Question 1

The Export-Import Bank (Eximbank)

Accepted Answer

A)   lends money to foreign purchasers of U.S. goods.
B)   issues letters of credit.
C)   makes parallel loans.
D)   makes fronting loans.E) B) and C)
F) A) and C)

Question 2

A joint venture with a private entrepreneur in a host country exposes the multinational corporation to the least amount of political risk.

Accepted Answer

A) True 
 B)False

Question 3

Eurobond issues are sold simultaneously in several national capital markets, but denominated in a currency different from that of the nation in which the bonds are issued.

Accepted Answer

A) True 
 B)False

Question 4

A form of multinational corporation (MNC)  that exposes the firm to the least amount of political risk, and is therefore the preferred arrangement by both business and foreign governments, is called

Accepted Answer

A)   an exporter.
B)   a licensing agreement.
C)   a joint venture.
D)   a fully owned foreign subsidiary.E) A) and B)
F) C) and D)

Question 5

When a country has a weak currency relative to other countries, visiting that country is much more expensive for people that don't live in that country.

Accepted Answer

A) True 
 B)False

Question 6

If prices double in New York while the prices in Germany remain the same, the purchasing power of the dollar relative to the euro

Accepted Answer

A)   should increase by 50%.
B)   should increase by 100%.
C)   should decrease by 50%.
D)   should decrease by 100%.E) B) and C)
F) A) and D)

Question 7

The International Finance Corporation (IFC)  is

Accepted Answer

A)   a unit of the World Bank charged with the responsibility of providing capital to multinational corporations and others involved in international trade.
B)   a regulatory agency for international trade.
C)   a private firm that provides accounts receivable financing to international firms.
D)   a foreign affiliate of 10 major U.S. banks.E) A) and B)
F) A) and C)

Question 8

A fully owned foreign subsidiary is a form of MNC (multinational corporation)  in which

Accepted Answer

A)   a local entrepreneur buys the firm in its own foreign country.
B)   the MNC owns and operates the firm by itself.
C)   the foreign government gives its full cooperation.
D)   none of these options are true.E) B) and C)
F) B) and D)

Question 9

When a bank issues a "letter of credit," the bank absorbs ALL of the credit risk of the exporter.

Accepted Answer

A) True 
 B)False

Question 10

While shopping in the Mexican market, you find that limes cost 11 pesos each. You remember that back in the U.S., they cost 80 cents each. If the purchasing power parity theory holds, the rate of exchange is

Accepted Answer

A)   13.75 pesos/dollar or 7.3 cents/peso.
B)   80 pesos/dollar or 1.25 cents/peso.
C)   7.3 pesos/dollar or 13.75 cents/peso.
D)   11 pesos/dollar or .80 cents/peso.E) B) and C)
F) All of the above

Question 11

Foreign exchange risk is the risk that a person or business will not be able to exchange currencies.

Accepted Answer

A) True 
 B)False

Question 12

A loan arrangement in which a parent company reduces its political risk by using an intermediary bank rather than a direct transfer of funds to a subsidiary is called a(n)

Accepted Answer

A)   parallel loan.
B)   Eximbank direct loan.
C)   fronting loan.
D)   Overseas Private Investment Corporation (OPI
C)  .E) A) and C)
F) A) and B)

Question 13

To minimize exposure to political risk, a multinational firm may:

Accepted Answer

A)   establish a joint venture with a local entrepreneur or a group of multinationals
B)   purchase an insurance policy from the Foreign Credit Insurance Association (FCI
A)  .
C)   hedge in the Eurodollar market.
D)   purchase an insurance policy from any foreign company within the area that the corporation is doing business.E) A) and B)
F) A) and C)

Question 14

In a free market, the exchange rate between two currencies is determined by the supply of and demand for those currencies with the influence of the central bank.

Accepted Answer

A) True 
 B)False

Question 15

Legal, political, and economic factors are most conducive to which form of multinational corporation (MNC)  organization?

Accepted Answer

A)   Exporter/importer
B)   Licensing agreements
C)   Joint ventures
D)   Fully owned foreign subsidiariesE) None of the above
F) A) and B)

Question 16

The interplay between interest rate differentials and exchange rates such that each adjusts until the foreign exchange market and the money market reach equilibrium is called the

Accepted Answer

A)   purchasing power parity theory.
B)   balance of payments.
C)   interest rate parity theory.
D)   multinational corporation.E) A) and B)
F) B) and D)

Question 17

Because of political risk, it is generally disadvantageous for U.S. firms to list their stocks on the world stock exchanges.

Accepted Answer

A) True 
 B)False

Question 18

For a U.S. company, foreign business operations are more complex because the

Accepted Answer

A)   host country's economy may be different from the domestic economy.
B)   rules of taxation are different.
C)   structure and operations of financial markets vary.
D)   all of these options are true.E) B) and C)
F) All of the above

Question 19

Which of the following hedging strategies involves a loan without a futures contract?

Accepted Answer

A)   The Eurobond market
B)   The forward exchange market
C)   The money market
D)   An International Money Market (IMM)  contractE) None of the above
F) B) and D)

Question 20

Which of the following groups is NOT subject to foreign exchange risk?

Accepted Answer

A)   Importers and exporters
B)   Investors
C)   Multinational corporations
D)   All of these options are subject to foreign exchange risk.E) C) and D)
F) B) and D)

Exam 21: International Financial Management

When a bank issues a "letter of credit," the bank absorbs ALL of the credit risk of the exporter.

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The interplay between interest rate differentials and exchange rates such that each adjusts until the foreign exchange market and the money market reach equilibrium is called the

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For a U.S. company, foreign business operations are more complex because the

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Legal, political, and economic factors are most conducive to which form of multinational corporation (MNC) organization?

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The International Finance Corporation (IFC) is

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To minimize exposure to political risk, a multinational firm may:

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A form of multinational corporation (MNC) that exposes the firm to the least amount of political risk, and is therefore the preferred arrangement by both business and foreign governments, is called

Correct AnswerverifiedShow Answer

While shopping in the Mexican market, you find that limes cost 11 pesos each. You remember that back in the U.S., they cost 80 cents each. If the purchasing power parity theory holds, the rate of exchange is

Correct AnswerverifiedShow Answer

A joint venture with a private entrepreneur in a host country exposes the multinational corporation to the least amount of political risk.

Correct AnswerverifiedShow Answer

A loan arrangement in which a parent company reduces its political risk by using an intermediary bank rather than a direct transfer of funds to a subsidiary is called a(n)

Correct AnswerverifiedShow Answer

Because of political risk, it is generally disadvantageous for U.S. firms to list their stocks on the world stock exchanges.

Correct AnswerverifiedShow Answer

If prices double in New York while the prices in Germany remain the same, the purchasing power of the dollar relative to the euro

Correct AnswerverifiedShow Answer

In a free market, the exchange rate between two currencies is determined by the supply of and demand for those currencies with the influence of the central bank.

Correct AnswerverifiedShow Answer

When a country has a weak currency relative to other countries, visiting that country is much more expensive for people that don't live in that country.

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Which of the following hedging strategies involves a loan without a futures contract?

Correct AnswerverifiedShow Answer

A fully owned foreign subsidiary is a form of MNC (multinational corporation) in which

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Foreign exchange risk is the risk that a person or business will not be able to exchange currencies.

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The Export-Import Bank (Eximbank)

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Which of the following groups is NOT subject to foreign exchange risk?

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Eurobond issues are sold simultaneously in several national capital markets, but denominated in a currency different from that of the nation in which the bonds are issued.

Correct AnswerverifiedShow Answer

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