47 + Mcqs in International Financial Management Page 1 McqOptions

1.	If a firm based in the Netherlands wishes to avoid the risk of exchange rate movements, and is due to receive USD100,000 in 90 days, it could:
A.	sell US dollars 90 days from now at the spot rate.
B.	enter into a 90-day forward sale of US dollars for euros;
C.	purchase US dollars 90 days from now at the spot rate;
D.	enter into a 90-day forward purchase of US dollars for euros;
Answer» C. purchase US dollars 90 days from now at the spot rate;

Discussion

2.	Insurance purchased to cover the risk of expropriation __________, and will typically cover __________.
A.	will be the same for all firms; only a portion of the firm's total exposure.
B.	will be the same for all firms; all of the firm's total exposure.
C.	will be dependent on the firm's risk; all of the firm's total exposure.
D.	will be dependent on the firm's risk; only a portion of the firm's total exposure.
Answer» E.

Discussion

3.	An increase in the current account deficit will place _______ pressure on the home currency value, other things equal.
A.	upward
B.	downward
C.	no
D.	upward or downward (depending on the size of the deficit)
Answer» C. no

Discussion

4.	______________ is (are) income received by investors on foreign investments in financial assets (securities).
A.	Portfolio income
B.	Unilateral transfers
C.	Direct foreign income
D.	Factor income
Answer» E.

Discussion

5.	Which of the following is not true regarding host government attitudes towards foreign direct investment (FDI)?
A.	Host governments may offer incentives to MNCs in the form of subsidies in certain circumstances.
B.	Host governments generally perceive FDI as a remedy to eliminate a country's political problems.
C.	The ability of a host government to attract FDI is dependent on the country's markets and resources.
D.	Some types of FDI will be more attractive to some governments than to others.
Answer» C. The ability of a host government to attract FDI is dependent on the country's markets and resources.

Discussion

6.	What are the three additional days known as that a drawer gives to the drawee for payment
A.	Conditional days
B.	Additional days
C.	Days of grace
D.	Days of rebate
Answer» D. Days of rebate

Discussion

7.	If portable disk players made in China are imported into the United States, the Chinese manufacturer is paid with
A.	international monetary credits.
B.	dollars.
C.	yuan, the Chinese currency.
D.	euros, or any other third currency.
Answer» D. euros, or any other third currency.

Discussion

8.	Which one of the following areas is NOT a way companies often respond to exchange rate risk when they alter their product strategy?
A.	shifting the firm's manufacturing base to another country
B.	the timing of new-product introduction
C.	changing the size of its product line
D.	product innovation with advanced technology
Answer» D. product innovation with advanced technology

Discussion

9.	With _______, the exporter ships the goods to the importer while still retaining actual title to the merchandise.
A.	a letter of credit arrangement
B.	an open account arrangement
C.	a draft arrangement
D.	a consignment arrangement
Answer» E.

Discussion

10.	A bill of exchange requesting the bank to pay the face amount upon presentation of documents is a:
A.	banker's acceptance.
B.	time draft.
C.	letter of credit.
D.	sight draft.
Answer» E.

Discussion

11.	Who among these can check the price fluctuations in the market by holding back the goods when prices fall and releasing the goods when prices rise
A.	Agent
B.	Mercantile agent
C.	Wholesaler
D.	Retailer
Answer» D. Retailer

Discussion

12.	The rate of return on its existing assets that a firm must earn to maintain the current value of the firm's stock is called the:
A.	return on equity.
B.	internal rate of return.
C.	weighted average cost of capital.
D.	weighted average cost of equity.
Answer» D. weighted average cost of equity.

Discussion

13.	When computing the weighted average cost of capital, the weighting should be proportional based on the ______ rather than the _____ value of the firm.
A.	book, market
B.	hypothetical, book
C.	market, analyst's
D.	market, book
Answer» E.

