1. MNCs may be able to lock in a lower cost from financing in a low interest rate foreign currency
A) have future cash inflows in that foreign currency.
B) have future cash outflows in that foreign curre
1. The value of the Australian dollar (A$) today is $0.73. Yesterday, the value of the Australian
dollar was $0.69. The Australian dollar _ by _%.
A) depreciated; 5.80
B) depreciated; 4.00
C) appreciated; 5.80
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
Capital Structure and Multinational Cost of Capital
Background on Cost of Capital
Comparing the Costs of Equity and Debt
Cost of Capital for MNCs
Cost of Capital Comparison Using the CAPM
Implications of the CAPM for an MNCs Ris
1. Assume that a bank's bid rate on Swiss francs is $.45 and its ask rate is $.47. Its bid-ask
percentage spread is:
A) about 4.44%.
B) about 4.26%.
C) about 4.03%.
D) about 4.17%.
SOLUTION: Bid-ask percen
1. To force the value of the pound to appreciate against the dollar, the Federal Reserve should:
A) sell dollars for pounds in the foreign exchange market and the European Central Bank
(ECB) should sell dollars for
Managing Finance in Foreign Subsidiaries: An Overview
Goal of the MNC
Conflicts with the MNC Goal
Impact of Management Control
Impact of Corporate Control
Constraints Interfering with the MNCs Goal
Theories of International Busin
Investing in Foreign Enterprises Directly
Motives for Direct Foreign Investment (DFI)
Comparing Benefits of DFI Among Countries
Comparing Benefits of DFI Over Time
Benefits of Interna
1. Depreciation of the euro relative to the U.S. dollar will cause a U.S.-based multinational firms
reported earnings (from the consolidated income statement) to _. If a firm desired to
1. Assume zero transaction costs. If the 90-day forward rate of the euro is an accurate estimate of
the spot rate 90 days from now, then the real cost of hedging payables will be:
1. Translation exposure reflects:
A) the exposure of a firms ongoing international transactions to exchange rate fluctuations.
B) the exposure of a firms local currency value to transactions betwee
International Financial Markets
Motives for Using International Financial Markets
Motives for Investing in Foreign Markets
Motives for Providing Credit in Foreign Markets
Motives for Borrowing in Foreign Markets
1. Due to _, market forces should realign the relationship between the interest rate
differential of two currencies and the forward premium (or discount) on the forward exchange
rate between the tw
1. Assume a two-country world: Country A and Country B. Which of the following is correct
about purchasing power parity (PPP) as related to these two countries?
A) If Country As in
1. Which of the following forecasting techniques would best represent the use of todays forward
exchange rate to forecast the future exchange rate?
A) fundamental forecasting.
B) market-based forecasting.
C) technical f
1. Kalons, Inc. is a U.S.-based MNC that frequently imports raw materials from Canada. Kalons is
typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar
will appreciate in the ne
1. Which of the following is a reason why commercial banks can facilitate international trade?
A) The exporter may not wish to accept credit risk of the importer.
B) The government may impose exchange contracts that
1. The commonly accepted goal of the MNC is to:
A) maximize short-term earnings.
B) maximize shareholder wealth.
C) minimize risk.
D) A and C.
E) maximize international sales.
Economic Exposure and Translation Exposure: Management
Use of the Income Statement to Assess Economic Exposure
How Restructuring Can Reduce Economic Exposure
Issues Involved in the Restructuring Decision
1. Ideally, a firm desires to denominate bonds in a currency that:
A) exhibits a low interest rate and is expected to appreciate.
B) exhibits a low interest rate and is expected to depreciate.
C) exhibits a high interest rat
1. An argument for MNCs to have a debt-intensive capital structure is:
A) they are well diversified.
B) foreign government tax rules may change over time.
C) exposure to exchange rate fluctuation
Governments and Exchange Rates
Exchange Rate Systems
Fixed Exchange Rate System
Freely Floating Exchange Rate System
Managed Float Exchange Rate System
Pegged Exchange Rate System
Classification of Exchange Rate Arrangements
Exchange Rate Fluctuation Exposure: Measurement
Is Exchange Rate Risk Relevant?
Transaction Exposure to Net Cash Flows in Each Currency
Measuring the Potential Impact of the Currency Exposure
Relationships Among Exchange Rates,
Inflation, and Interest Rates
Purchasing Power Parity (PPP)
Interpretations of PPP
Rationale Behind PPP Theory
Derivation of PPP
Using PPP to Estimate Exchange Rate Effects
Graphic Analysis of