final_445 - Texas A&M University College of Business...

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Unformatted text preview: *- Texas A&M University College of Business Administration FINC 445-500: Funding International Business Final Exam Dr. Julian Gaspar Each question carries two points The Mexican one—year interest rate is 27%, while the US one—year interest rate is 9%. If a US firm creates a one-year deposit in Mexico, the Mexican peso will have to against the US dollar by in order to make that investment have an effective yield that is achievable in the US appreciate; 18 percent depreciate; 36 percent depreciate; 14 percent appreciate; 14 percent depreciate; 8.5 percent .0996!» Netting can achieve all but one of the following: a. cross border transactions between subsidiaries are reduced b. transactions costs are reduced c. currency conversion costs are reduced (1. transaction exposure is eliminated A foreign subsidiary or affiliate will most likely slow the rate by which it transfers earnings and cash flows to the parent firm if ' a. it feels the country of residence is increasingly politically unstable b. 'intra-firm payables are in the parent's currency, which is currently appreciating c. the parent is domiciled in a country of lower tax rates than that of the foreign affiliate d. all of the above e. none of the above The primary reason for the blocking of funds by a host country is a. the country's persistent inability to earn hard currencies b. the country's own currency is being blocked elsewhere c. a change of government to a more socialistic regime d. the country's overabundance of exports e. the country‘s previous negative experience with multinational firms According to the text: subsidiary performance can be distorted due to a transfer price strategy A. subsidiary performance can be distorted due to leading and lagging strategies a and b ' none of the above it 9933‘!” Constraints on positioning of funds among foreign affiliates include a. nonconvertibility of a foreign currency b. tax considerations c. foreign exchange transaction costs d. local liquidity requirements * e. all of the above 7. A US—based MNC has one subsidiary in a 40% tax rate country, and another in a 25 % tax rate country. To increase its overall after—tax earnings, the parent should: a. subsidize the high—tax subsidiary by selling supplies to it for lower prices b. shift expenses from high-tax subsidiary to the low tax subsidiary c. have the low-tax subsidiary decrease its prices charged for materials exported to the high tax subsidiary * d. none of the above 8. Assume that a US firm considers investing in British one—year treasury securities. The interest rate on these securities is 12%, while the interest rate on US treasuries is 10%. The firm believes that today' spot rate is an appropriate forecast for the spot rate of the pound in one year. Based on this information, the effective yield on British treasuries from the US firm's perspective is: a. equal to the US interest rate * b. equal to the British interest rate c. lower than the US interest rate (1. higher than the British interest rate e. lower than the British interest rate, but higher than the US interest rate 9. Which of the following is an example of direct foreign investment ? a. exporting to a country b. establishing licensing arrangements in a country * c. purchasing existing companies in a country d. investing directly (without brokers) in foreign stocks 10. A host country government would be least likely to provide incentives for direct foreign investment (DFI) to a company if the firm planning DFI: * a. would compete with local firms of the host country b. would produce a good not currently available in the host country c. would produce and export a good to other countries d. b and c 11. International Banking Facilities (IBFs) * a. must by law be physically located offshore b. may lend to US. and foreign citizens c. are a way for US. banks to attract Eurodollars (1. may accept deposits only in US. dollars e. all of the above are true 12. 13. 14. 15. 16. 17. Which of the following is a reason to consider direct foreign investment ? a. economies of scale b. exploit monopolistic advantages c. diversification d. a product's life cycle e. all of the above All of the following are types of international banking offices, except a. correspondent banks b. referral offices c. branch banks (1. affiliates e. international banking facilities The risks of international lending may be classified as a. commercial risk b. sovereign risk c. currency risk (1. country risk c. all of the above Edge Act and Agreement corporations a. are subsidiaries of US. banks b. can have branches outside their own state c. are physically located in the United States d. both a and c e. a, b, and c If a US. multinational firm borrows German marks for one year at 8% interest, and during the year the mark appreciates by 7% relative to the dollar, the approximate before—tax cost of this debt is a. 14.64% ' b. 15.64% c. 15.49% d. 15.56% e. 16.64% Which of the following are motivations for making foreign direct investments ? a. market seeking b. raw material seeking c. production efficiency seeking (1. knowledge seeking 6. all are motivations 18. 19. 20. 21. 