Discussion

14.	An increase in UK interest rates relative to euro interest rates is likely to ________ the UK demand for euros and _________ the supply of euros for sale.
A.	reduce; increase
B.	increase; reduce
C.	reduce; reduce
D.	increase; increase
Answer» B. increase; reduce

Discussion

15.	An Austrian firm that buys foreign exchange because its managers expect the euro to depreciate is
A.	increasing the supply of foreign exchange.
B.	increasing the demand for foreign exchange.
C.	speculating.
D.	Both A and B.
Answer» B. increasing the demand for foreign exchange.

Discussion

16.	The currency of country X is pegged to the currency of country Y. Assume that county Y's currency depreciates against the currency of country Z. It is likely that country X will export _______ to country Z and import _______ from country Z.
A.	more; more
B.	more; less
C.	less; less
D.	less; more
Answer» D. less; more

Discussion

17.	A firm that buys foreign exchange in order to take advantage of higher foreign interest rates is
A.	speculating.
B.	demonstrating purchasing power parity.
C.	engaging in interest rate arbitrage.
D.	responding to fluctuations in the business cycle.
Answer» C. engaging in interest rate arbitrage.

Discussion

18.	Which of the following is NOT one of the determinants of the gains of adopting a single currency?
A.	A well-synchronized business cycle involving all member countries
B.	The possibility of factors of production to freely move across borders
C.	The willingness and ability of member countries to design policies to address regional imbalances that may develop
D.	Widening the common market by allowing other countries to join
Answer» B. The possibility of factors of production to freely move across borders

Discussion

19.	With regard to hedging translation exposure, translation losses _______; and gains on forward contracts used to hedge translation exposure _______.
A.	are not tax deductible; are taxed
B.	are not tax deductible; are not taxed
C.	are tax deductible; are taxed
D.	are tax deductible; are not taxed
Answer» B. are not tax deductible; are not taxed

Discussion

20.	Authority which intervenes directly or indirectly in foreign exchange markets by altering interest rates is considered as
A.	central government
B.	centralized stocks
C.	central corporations
D.	centralized instruments
Answer» B. centralized stocks

Discussion

21.	In equilibrium position, spread between foreign and domestic rate of interest must be equal to spread of
A.	domestic rates
B.	forward and spot exchange rates
C.	forward rate
D.	spot rates
Answer» C. forward rate

Discussion

22.	A _______ involves an exchange of currencies between two parties, with a promise to re-exchange currencies at a specified exchange rate and future date.
A.	long-term forward contract
B.	currency swap
C.	parallel loan
D.	money market hedge
Answer» D. money market hedge

Discussion

23.	A _______ involves an exchange of currencies between two parties, with a promise to re- exchange currencies at a specified exchange rate and future date.
A.	long-term forward contract
B.	parallel loan
C.	currency swap
D.	money market hedge
Answer» D. money market hedge

Discussion

24.	An international project's NPV is _________ related to the size of the initial investment and _________ related to the project's required rate of return.
A.	positively; positively
B.	positive; negatively
C.	negatively; positively
D.	negatively; negatively
Answer» E.

Discussion

25.	An international project's NPV is _________ related to the size of the initial investment and _________ related to the project's required rate of return.
A.	positively; positively
B.	positive; negatively
C.	negatively; positively
D.	negatively; negatively
Answer» E.

Discussion

26.	Two important practical differences between the monetary/non-monetary method and the current rate method of translation is found in their treatment of:
A.	Fixed assets and owner's equity
B.	Issued share capital and retained earnings
C.	Inventories and fixed assets
D.	Monetary assets
Answer» D. Monetary assets

Discussion

27.	The potential effect of exchange rate fluctuations on foreign direct investment is expressed as _____ exposure.
A.	translation
B.	transaction
C.	conversion
D.	economic
Answer» E.

Discussion

28.	Theory which considers change in exchange rate with fluctuations in inflation rates is classified as
A.	liquidated power parity
B.	purchasing power parity
C.	selling power parity
D.	volatile power parity
Answer» C. selling power parity

Discussion

29.	Rule which states that similar set of goods and services produced in various countries should have equal price is classified as
A.	law of similar mortgage rate
B.	law of one type manufacturing
C.	law of similar labor rules
D.	law of one price
Answer» E.

