S. dollar for the period? (Round your final answer to one decimal place.)

A) 1.6% premium
B) 6.3% premium
C) 6.3% discount
D) 1.6% discount

Question 75

State Bank of India has offered a spot rate quote on Indian rupees (Rs.) of Rs. 42.47/$. The Indian rupee is quoted at a 30-day forward discount of 7.65 percent against the dollar. What is the 30-day forward quote?

A) Rs.43.5622/$
B) Rs.41.5687/$
C) Rs.45.1226/$
D) Rs.42.7407/$

Question 76

Tamcon Industries has purchased equipment from a Brazilian firm for a total cost of 1,272,500 Brazilian reals (BR). The firm has to pay in 30 days. Citicorp has given the firm a 30-day forward quote of $0.6123/BR. Assume that on the day the payment is due, the spot rate is at $0.6317/BR. How much would Tamcon save by hedging with a forward contract? (Round your final answer to the nearest dollar.)

A) $24,687
B) $803,838
C) $779,152
D) $31,278

Question 77

Long-term debt instruments sold by firms to investors in countries other than the country in whose currency the bonds are denominated are called _____.

A) Samurai bonds
B) Eurobonds
C) foreign bonds
D) currency bonds

Question 78

The Eurocurrency market is the

A) medium-term portion of the Euromarket.
B) short-term portion of the Euromarket.
C) long-term portion of the Euromarket.
D) None of these

Question 79

Dresdner Bank has offered the following exchange rate quotes on Indian rupees (Rs) Rs.83.7612/£ and $1.8654/£. What is the cross rate between the Indian rupees and the U.S. dollar?(Round your final answer to four decimal places)

A) Rs.44.9025/$
B) Rs.49.9375/$
C) Rs.51.2134/$
D) Rs.36,7122/$

Question 80

Palermo, Corp. sold equipment to a French firm. Payment of €4,275,000 will be due in 90 days. Palermo has the option of selling the euros at a 90-day forward rate of $1.5922/€. If it waits 90 days to sell the euros, the expected spot rate is $1.5645/€. How much dollar revenue will Palermo lose by not selling the euros forward? (Round your final answer to the nearest dollar.)

A) $124,687
B) $118,418
C) $159,023
D) $131,278