MIdterms

Question 1

When a US firms tha produce domestically and sell only to domestic customers can be affected if they compete against imports

Answer 1

Exchange rate changes

Question 2

The link between exchange rates and stock prices is that exchange rate can systematically affect the value of the firm by??

Answer 2

1. Influencing operating cash flow
2. Influencing the domestic currency values of its assets and liabilities

Question 3

The extent to which the firm’s operating cash flows will be affected by unexpected changes in exchange rates

Answer 3

Operating Exposure

Question 4

When you have undertaken a hedging strategy that gives the asset a constant dollar value is called

Answer 4

Redenominated asset

Question 5

What are the strategies for managing operating exposure

Answer 5

1. Selecing low cost prod. rates
2. Flexible sourcing policy
3. Diversification of market
4. Product differentiation and R&d efforts
5. Financial Hedging

Question 6

The sensitivity of realized domestic currency alues of the firm’s contractual cash flows denominated in foreign currencies to unexpected exchange rate changes

Answer 6

Transaction Exposure

Question 7

When your losses on one side are equal to gains on the other

Answer 7

Hedge

Question 8

Why is it difficult to conduct international trade transaction in comparison to domestic trades?

Answer 8

The costs of international trade outweight the benefits

Question 9

The 3 basic documents in a foreign trade transaction

Answer 9

• Letter of credit
• Time Draft
• Bill of lading

Question 10

Involves technology transfervia the sale of manufaturing plant; as part of terms that the selller of the plant agrees to purchase certain portion of the plant output

Answer 10

Buy-Back transaction

Question 11

It can be viewed as a countertrade agreement involving the aerospace/defense industry

Answer 11

Offset Transacation

Question 12

The benefits of arguments on favor of countertrade

Answer 12

1. Conservation of cash or hard currency
2. improvement of trade imbalances
3. maintenance of export prices

Question 13

The larget recipient of FDI is?

Answer 13

United States

Question 14

HOw have MNCs invested in China

Answer 14

1. Lowe material costs
2. lower labor costs
3. desire to preemp entry of rivals into China pontentially huge market

Question 15

WHy do firms locate production overseas rather than exporting finished good

Answer 15

• Shipping costs
• Firms seeks to control corporate control overseas
• Imperfect factors markets

Question 16

The worls larget foreign exchange trading center is

Answer 16

London

Question 17

The difference between a broker and a dealer

Answer 17

• Brokers bring together buyers and sellers, no inventory
• Dealers stand ready to buy and sell from their inventory

Question 18

The standat size foreign transaction are for

Answer 18

10 million USD

Question 19

Involves the almost immediate purchase or sale of foreign exhange

Answer 19

Sport Market

Question 20

A US based MNC with exposure to the Swedish krona could best cross hedge with

Answer 20

forward contract in euro

Question 21

HOw can and exporter shift exchange rate risk to their customers

Answer 21

Invoicing in hteir home currency

Question 22

When an exportes is faced to an appreciating currency it can reduced transaction exposure with ??

Answer 22

Paying early, collecting late

Question 23

Why do governments regulate internationa ltrade?

Answer 23

• Raise revenue
• protect domestic industries
• pursue other economic objectoves

Question 24

Honda’s investmen tin Ohia in an example of __________

Answer 24

Trade barrier motivated FDI

Question 25

When FDI involves industry abroad that produces INPUTS for MNCs is a

Answer 25

Backward Vertical Integration

Question 26

Overtime US switches from an exporting country of new product to an importing country

Answer 26

Product Life cycle theory

Question 27

Document issued by the common carrier specifying that it has received the food for shipment; it can serve as title of the good

Answer 27

Bill Lading

Question 28

It can be viewed as direct foreign investment in the PURCHASING country

Answer 28

Buy-Back transaction

Question 29

The potential losses to the parent firm of an MNC resulting from adverese polical developments in the host country

Answer 29

Political Risk

Question 30

The level in which most trading flows over Reuted and EBS plantforms

Answer 30

Wholesale level

Question 31

Eximbank’s purpose is to provide financing in situations where private financial institutions are unable or unwilling to because

Answer 31

• The loan maturity is too long.
• The amount of the loan is too large.
• The loan risk is too great.
• The importing firm has difficulty in obtaining hard currency.