Final Flashcards
The commonly accepted goal go the MNC is to
Maximize shareholder wealth
The sarans only act
Makes executives more accountable for verifying financial statements
(T/F)
The Sarbans Oxly Act was enacted in 2002 required MNC and other firms to implement an international reporting process that could easily monitored by executives and the board of directors
True
(T/F)
Although MNCs may need to convert currencies occasionally, they do not face any exchange rate risk, as exchange rates are stable over time
False
(T/F)
If a U.S based MNC focused completely on importing, than its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time
True
Which of the following is not an example of political risk
- Govt may impose taxes on subsidiary
- Government may impose barriers on subsidiary
- Consumers may boycott the MNC
- consumers income levels will decrease, thus decreasing competition
consumers income levels will decrease, thus decreasing competition
What country purchases a large amount of US goods
Canada
The world bank was established to
Enhance economic development through non-subsidized loan (at market interest rates)
As a result of the european union
Restrictions on exports between member countries were reduced or eliminated
The Primary component of the current account is the
Balance of trade
Also known as the central bank of central banks the ______ attempts to facilitate cooperation among countries with regard to international transactions and provides assistance to countries experiencing a financial crisis
Bank of international settlements (BIS)
A balance of trade surplus indicates an excess of imports over exports
False
Weakening of the US dollar with respect to the British pound would likely reduce the US exports to Britain and increase US imports from Britain over time
False
A balance of trade deficit indicated an excess of imports over exports
True
Outsourcing allows some MNCs to reduce costs but shifts jobs to other countries
True
Balance of trade
Difference between imports and exports
The all price is the price which the bank offers to sell the currency
True
Forward rates are mainly used for
Hedging
From 1944 to 1971 the exchange rate between any two currencies was typically
Fixed within narrow boundaries (1% breton woods)
The bid ask spread can determine
The transaction cost of foreign exchange
Futures
Sold on the change (IMF) standardized -Value -date Commitment
Options
Contains a right not a commitment to the owner and are standardized
Main use for futures
hedge
Main use for forwards
speculation
Most common maturities for forward rates are
1, 3 , 6, 12 months
Smithsonian agrement
establishment that exchange rates of most major countries were to be allowed to fluctuate 2.25 % above or below their initially set values
Triangular arbitrage
Market forces should resign the cross exchange rates between two foreign currencies based on the spot exchange rate of the two currencies against the US dollar.
If interest rate party exist than _____ is not feasible
covered interest rate arbitrage
Inters rate of of home currency X is a much higher interest rate than the US interest rate. According to interest rate parity the forward rate of currency X
Should be a discount
Agency problem
The conflict of interest between decision making managers and the owners of a MNC
Theory of comparative advantage and international trade
Implies that countries should specialize in production of a product, thereby relying on other countries for some products
The product cycle theory and growth of MNC
suggests that at some point in time the firm will attempt to capitalize on its perceived advantages in other markets
High inflations impact in trade
increase imports and decrease exports
Interest rate parity
The relationship between the interest rate differential of two countries and the forward rate
Purchasing Power Parity
Suggest a relationship between the inflation differential of two countries and the percentage change in the spot exchange rate over time.
International Fisher Effect
The relationship between the interest rate differential of two countries and the percentage change in spot rate
