Final

Question 1

The commonly accepted goal go the MNC is to

Answer 1

Maximize shareholder wealth

Question 2

The sarans only act

Answer 2

Makes executives more accountable for verifying financial statements

Question 3

(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

Answer 3

True

Question 4

(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

Answer 4

False

Question 5

(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

Answer 5

True

Question 6

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

Answer 6

consumers income levels will decrease, thus decreasing competition

Question 7

What country purchases a large amount of US goods

Answer 7

Canada

Question 8

The world bank was established to

Answer 8

Enhance economic development through non-subsidized loan (at market interest rates)

Question 9

As a result of the european union

Answer 9

Restrictions on exports between member countries were reduced or eliminated

Question 10

The Primary component of the current account is the

Answer 10

Balance of trade

Question 11

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

Answer 11

Bank of international settlements (BIS)

Question 12

A balance of trade surplus indicates an excess of imports over exports

Answer 12

False

Question 13

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

Answer 13

False

Question 14

A balance of trade deficit indicated an excess of imports over exports

Answer 14

True

Question 15

Outsourcing allows some MNCs to reduce costs but shifts jobs to other countries

Answer 15

True

Question 16

Balance of trade

Answer 16

Difference between imports and exports

Question 17

The all price is the price which the bank offers to sell the currency

Answer 17

True

Question 18

Forward rates are mainly used for

Answer 18

Hedging

Question 19

From 1944 to 1971 the exchange rate between any two currencies was typically

Answer 19

Fixed within narrow boundaries (1% breton woods)

Question 20

The bid ask spread can determine

Answer 20

The transaction cost of foreign exchange

Question 21

Futures

Answer 21

Sold on the change (IMF)
standardized 
-Value 
-date 
Commitment

Question 22

Options

Answer 22

Contains a right not a commitment to the owner and are standardized

Question 23

Main use for futures

Answer 23

hedge

Question 24

Main use for forwards

Answer 24

speculation

Question 25

Most common maturities for forward rates are

Answer 25

1, 3 , 6, 12 months

Question 26

Smithsonian agrement

Answer 26

establishment that exchange rates of most major countries were to be allowed to fluctuate 2.25 % above or below their initially set values

Question 27

Triangular arbitrage

Answer 27

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.

Question 28

If interest rate party exist than _____ is not feasible

Answer 28

covered interest rate arbitrage

Question 29

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

Answer 29

Should be a discount

Question 30

Agency problem

Answer 30

The conflict of interest between decision making managers and the owners of a MNC

Question 31

Theory of comparative advantage and international trade

Answer 31

Implies that countries should specialize in production of a product, thereby relying on other countries for some products

Question 32

The product cycle theory and growth of MNC

Answer 32

suggests that at some point in time the firm will attempt to capitalize on its perceived advantages in other markets

Question 33

High inflations impact in trade

Answer 33

increase imports and decrease exports

Question 34

Interest rate parity

Answer 34

The relationship between the interest rate differential of two countries and the forward rate

Question 35

Purchasing Power Parity

Answer 35

Suggest a relationship between the inflation differential of two countries and the percentage change in the spot exchange rate over time.

Question 36

International Fisher Effect

Answer 36

The relationship between the interest rate differential of two countries and the percentage change in spot rate