22. * A multinational firm can choose all of the following modes of entry for direct foreign investment except a. exporting products to a local firm b. a joint venture with a local partner 0. a 100%-owned greenfield subsidiary d. a merger or acquisition of an existing local firm 6. a strategic alliance with a partner When evaluating international project cash flows, which of the following factors is relevant ? a. future inflation b. blocked funds 0. remittance provisions d. all of the above e. a and b In capital budgeting analysis, the use of cumulative NPV is useful for a. determining the probability distribution of NPVs b. determining the time required to achieve a positive NPV c. determining how the required rate of return changes over time d. determining how the cost of capital changes over time e. a and b Assume a MNC establishes a subsidiary where it has no existing business. The present value of parent cash flows from this subsidiary is more sensitive to eXChange rate movements when: a. the subsidiary finances the entire investment by local borrowing b. the subsidiary finances most of the investment through local borrowing c. the parent finances most of the investment (1. the parent finances the entire investment e. none of the above Other things being equal, a blocked funds restriction is more likely to have a significant adverse effect on a project if the currency of that country is expected to over time, and if the interest rate in that country is relatively a. appreciate; low b. appreciate; high c. depreciate; high (1. depreciate; 10w e. none of the above 23. 24. 25. 26. 27. 28. * It has been suggested that poor management by in the developed countries are responsible for causing the international debt crisis, while in the developed countries are adversely affected by it. a. non-bank MNCs; non—bank MNCs b. non-bank MNCs; banks c. banks; non-bank MNCs d. a and b Firm "X" conducts all business transactions in US dollars. If it issues a currency cocktail bond, it can: a. reduce exchange rate risk relative to issuing a bond denominated in US dollars b. reduce exchange rate risk relative to issuing a bond denominated in a single foreign currency c. a and b (1. none of the above Liabilities of Eurobanks are mainly a. time deposits in small amounts b. time deposits in large amounts c. demand deposits in large amounts (1. demand deposits in small amounts Because reserve requirements imposed on foreign currency deposits at Eurobanks, the spread between the average rate offered on deposits and charged on loans would need to be in order to achieve the same profit as banks that do not accept foreign currency deposits. a. are; narrowed b. are not; narrowed c. are; widened d. are not; widened When a US. -based MNC purchases some of a developing country's outstanding loans at a discount in the secondary market, then trades the debt to the country's government in exchange for some assets that are being liquidated by the government, this is an example of: a. consignment b. an increase in loan loss reserves c. a debt-equity swap (1. a first stage of bankruptcy A "Yankee" bond is a a. local bond b. foreign bond c. eurobOnd d. none of the above 29. LIBOR is * a) the interest rate commonly charged for loans between Eurobanks b) the average inflation rate in European countries c) the maximum loan rate on Eurocurrency loans d) the maximum interest rate offered on bonds that are issued in London 30. The Eurocurrency market is primarily served by: a) the governments of European countries, which directly intervene in foreign currency markets b) government agencies such as the International Monetary Fund that enhance development of countries * c) several large banks that accept deposits and provide loans in various currencies d) small banks which convert foreign currency for tourists and business visitors 31. In the early 1980s, global demand for the exports of less developed countries (LDCs) , and these LDCs experienced severe balance of trade a) decreased; surpluses * b) decreased; deficits c) increased; deficits d) increased; surpluses 32. Which of the following is a reason why debt-equity swaps may not reduce the risks of banks ? a) the only demand for existing LDC loans is from financial institutions willing to assume greater exposure b) banks that acquire an equity interest in LDC assets may not have the expertise to manage them c) the secondary market for LDC loans is inactive d) some equity investments in LDCs may be just as risky as the LDC loans that were traded in * e) b and d 33. The claims of US banks on LDCs have decreased since 1982 because of : a) sales of some existing loans to non-bank financial institutions ' b) loan write-offs * c) a and b d) none of the above 34. Direct foreign investment and portfolio investment are included in which section of the balance of payments statements ? a) the current account balance b) long-term capital flows c) official liabilities 35. 36. 37. 38. 39. 40. (1) private transfers The Brady Plan was intended to reduce problems associated with the: a) Persian Gulf Crisis b) Savings and Loan Crisis 0) International Debt Crisis d) Single European Act What region of the world accounted for the bulk of the LDC debt problem ? a) South Asia b) Africa c) Latin America (1) the Middle East e) Eastern Europe Since World War II, MNC investments globally have stressed a) natural resource based industries b) manufacturing and high tech industries c) vertical—integration (1) horizontal integration e) b and d MNCs generally invest abroad to a) protect proprietary technology b) lower production costs c) overcome protection d) take advantage of favorable tax laws e) all of the above Which of these are home country's concerns regarding MNCs investing abroad .K ‘M 9 p , a) export of jobs overseas b) export of technology 0) potential loss of tax revenue (1) all of the above e) none of the above Which of the following factors, do you believe, did not contribute to the LDC debt crisis that commenced in 1982 ? a) the global recession of the early 1980s b) "floating" interest rates on loans made to LDCs c) the size of multilateral debt (1) high crude oil prices ...
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This note was uploaded on 12/02/2011 for the course BUSINESS 0902102028 taught by Professor Issam during the Spring '10 term at Bradford School of Business.

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final_445 - Texas A&M University College of Business...

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