CHAPTER 17: MULTINATIONAL FINANCIAL MANAGEMENT
m mm m m
1. Multinationalm financialmmanagementm requiresm thatmfinancialm analystsm considerm them effectsm ofm changingm currencym values
.
a. True
b. False
ANSWER:mm True
2. Legalmandmeconomicmdifferencesmamongmcountries,m althoughmimportant,mdom NOTm posemsignificantmproblemsmformmo
stm multinationalm corporationsm when m they m coordinate m and m controlm worldwide m operationsm and m subsidiaries.
a. True
b. False
ANSWER:mm False
3. When m themvaluemofm themU.S.m dollarm appreciatesm againstm anothermcountry'sm currency,m wemmaym purchasem morem ofm
them foreign m currency m with m them U.S.m dollar.
a. True
b. False
ANSWER:mm True
4. ThemUnitedmStatesmand mmostmothermmajormindustrializedmnationsmcurrentlymoperatemundermamsystemmofmfloatingmexchan
gem rates.
a. True
b. False
ANSWER:mm True
5. Exchange m ratem quotationsm consistm solely m of m directm quotations.
a. True
b. False
ANSWER:mm False
6. Calculatingmamcurrencymcrossmrateminvolvesmdeterminingmthemexchangemratemformtwo mcurrenciesmby musingmamthi
rd m currency m asm am base.
a. True
b. False
ANSWER:mm True
7. AmEurodollarmismamU.S.mdollarmdeposited min mambank moutside mthemUnited mStates.
a. True
b. False
ANSWER:mm True
©m2015 mCengagemLearning. mAllmRights mReserved. mMay mnotmbemscanned, mcopied mor mduplicated, mor mposted mto mampublicly maccessiblemwebsite, min mwholemor mi
n mpart.
,Chapterm17:mmMultinationalmFinancialmManagement
8. LIBORmism an m acronymm formLondonm InterbankmOffermRate,m whichm ismanm averagem ofminterestm ratesm offeredm bym Lon
don m banksmto msmallermU.S.mcorporationsmon mallmdeposits.
a. True
b. False
ANSWER:mm False
9. Exchangemratemriskmismthemriskmthatmthemcashmflowsmfrommamforeignmproject,mwhenmconvertedmto mthemparentmcompa
ny'sm currency,m willm bem worth m lessm than m wasm originally m projected m because m of m exchange m ratem changes.
a. True
b. False
ANSWER:mm True
10. Becausempoliticalmriskmismseldommnegotiable,mitmcannotmbemexplicitlymaddressedminmmultinationalmcorporatemfinanci
alm analysis.
a. True
b. False
ANSWER:mm False
11. Individualsm andm corporationsm canmbuym orm sellm forwardm currenciesm tom hedgemtheirm exchangem ratemexposure.m Essential
ly,m themprocessminvolvesmsimultaneouslymsellingmthemcurrencymexpectedm tomappreciatemin mvaluemandmbuyingmthem cur
rency m expected m to m depreciate.
a. True
b. False
ANSWER:mm False
12. If man minvestormcanmobtainmmorem ofmamforeignmcurrencymformamdollarmin mthemforwardmmarketmthan minmthemspotmmarket,
mthen m the mforward mcurrency mismsaid mto mbe msellingmatma mdiscountmto mthe mspotmrate.
a. True
b. False
ANSWER:mm True
13. If mamdollarmwillmbuymfewermunitsmofmamforeign mcurrency minmthemforward mmarketmthanmin mthemspotmmarket,mthenmthemfor
ward m currency mismsaid mto mbemsellingmatmampremium mto mthemspotmrate.
a. True
b. False
ANSWER:mm True
14. Amforeign mcurrency mwill,monm average,m depreciatemagainstm themU.S.mdollarm atm ampercentagem ratem approximatelymequa
lm to m themamountmby mwhich mitsminflation mratemexceedsmthatmof mthemUnited mStates.
a. True
b. False
ANSWER:mm True
©m2015 mCengagemLearning. mAllmRights mReserved. mMay mnotmbemscanned, mcopied mor mduplicated, mor mposted mto mampublicly maccessiblemwebsite, min mwholemor mi
n mpart.
