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Exam 17: Multinational Financial Management

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Question 21

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If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market,then the forward currency is said to be selling at a discount to the spot rate.

A) True
B) False

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Question 22

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A foreign currency will,on average,depreciate against the U.S.dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States.

A) True
B) False

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Question 23

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Credit policy for multinational firms is generally more risky due in part to the additional consideration of exchange rates and also due to uncertainty regarding the credit worthiness of many foreign customers.

In Japan,90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return.In the United States,90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%.All securities are of equal risk,and Japanese securities are denominated in terms of the Japanese yen.Assuming that interest rate parity holds in all markets,which of the following statements is most CORRECT?

Suppose one U.S.dollar can purchase 144 yen today in the foreign exchange market.If the yen depreciates by 8.0% tomorrow,how many yen could one U.S.dollar buy tomorrow?

Exchange rate quotations consist solely of direct quotations.

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

Suppose Yates Inc. ,a U.S.exporter,sold a consignment of antique American muscle-cars to a Japanese customer at a price of 143.5 million yen,when the exchange rate was 140 yen per dollar.In order to close the sale,Yates agreed to make the bill payable in yen,thus agreeing to take some exchange rate risk for the transaction.The terms were net 6 months.If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid,what dollar amount would Yates actually receive after it exchanged yen for U.S.dollars?

If the inflation rate in the United States is greater than the inflation rate in Britain,other things held constant,the British pound will

When the value of the U.S.dollar appreciates against another country's currency,we may purchase more of the foreign currency with a dollar.

Suppose that 1 British pound currently equals 1.62 U.S.dollars and 1 U.S.dollar equals 1.62 Swiss francs.What is the cross exchange rate between the pound and the franc?

Because political risk is seldom negotiable,it cannot be explicitly addressed in multinational corporate financial analysis.

The threat of expropriation creates an incentive for the multinational firm to minimize inventory holdings in certain countries and to bring in goods only as needed.

If 1.64 Canadian dollars can purchase one U.S.dollar,how many U.S.dollars can you purchase for one Canadian dollar?

If the United States is running a deficit trade balance with China,then in a free market we would expect the value of the Chinese yuan to depreciate against the U.S.dollar.

Suppose 90-day investments in Britain have a 6% annualized return and a 1.5% quarterly (90-day) return.In the U.S. ,90-day investments of similar risk have a 4% annualized return and a 1% quarterly (90-day) return.In the 90-day forward market,1 British pound equals $1.65.If interest rate parity holds,what is the spot exchange rate?

Which of the following statements is NOT CORRECT?

Exchange rate risk is the risk that the cash flows from a foreign project,when converted to the parent company's currency,will be worth less than was originally projected because of exchange rate changes.

The United States and most other major industrialized nations currently operate under a system of floating exchange rates.

Which of the following is NOT a reason why companies move into international operations?