International Financial Management 9th Edition
,MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
answers the question.
8
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1) What major dimension sets apart international finance from domestic finance?
m8 m8 m8 m8 m8 m8 m8 m8 m8
A) Foreign exchange and political risks m8 m8 m8 m8
B) Market imperfections m8
C) Expanded opportunity set m8 m8
D) all of the optionsm8 m8 m8
2) An example(s) of a political risk is
m8 m8 m8 m8 m8 m8
A) expropriation of assets. m8 m8
B) adverse change in tax rules. m8 m8 m8 m8
C) the opposition party being elected.
m8 m8 m8 m8
D) both the expropriation of assets and adverse changes in tax rules are correct.
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
3) Production of goods and services has become globalized to a large extent as a result of
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
A) natural resources being depleted in one country after another.
m8 m8 m8 m8 m8 m8 m8 m8
B) skilled labor being highly mobile. m8 m8 m8 m8
C) multinational corporations' efforts to source inputs and locate production m8 m8 m8 m8 m8 m8 m8 m8
m8 anywherewhere costs are lower and profits higher.
8
m m8 m8 m8 m8 m8 m8
D) common tastes worldwide for the same goods and services. m8 m8 m8 m8 m8 m8 m8 m8
4) Recently, financial markets have become highly integrated. This development
m8 m8 m8 m8 m8 m8 m8 m8
International Financial Management 9th Edition
, A) allows investors to diversify their portfolios internationally.
m8 m8 m8 m8 m8 m8
B) allows minority investors to buy and sell stocks.
m8 m8 m8 m8 m8 m8 m8
C) has increased the cost of capital for firms.
m8 m8 m8 m8 m8 m8 m8
D) none of the options m8 m8 m8
5) Japan has experienced large trade surpluses. Japanese investors have responded to this by
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
A) liquidating their positions in stocks to buy dollar-denominated bonds. m8 m8 m8 m8 m8 m8 m8 m8
B) investing heavily in U.S. and other foreign financial markets. m8 m8 m8 m8 m8 m8 m8 m8
C) lobbying the U.S. government to depreciate its currency. m8 m8 m8 m8 m8 m8 m8
D) lobbying the Japanese government to allow the yen to appreciate.
m8 m8 m8 m8 m8 m8 m8 m8 m8
6) Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate is
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
$1.25 = €1.00. One year later the exchange rate is the same, but the Italian government has
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
m8 expropriated your firm's assets paying only €80,000 in compensation. This is an example
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
of
m8
A) exchange rate risk. m8 m8
B) political risk. m8
C) market imperfections. m8
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
International Financial Management 9th Edition
, 7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2.
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
m8 One year later, the stock rises to £60. You are happy with your 20 percent return on the stock,
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
m8 but when you sell the stock and exchange your £60 for dollars, you only get $45 since the pound
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
has fallen to £1 = $0.75. This loss of value is an example of
8
m m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
A) exchange rate risk. m8 m8
B) political risk. m8
C) market imperfections. m8
D) weakness in the dollar. m8 m8 m8
8) Suppose that Great Britain is a major export market for your firm, a U.S.-based MNC.
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
m8 Ifthe British pound depreciates against the U.S. dollar,
8
m m8 m8 m8 m8 m8 m8 m8
A) your firm will be able to charge more in dollar terms while keeping pound prices
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
stable
.
B) your firm may be priced out of the U.K. market, to the extent that your dollar costs
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
stay constant and your pound prices will rise.
m8 m8 m8 m8 m8 m8 m8
C) to protect U.K. market share, your firm may have to cut the dollar price of your goods
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
to keep the pound price the same.
8
m m8 m8 m8 m8 m8 m8
D) your firm may be priced out of the U.K. market, to the extent that your dollar costs
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
m8 stay constant and your pound prices will rise, and to protect U.K. market share, your firm
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
m8 mayhave to cut the dollar price of your goods to keep the pound price the same.
8
m m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
9) Suppose Mexico is a major export market for your U.S.-based company and the
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
m8 Mexicanpeso appreciates drastically against the U.S. dollar. This means
8
m m8 m8 m8 m8 m8 m8 m8 m8
International Financial Management 9th Edition
,MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
answers the question.
