Chap 15 - Chapter 15 InternationalCash Management 1 The...

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Chap 15

1 .   The Mexican one - year interest rate is 27 percent , while the U.S. one - year interest rate is 9 percent . If a U.S. firm creates a one - year deposit in Mexico , the Mexican peso would have to _______ against the U.S. dollar by _______ in order to make that investment have an effective yield that is achievable in the U.S.
A ) appreciate ; 18 %
B ) depreciate ; 36 %
C ) depreciate ; 14 %
D ) appreciate ; 14 %
E ) depreciate ; 8.5 %
Answer:  D )   appreciate ; 14 %
2 .   Assume that Subsidiaries “ X ” and “ Y ” often trade with each other . Assume that Subsidiary “ X ” has excess cash while Subsidiary “ Y ” is short on cash . How can Subsidiary “ X ” help out Subsidiary “ Y ” ?
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3 .   Netting can achieve all but one of the following :
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4 .   Which of the following is true ?
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5 .   According to the text :
A ) banks in most non -U.S. countries are as capable as the U.S. in facilitating cash transfers and most other cash management operations for MNCs .
B ) banks in most non -U.S. countries are more advanced than the U.S. in facilitating cash transfers for MNCs .
C ) an MNC with subsidiaries in several different countries has no problems in coordinating its cash transfers since a uniform global banking system exists .
D ) none of the above
6 .   In what is known as dynamic hedging , banks periodically hedge those currencies expected to move unfavorably and remove currencies that are expected to move favorably .
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7 .   Assume the U.S. one - year interest rate is 11 % and the French one - year interest rate is 18 % . The break - even level of depreciation in the euro at which the U.S. and French investments would exhibit the same return to a U.S. investor is :
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8 .   Assume that a U.S. investor invests in a British CD offering a six - month interest rate of 5 % . Over this six - month period , the pound depreciates by 9 % . The effective yield on the British CD for the U.S. investor is :
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9 .   Assume that there are several foreign currencies that exhibit a higher interest rate than the U.S. interest rate . The U.S. firm has a higher probability of generating a higher effective yield on a portfolio of currencies ( relative to the domestic yield ) if :
A ) the foreign currency movements against the U.S. dollar are highly correlated .
B ) the foreign currency movements against the U.S. dollar are perfectly positively correlated .
C ) the foreign currency movements against the U.S. dollar exhibit low correlations .
D ) none of the answers above would have any impact on the probability of a foreign cash investment generating a higher effective yield than a U.S. investment .
Answer:  C )   the foreign currency movements against the U.S. dollar exhibit low correlations .
10 .   If the international Fisher effect ( IFE ) exists , then a U.S. firm that has access to banks offering high interest rates in deposits denominated in foreign currencies should :
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11 .   The most useful measure of an MNC ’s liquidity is its :
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12 .   Generally , if interest rate parity holds and the forward rate is an unbiased predictor of the future spot rate , then the international Fisher effect will also hold .
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13 .   According to the international Fisher effect :
A ) exchange rates adjust to compensate for income differentials between countries .
B ) interest rates adjust to compensate for income differentials between countries .
C ) exchange rates adjust to compensate for interest rate differentials between countries .
D ) exchange rates adjust to compensate for risk differentials between countries .
Answer:  C )   exchange rates adjust to compensate for interest rate differentials between countries .
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Financial Accounting: The Impact on Decision Makers
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Chapter 13 / Exercise 1
Financial Accounting: The Impact on Decision Makers
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Chapter 15International Cash Management1.The Mexican one-year interest rate is 27 percent, while the U.S. one-year interest rate is 9percent. If a U.S. firm creates a one-year deposit in Mexico, the Mexican peso would have to_______ against the U.S. dollar by _______ in order to make that investment have an effectiveyield that is achievable in the U.S.A)appreciate; 18% B)depreciate; 36%C)depreciate; 14% D)appreciate; 14% E)depreciate; 8.5% ANSWER: SOLUTION:1.09/1.27 – 1 = -14.2%
C
2.Assume that Subsidiaries “X” and “Y” often trade with each other. Assume that Subsidiary“X” has excess cash while Subsidiary “Y” is short on cash. How can Subsidiary “X” help outSubsidiary “Y”?
D 3.Netting can achieve all but one of the following:
D
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Financial Accounting: The Impact on Decision Makers
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Chapter 13 / Exercise 1
Financial Accounting: The Impact on Decision Makers
Norton/Porter
Expert Verified
31International Corporate Finance4.Which of the following is true?
C 5.According to the text:A)banks in most non-U.S. countries are as capable as the U.S. in facilitating cash transfers andmost other cash management operations for MNCs.B)banks in most non-U.S. countries are more advanced than the U.S. in facilitating cashtransfers for MNCs.C)an MNC with subsidiaries in several different countries has no problems in coordinating itscash transfers since a uniform global banking system exists.D)none of the aboveANSWER:
D 6.In what is known as dynamic hedging, banks periodically hedge those currencies expected tomove unfavorably and remove currencies that are expected to move favorably.
B7.Assume the U.S. one-year interest rate is 11% and the French one-year interest rate is 18%. The break-even level of depreciation in the euro at which the U.S. and French investmentswould exhibit the same return to a U.S. investor is:
D

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