Question 1

Argenteuil S.A. has been offered a one year loan of £100,000 at 14%, payable at maturity. What is the effective British pound interest rate on Argenteuil's loan?

Accepted Answer

The effective interest rate is simply the nominal rate in this case, as the interest is payable at maturity with no compounding within the year, making it 14.0%.

Question 2

Suppose that a firm located in Russia can borrow euros at 8% or rubbles at 14%. Which of the following is correct? If the rubble is expected to depreciate from R58 = €1 at the beginning of the year to R61 = €1 at the end of the year, then the expected euro cost of the Russian rubble loan is

Accepted Answer

1.14 × 58 / 61 - 1 = 8.39%

Question 3

Referring to the previous question, at what end-of-year exchange rate will the euro costs of borrowing Russian rubbles or euros be equal?

Accepted Answer

1.14 / 1.08 × 58 = 61.2

Question 4

Suppose that A sells $1 million monthly to subsidiary B and $1.5 monthly to subsidiary C, B sells $2.2 million monthly to A and $100,000 monthly to C, and C sells $600,000 monthly to A and $500,000 to B. Which of the following is correct? Bilateral netting will reduce intercompany payment flows by ?????, whereas multilateral netting will reduce these flows by ?????.

Accepted Answer

The answer of Suppose that A sells $1 million monthly...

Question 5

Which of the following is correct? In international trade, the role of the Organization for Economic Cooperation and Development is to

Accepted Answer

The Organization for Economic Cooperation and Development (OECD) plays a role in setting the interest rates on officially supported export credits. This is part of its broader mission to promote policies that will improve the economic and social well-being of people around the world. The OECD does not guarantee exports, mediate in cross-border trade disputes, or determine international trade tariffs directly.

Question 6

The Organization for Economic Coordination and Development (OECD) has been instrumental in fighting perceived abuses by national export-credit agencies. Which of the following is correct? One area that the OECD has targeted is

Accepted Answer

The OECD targets all of these areas - maximum repayment terms, concessionary interest rates, and minimum premium rates - as part of its efforts to combat perceived abuses by national export-credit agencies.

Question 7

Which of the following is correct? COFACE, the French official exports agency treats export credits

Accepted Answer

COFACE assesses export credits based on individual country risk ratings, meaning it evaluates the risk of each country individually rather than treating all countries the same or making distinctions based solely on OECD membership.

Question 8

Which of the following is NOT an advantage to the importer of documentary credit financing?

Accepted Answer

All the options listed (A, B, C, D) describe advantages of using documentary credit from the perspective of the importer, such as experienced document inspection, the credit's value, improved credit terms or prices, and potential cost benefits compared to other financing methods.

Question 9

Which of the following documentary credits is safest for the exporter?

Accepted Answer

An irrevocable, confirmed documentary credit is the safest for the exporter because it cannot be changed or cancelled without the agreement of all parties, including the exporter. Additionally, the confirmation by a second bank (usually in the exporter's country) provides an extra layer of security, guaranteeing payment even if the issuing bank or the buyer defaults.

Question 10

Samsung sells electronics to a French firm. In return, the French firm's bank, Credit Agricole, acknowledges it will pay Samsung after the items are delivered to its client. Which of the following is correct? Samsung has most probably used

Accepted Answer

Documentary credit is a payment method in which a bank acts as an intermediary between a buyer and a seller. The bank guarantees that the buyer will pay the seller once the goods have been delivered. This is a common method of payment in international trade, as it reduces the risk for both the buyer and the seller.

Question 11

Which of the following is correct? Many multinationals are now making small investments in frontier markets. These investments

Accepted Answer

The answer of Which of the following is correct? Many...

Question 12

MetalWorks has to decide whether to reopen its Patagonian gold mine, which has 5000 ounces of gold that can be mined, which will take one year. The cost of reopening the mine is $2 million and the variable cost of extraction is $900/oz. The current gold price is $1,200/oz. but could be $1,600/oz. or $800/oz. in one year's time with equal probability. The company requires a return of 16% on its investment. Which of the following should MetalWorks do?

Accepted Answer

-2,000,000 + ( 0.5 × (1,600 - 900) × 5000 ) / 1.16 = - 491,379

Question 13

Which one of the following was NOT a long-term strategy used by Japanese television manufacturers when entering the U.S. market?

Accepted Answer

Japanese television manufacturers did not primarily use labor and scale advantages as a long-term strategy when entering the U.S. market. Instead, they focused on quality, innovation, researching new designs, building reliability, and establishing strong brands and distribution networks.

Question 14

Assume the standard deviation of the U.S. market portfolio is 18.2%, the standard deviation of the non U.S. portion of the world portfolio is 17.1%, and the correlation between the U.S. and non U.S. market portfolios is .47. Suppose you invest 40% of your money in the U.S. stock market and the other 60% in the non U.S. portfolio. What is the standard deviation of your portfolio?

Accepted Answer

( (18.2)²(.40)² + (17.1)²(.60)² + 2(.47)(18.2)(.40)(17.1)(.60) )^½ = 15.1%

Question 15

Which of the following is correct? The existence of offshore finance subsidiaries can be attributed primarily to

Accepted Answer

Offshore finance subsidiaries are often established to take advantage of favorable tax treatments, such as avoiding withholding taxes on dividends and interest, which were historically imposed by tax authorities on foreign investors.

Quiz 6: Managing Working Capital and International Trade Management