, Chapterm17:mmMultinationalmFinancialmManagement
15. Themcashm flowsmrelevantm form amforeignm investmentm should,mfromm themparentm company'sm perspective,m includemthemfinan
cialm cashmflowsmthatmthemsubsidiarymcanmlegallymsendmback mtomthemparentmcompanymplusmthemcash mflowsmthatmmustmre
main min m them foreign m country.
a. True
b. False
ANSWER:mm False
16. Themcostmofmcapitalmmaymbemdifferentmformamforeignmprojectmthanmformanmequivalentmdomesticmprojectmbecausemforei
gn m projectsmmay mbemmoremormlessmrisky.
a. True
b. False
ANSWER:mm True
17. When mconsideringmthemrisk mofmamforeignminvestment,mamhighermriskmmightmarisemfrommexchangemratemriskmandmpoliticalmr
isk m whilemlowermrisk mmightmresultmfromminternationalmdiversification.
a. True
b. False
ANSWER:mm True
18. Which mof mthemfollowingmaremreasonsmwhy mcompaniesmmoveminto minternationalmoperations?
a. To mtakemadvantage mof mlowermproduction mcostsmin mregionsmwhere mlabormcostsmaremrelatively mlow.
b. To m develop mnewm marketsm form them firm'sm products.
c. To m betterm servem theirm primary m customers.
d. Because m importantm rawm materialsm arem located m abroad.
e. Allmof mthemabove.
ANSWER:mm e
19. Multinationalm financialm managementm requiresm that
a. themeffectsm of m changingm currency mvaluesm bem included m in mfinancialm analyses.
b. legalm andm economicm differencesm need mnotm bem consideredm inm financialm decisionsmbecausem thesem differencesm
arem insignificant.
c. politicalmrisk mshould mbemexcluded mfrommmultinationalmcorporate mfinancialmanalyses.
d. traditionalm U.S.m andmEuropeanmfinancialm modelsm incorporatingm them existencem ofm am competitivem marketplacem n
otm bemrecastmwhen manalyzingmprojectsmin mothermpartsmof mthemworld.
e. culturalm differencesm need m notm bem accounted m form when m consideringm firmm goalsm and m employee m management.
ANSWER:mm a
©m2015 mCengagemLearning. mAllmRights mReserved. mMay mnotmbemscanned, mcopied mor mduplicated, mor mposted mto mampublicly maccessiblemwebsite, min mwholemor mi
n mpart.
m mm m m
1. Multinationalm financialmmanagementm requiresm thatmfinancialm analystsm considerm them effectsm ofm changingm currencym values
.
a. True
b. False
ANSWER:mm True
2. Legalmandmeconomicmdifferencesmamongmcountries,m althoughmimportant,mdom NOTm posemsignificantmproblemsmformmo
stm multinationalm corporationsm when m they m coordinate m and m controlm worldwide m operationsm and m subsidiaries.
a. True
b. False
ANSWER:mm False
3. When m themvaluemofm themU.S.m dollarm appreciatesm againstm anothermcountry'sm currency,m wemmaym purchasem morem ofm
them foreign m currency m with m them U.S.m dollar.
a. True
b. False
ANSWER:mm True
4. ThemUnitedmStatesmand mmostmothermmajormindustrializedmnationsmcurrentlymoperatemundermamsystemmofmfloatingmexchan
gem rates.
a. True
b. False
ANSWER:mm True
5. Exchange m ratem quotationsm consistm solely m of m directm quotations.
a. True
b. False
ANSWER:mm False
6. Calculatingmamcurrencymcrossmrateminvolvesmdeterminingmthemexchangemratemformtwo mcurrenciesmby musingmamthi
rd m currency m asm am base.
a. True
b. False
ANSWER:mm True
7. AmEurodollarmismamU.S.mdollarmdeposited min mambank moutside mthemUnited mStates.
a. True
b. False
ANSWER:mm True
©m2015 mCengagemLearning. mAllmRights mReserved. mMay mnotmbemscanned, mcopied mor mduplicated, mor mposted mto mampublicly maccessiblemwebsite, min mwholemor mi
n mpart.
