Question 1

For a Eurodollar bond, the interest rate will reflect several different rates, most notably the U.S. long-term rate, the Eurodollar rate, and long-term rates in other countries.

Accepted Answer

The interest rate for a Eurodollar bond is affected by various factors, including the US long-term rate, the Eurodollar rate, and other countries' long-term rates, making the statement true.

Question 2

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 the currencies can be exchanged on that date, whereas the forward exchange rate is the rate at which the currencies can be exchanged at some specified future date. Therefore, the correct option is D: on that date, for the spot exchange rate, and at some specified future date, for the forward exchange rate.

Question 3

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

Accepted Answer

The foreign direct investment (FDI) is a multi-national corporation's transfer of capital, managerial, and technical assets from its home country to a foreign country, not the other way around.

Question 4

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

Accepted Answer

FDI, or foreign direct investment, refers to the transfer of capital, managerial, and technical assets by a multinational firm from its home country to a foreign country. An MNC, or multinational corporation, refers to a corporation that has operations in multiple countries. An SDI, or strategic direct investment, is not a commonly used term in international business. CAPM, or Capital Asset Pricing Model, is a financial model used to determine the expected return on an investment based on its level of risk. It is not directly related to the transfer of assets by multinational firms. Therefore, the best choice is C) an FDI.

Question 5

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 adjustment can be calculated considering the inflation rates in both regions. If the U.S. has a lower inflation rate (5%) compared to Europe (10%), the value of the Euro in terms of dollars will increase because the Euro is depreciating faster due to higher inflation. The new exchange rate can be calculated as $1.20 * (1 + 10%) / (1 + 5%) = $1.20 * 1.10 / 1.05 = $1.257.

Question 6

Foreign exchange risk refers to the risk created by ________.

Accepted Answer

Foreign exchange risk refers to the potential financial losses that may arise due to fluctuations in the value of one currency against another currency. This risk arises when transactions, operations or investments are made in a foreign currency. Therefore, the varying exchange rate between two currencies creates foreign exchange risk for MNCs. The other options (A, C, and D) relate to other types of risks that MNCs may face.

Question 7

Because of their access to the international bond and equity markets, MNCs may have lower long-term financing costs, 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 range of financing options, including the international bond and equity markets, which may result in lower long-term financing costs compared to domestic firms. This can lead to differences in the capital structures of these firms.

Question 8

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 9

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

Accepted Answer

Macro political risk refers to political actions in a host country that will affect all foreign firms, such as changes in trade policies or political instability. Micro political risk, on the other hand, refers to political actions that will affect a particular firm or industry, such as targeted regulations or localized disputes.

Question 10

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 as ________.

Accepted Answer

The 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 called national entry control systems. These systems are implemented by governments to control and monitor the entry of foreign businesses into their markets. They are put in place to ensure that MNCs comply with local laws and regulations, contribute to the local economy, and promote technology transfer and employment opportunities for local communities. Unitary tax laws refer to a tax system where multinational corporations are taxed based on their global profits, while Eurocurrency markets refer to a financial market where foreign currencies are deposited outside their country of origin. Foreign direct investments are investments made by a company in a foreign country.

Question 11

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 is referring to the risk stemming from changes in forex rates impact on the translated value of a firm's accounts in a foreign currency. This is known as accounting exposure.

Question 12

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 political risk that affects all foreign firms in a host country, such as a change in government or war, is a macro political risk. A political risk that affects only a specific firm or industry, such as a change in regulations or expropriation of assets, is a micro political risk.

Question 13

Fixed relationship among currencies refers to ________.

Accepted Answer

Fixed relationship among currencies refers to the constant relationship of a currency to one of the major currencies, a combination of major currencies, or some type of international foreign exchange standard. This means that the exchange rate between two currencies is set at a fixed rate and does not fluctuate with market forces. This is in contrast to a floating exchange rate where the value of a currency is determined by supply and demand in the market.

Question 14

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

Accepted Answer

Economic exposure refers to the risk resulting from changes in foreign exchange rates on the value of a firm. Accounting exposure relates to the impact of currency fluctuations on a company's financial statements, while macro and micro political risks refer to broader political risks faced by a company at both the national and international levels.

Question 15

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

Accepted Answer

An international bond is one that is issued in a country different from the one in which the issuer is headquartered. It is sold in the country where it is issued as well as in other countries.

Question 16

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 yen is 120 Yen per dollar, then what is the Euro per Yen exchange rate?

Accepted Answer

1 Euro = 1.20 USD1 USD = 120 YenTherefore, 1 Euro = 1.20 USD * 120 Yen/USD = 144 Yen

Question 17

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 18

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

MNCs can use liability reduction to protect against currency appreciation and asset reduction to protect against currency depreciation. By reducing liabilities in a foreign currency that is appreciating, the MNC can decrease the amount of funds it owes in that currency. Similarly, by reducing financial assets held in a depreciating currency, the MNC can avoid losses due to the depreciation. These strategies help protect the MNC's international cash flows from unfavorable currency fluctuations.

Question 19

The potential risk of a host government's implementation of specific rules and regulations that can result in the discontinuity or seizure of the operations of a foreign company is called ________.

Accepted Answer

Political risk refers to the potential for disruption or discontinuity of operations due to political factors such as changes in rules and regulations, political instability, expropriation of assets, etc.

Question 20

Which of the following is a positive approach of coping with political risk?

Accepted Answer

Joint venture with government or local private sector is a positive approach for coping with political risk because it allows for mutual benefit and shared risks, as well as access to local knowledge and connections. The other options (control of transportation, downstream processing, and license/patent restrictions) may provide some protection against political risk, but they do not necessarily address the underlying issues and may limit flexibility and opportunities for growth.

Quiz 19: International Managerial Finance