8
m m8 m8
1) What major dimension sets apart international finance from domestic finance?
m8 m8 m8 m8 m8 m8 m8 m8 m8
A) Foreign exchange and political risks m8 m8 m8 m8
B) Market imperfections m8
C) Expanded opportunity set m8 m8
D) all of the optionsm8 m8 m8
2) An example(s) of a political risk is
m8 m8 m8 m8 m8 m8
A) expropriation of assets. m8 m8
B) adverse change in tax rules. m8 m8 m8 m8
C) the opposition party being elected.
m8 m8 m8 m8
D) both the expropriation of assets and adverse changes in tax rules are correct.
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
3) Production of goods and services has become globalized to a large extent as a result of
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
A) natural resources being depleted in one country after another.
m8 m8 m8 m8 m8 m8 m8 m8
B) skilled labor being highly mobile. m8 m8 m8 m8
C) multinational corporations' efforts to source inputs and locate production m8 m8 m8 m8 m8 m8 m8 m8
m8 anywherewhere costs are lower and profits higher.
8
m m8 m8 m8 m8 m8 m8
D) common tastes worldwide for the same goods and services. m8 m8 m8 m8 m8 m8 m8 m8
4) Recently, financial markets have become highly integrated. This development
m8 m8 m8 m8 m8 m8 m8 m8
International Financial Management 9th Edition
, A) allows investors to diversify their portfolios internationally.
m8 m8 m8 m8 m8 m8
B) allows minority investors to buy and sell stocks.
m8 m8 m8 m8 m8 m8 m8
C) has increased the cost of capital for firms.
m8 m8 m8 m8 m8 m8 m8
D) none of the options m8 m8 m8
5) Japan has experienced large trade surpluses. Japanese investors have responded to this by
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
A) liquidating their positions in stocks to buy dollar-denominated bonds. m8 m8 m8 m8 m8 m8 m8 m8
B) investing heavily in U.S. and other foreign financial markets. m8 m8 m8 m8 m8 m8 m8 m8
C) lobbying the U.S. government to depreciate its currency. m8 m8 m8 m8 m8 m8 m8
D) lobbying the Japanese government to allow the yen to appreciate.
m8 m8 m8 m8 m8 m8 m8 m8 m8
6) Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate is
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
$1.25 = €1.00. One year later the exchange rate is the same, but the Italian government has
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
m8 expropriated your firm's assets paying only €80,000 in compensation. This is an example
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
of
m8
A) exchange rate risk. m8 m8
B) political risk. m8
C) market imperfections. m8
D) none of the options, since $100,000 = €80,000 × $1.25/€1.00.
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
International Financial Management 9th Edition
, 7) Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2.
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
m8 One year later, the stock rises to £60. You are happy with your 20 percent return on the stock,
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
m8 but when you sell the stock and exchange your £60 for dollars, you only get $45 since the pound
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
has fallen to £1 = $0.75. This loss of value is an example of
8
m m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
A) exchange rate risk. m8 m8
B) political risk. m8
C) market imperfections. m8
D) weakness in the dollar. m8 m8 m8
8) Suppose that Great Britain is a major export market for your firm, a U.S.-based MNC.
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
m8 Ifthe British pound depreciates against the U.S. dollar,
8
m m8 m8 m8 m8 m8 m8 m8
A) your firm will be able to charge more in dollar terms while keeping pound prices
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
stable
.
B) your firm may be priced out of the U.K. market, to the extent that your dollar costs
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
stay constant and your pound prices will rise.
m8 m8 m8 m8 m8 m8 m8
C) to protect U.K. market share, your firm may have to cut the dollar price of your goods
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
to keep the pound price the same.
8
m m8 m8 m8 m8 m8 m8
D) your firm may be priced out of the U.K. market, to the extent that your dollar costs
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
m8 stay constant and your pound prices will rise, and to protect U.K. market share, your firm
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
m8 mayhave to cut the dollar price of your goods to keep the pound price the same.
8
m m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
9) Suppose Mexico is a major export market for your U.S.-based company and the
m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8 m8
m8 Mexicanpeso appreciates drastically against the U.S. dollar. This means
8
m m8 m8 m8 m8 m8 m8 m8 m8
International Financial Management 9th Edition
