Deck 21: International Financial Management

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

English is the world's social language.

Question 5

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 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

Differences in legal systems and tax codes have no impact on the way firms operate in foreign countries.

Question 18

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

Question 19

Royal Dutch Shell is a transnational corporation.

Question 20

Tokyo is the largest foreign exchange trading center.

Question 21

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 22

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

Question 23

Eurodollar and other Eurocurrency bonds have all characteristics identical to similar U.S corporate bonds.

Question 24

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

Question 25

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 26

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 greater the number of pounds that must be given up to obtain dollars to buy foreign goods.
D) All of these

Question 27

To convert a project's future cash flows into another currency, we need to come up with projected or forecast exchange rates.

Question 28

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 29

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 30

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 31

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

Question 32

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 33

Factors that can cause international business transactions to differ from domestic deals include all EXCEPT

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 34

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

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

Question 35

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 36

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

Question 37

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

Question 38

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

Question 39

Long-term loans of a Eurocurrency made to multinational corporations and governments of poor credit quality are called Eurocredits.

Question 40

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) the financial system has also become highly integrated.
D) All of these

Question 41

Bartman, Corp. observes that the Swiss franc (SF) is being 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 42

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 43

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

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

Question 44

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 45

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 46

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 47

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 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 48

A European quote is the same as

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

Question 49

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 bid-ask spread on the Danish krone? (Round your final percentage answer to two decimal place places.)

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

Question 50

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 51

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 52

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 53

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 54

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 55

John Travers is planning a holiday to Thailand but is concerned that the U.S. dollar will decline in value 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 56

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 the dollar revenue received? (Round your final answer to the nearest dollar.)

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

Question 57

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 58

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 59

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 60

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 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

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 get 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 63

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 64

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 65

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 66

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 67

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 68

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 69

Country risk should be incorporated into the 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 70

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 71

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 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 are bonds that have to be registered.
D) Eurobonds also pay interest annually.

Question 73

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 74

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 forward the euros? (Round your final answer to the nearest dollar.)

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

Question 75

The ways that a foreign government can adversely affect the risk of a foreign project include all 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 76

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 77

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 78

Zylex Corporation's German unit is looking to borrow €4.5 million from Deutsche Bank. Deutsche Bank quotes a rate of three-month LIBOR plus 0.5 percent for the 90-day loan. Currently, the three-month LIBOR is 4.175 percent. If the exchange rate on the payoff date is €0.8334/$, what is the dollar cost of the loan? (Round your final answer to two decimal places.)

A) $63,107.45
B) $126,214.90
C) $39,143.76
D) $56,357.99

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

Trident Corp. recently purchased machinery parts worth 23.5 million Mexican Pesos (MP). Management needs to find out 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