,Chapterm17:mmMultinationalmFinancialmManagement
8. LIBORmism an m acronymm formLondonm InterbankmOffermRate,m whichm ismanm averagem ofminterestm ratesm offeredm bym Lon
don m banksmto msmallermU.S.mcorporationsmon mallmdeposits.
a. True
b. False
ANSWER:mm False
9. Exchangemratemriskmismthemriskmthatmthemcashmflowsmfrommamforeignmproject,mwhenmconvertedmto mthemparentmcompa
ny'sm currency,m willm bem worth m lessm than m wasm originally m projected m because m of m exchange m ratem changes.
a. True
b. False
ANSWER:mm True
10. Becausempoliticalmriskmismseldommnegotiable,mitmcannotmbemexplicitlymaddressedminmmultinationalmcorporatemfinanci
alm analysis.
a. True
b. False
ANSWER:mm False
11. Individualsm andm corporationsm canmbuym orm sellm forwardm currenciesm tom hedgemtheirm exchangem ratemexposure.m Essential
ly,m themprocessminvolvesmsimultaneouslymsellingmthemcurrencymexpectedm tomappreciatemin mvaluemandmbuyingmthem cur
rency m expected m to m depreciate.
a. True
b. False
ANSWER:mm False
12. If man minvestormcanmobtainmmorem ofmamforeignmcurrencymformamdollarmin mthemforwardmmarketmthan minmthemspotmmarket,
mthen m the mforward mcurrency mismsaid mto mbe msellingmatma mdiscountmto mthe mspotmrate.
a. True
b. False
ANSWER:mm True
13. If mamdollarmwillmbuymfewermunitsmofmamforeign mcurrency minmthemforward mmarketmthanmin mthemspotmmarket,mthenmthemfor
ward m currency mismsaid mto mbemsellingmatmampremium mto mthemspotmrate.
a. True
b. False
ANSWER:mm True
14. Amforeign mcurrency mwill,monm average,m depreciatemagainstm themU.S.mdollarm atm ampercentagem ratem approximatelymequa
lm to m themamountmby mwhich mitsminflation mratemexceedsmthatmof mthemUnited mStates.
a. True
b. False
ANSWER:mm True
©m2015 mCengagemLearning. mAllmRights mReserved. mMay mnotmbemscanned, mcopied mor mduplicated, mor mposted mto mampublicly maccessiblemwebsite, min mwholemor mi
n mpart.
, Chapterm17:mmMultinationalmFinancialmManagement
15. Themcashm flowsmrelevantm form amforeignm investmentm should,mfromm themparentm company'sm perspective,m includemthemfinan
cialm cashmflowsmthatmthemsubsidiarymcanmlegallymsendmback mtomthemparentmcompanymplusmthemcash mflowsmthatmmustmre
main min m them foreign m country.
a. True
b. False
ANSWER:mm False
16. Themcostmofmcapitalmmaymbemdifferentmformamforeignmprojectmthanmformanmequivalentmdomesticmprojectmbecausemforei
gn m projectsmmay mbemmoremormlessmrisky.
a. True
b. False
ANSWER:mm True
17. When mconsideringmthemrisk mofmamforeignminvestment,mamhighermriskmmightmarisemfrommexchangemratemriskmandmpoliticalmr
isk m whilemlowermrisk mmightmresultmfromminternationalmdiversification.
a. True
b. False
ANSWER:mm True
18. Which mof mthemfollowingmaremreasonsmwhy mcompaniesmmoveminto minternationalmoperations?
a. To mtakemadvantage mof mlowermproduction mcostsmin mregionsmwhere mlabormcostsmaremrelatively mlow.
b. To m develop mnewm marketsm form them firm'sm products.
c. To m betterm servem theirm primary m customers.
d. Because m importantm rawm materialsm arem located m abroad.
e. Allmof mthemabove.
ANSWER:mm e
19. Multinationalm financialm managementm requiresm that
a. themeffectsm of m changingm currency mvaluesm bem included m in mfinancialm analyses.
b. legalm andm economicm differencesm need mnotm bem consideredm inm financialm decisionsmbecausem thesem differencesm
arem insignificant.
c. politicalmrisk mshould mbemexcluded mfrommmultinationalmcorporate mfinancialmanalyses.
d. traditionalm U.S.m andmEuropeanmfinancialm modelsm incorporatingm them existencem ofm am competitivem marketplacem n
otm bemrecastmwhen manalyzingmprojectsmin mothermpartsmof mthemworld.
e. culturalm differencesm need m notm bem accounted m form when m consideringm firmm goalsm and m employee m management.
ANSWER:mm a
©m2015 mCengagemLearning. mAllmRights mReserved. mMay mnotmbemscanned, mcopied mor mduplicated, mor mposted mto mampublicly maccessiblemwebsite, min mwholemor mi
n mpart.
