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CHAPTER 27 MULTINATIONAL FINANCIAL MANAGEMENT (Difficulty: E = Easy, M = Medium, and T = Tough) True-False Easy: (27.2) Multinational financial management Answer: a Diff: E 1 . Multinational financial management requires that financial analyses consider the effects of changing currency values. a. True b. False (27.2) Multinational financial management Answer: b Diff: E 2 . Legal and economic differences among countries, although important, do not pose significant problems for most multinational corporations when they coordinate and control worldwide operations of subsidiaries. a. True b. False (27.2) Political risk Answer: b Diff: E 3 . Because political risk is seldom negotiable, it cannot be explicitly addressed in multinational corporate financial analysis. a. True b. False (27.3) Exchange rates Answer: b Diff: E 4 . Exchange rate quotations consist solely of direct quotations. a. True b. False (27.3) Cross rates Answer: a Diff: E 5 . Calculating a currency cross-rate involves determining the exchange rate for two currencies by using a third currency as a base. a. True b. False (27.5) Floating exchange rates Answer: a Diff: E 6 . The United States and most other major industrialized nations currently operate under a system of floating exchange rates. a. True b. False Chapter 27: Multinational Financial Management Page 1
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Answer: a Diff: E 7 . Exchange rate risk is the risk that the cash flows from a foreign project will be worth less than those same cash flows denominated in the parent company's home currency. a. True b. False (27.5) Currency appreciation Answer: a Diff: E 8 . When the value of the U.S. dollar appreciates against another country's currency, we may purchase more of the foreign currency per dollar. a. True b. False (27.5) Trade deficit and depreciation Answer: b Diff: E 9 . If the United States is running a deficit trade balance with Great Britain, we would expect the value of the British pound to depreciate against the U.S. dollar. a. True b. False (27.10) LIBOR Answer: b Diff: E 10 . LIBOR is an acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to U.S. corporations. a. True b. False (27.10) Eurodollars Answer: a Diff: E 11 . A Eurodollar is a U.S. dollar deposited in a bank outside the United States. a. True b. False (27.10) Eurodollar market Answer: b Diff: E 12 . The Eurodollar market is essentially a long-term market; most loans and deposits have maturities of longer than one year. a. True b. False (27.13) International credit management Answer: a Diff: E 13 . Credit policy for the multinational firm 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. a. True
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This note was uploaded on 11/10/2010 for the course FIN fi380 taught by Professor S during the Spring '10 term at University of Massachusetts Boston.

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