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. 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
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
1. Which of the following is not an example of multinational restructuring?
A) An MNC builds a new subsidiary in Malaysia.
B) An MNC acquires a company in Germany.
C) An MNC downsizes its operations in Hong Kong.
D) An MNC shi
1. A macro-assessment of country risk:
A) is adjusted for the particular business of the firm involved.
B) excludes all aspects relevant to a particular firm or project.
C) A and B
D) none of the above
2. A micr
1. If a U.S. parent is setting up a French subsidiary, and funds from the subsidiary will be
periodically sent to the parent, the ideal situation from the parents perspective is a _ after
the subsidiary i
1. Based on the text, it should be obvious that markets are_ in reality, and
consequently, monopolistic advantages _ be exploited.
A) perfect; may possibly
B) perfect; cannot
C) imperfect; may possibly
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. 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. 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. 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. 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. 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. 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
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
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. 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. 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 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.
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. Recently, the U.S. experienced an annual balance of trade representing a _.
A) large surplus (exceeding $100 billion)
B) small surplus
C) level of zero
2. A high home inflation rate relative to oth
Long-Term Financing Decision
Sources of Equity
Sources of Debt
Cost of Debt Financing
Measuring the Cost of Financing
Actual Effects of Exchange Rate Movements on Financing Costs
Assessing the Exchange Rate R
Background on Multinational Restructuring
Trends in International Acquisitions
Model for Valuing a Foreign Target
Assessing Potential Acquisitions After the Asian Crisis
Assessing Potential Acquisitions in Euro
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
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
Analyzing Country Risk
Why Country Risk Analysis Is Important
Political Risk Factors
Attitude of Consumers in the Host Country
Actions of Host Government
Blockage of Fund Transfers