Discussion

30.	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:
A.	positive.
B.	negative.
C.	positive if the forward rate exhibits a premium, and negative if the forward rate exhibits a discount.
D.	zero.
Answer» E.

Discussion

31.	The spot rate for the Singapore dollar is 0.320. The 30-day forward rate is 0.325. The forward rate contains an annualized __________ of ___________%.
A.	discount; -18.75
B.	premium; 18.75
C.	discount; -18.46
D.	premium; 18.46
Answer» C. discount; -18.46

Discussion

32.	In a forward hedge, if the forward rate is an accurate predictor of the future spot rate, the real cost of hedging payables will be:
A.	highly positive.
B.	zero.
C.	highly negative.
D.	none of the above
Answer» D. none of the above

Discussion

33.	Which of the following would probably not cause the stock price of a foreign target to decrease?
A.	Its expected cash flows decline.
B.	General stock market conditions in the foreign country are deteriorating.
C.	Investors anticipate that the target will be acquir
Answer» D.

Discussion

34.	The burden of a current account deficit would be the least if a nation uses what it borrows to finance:
A.	Unemployment compensation benefits
B.	Social Security benefits
C.	Expenditures on food and recreation
D.	Investment on plant and equipment
Answer» E.

Discussion

35.	The equilibrium exchange rate of pounds is $1.70. At an exchange rate of $1.72 per pound:
A.	U.S. demand for pounds would exceed the supply of pounds for sale and there would be a shortage of pounds in the foreign exchange market.
B.	U.S. demand for pounds would be less than the supply of pounds for sale and there would be a shortage of pounds in the foreign exchange market.
C.	U.S. demand for pounds would exceed the supply of pounds for sale and there would be a surplus of pounds in the foreign exchange market.
D.	U.S. demand for pounds would be less than the supply of pounds for sale and there would be a surplus of pounds in the foreign exchange market.
Answer» E.

Discussion

36.	When the value of one currency falls relative to another currency, the exchange rate for the first currency has
A.	revalued.
B.	depreciated.
C.	appreciat
Answer» C. appreciat

Discussion

37.	European currency options can be exercised _______; American currency options can be exercised _______.
A.	any time up to the expiration date; any time up to the expiration date
B.	any time up to the expiration date; only on the expiration date
C.	only on the expiration date; only on the expiration date
D.	only on the expiration date; any time up to the expiration date
Answer» E.

Discussion

38.	All else equal and under a system of floating exchange rates, if a country enters a period of exceptionally strong growth,
A.	the pressure on its currency is to revalue.
B.	the pressure on its currency is to devalue.
C.	the pressure on its currency is to depreciate.
D.	the pressure on its currency is to appreciate.
Answer» B. the pressure on its currency is to devalue.

Discussion

39.	If U.S. inflation suddenly increased while European inflation stayed the same, there would be:
A.	an increased U.S. demand for Euros and an increased supply of Euros for sale.
B.	a decreased U.S. demand for Euros and an increased supply of Euros for sale.
C.	a decreased U.S. demand for Euros and a decreased supply of Euros for sale.
D.	an increased U.S. demand for Euros and a decreased supply of Euros for sale.
Answer» E.

Discussion

40.	Other things being equal, a foreign subsidiary in China would more likely be divested by the U.S. parent if new information caused the parent to suddenly anticipate that:
A.	the Chinese yuan would depreciate in the future.
B.	the Chinese yuan would appreciate in the future.
C.	the Chinese yuan would remain somewhat stable in the future.
D.	none of the above; the value of the Chinese yuan has no impact on the feasibility of a divestiture.
Answer» B. the Chinese yuan would appreciate in the future.

Discussion

41.	Other things being equal, a foreign subsidiary in China would more likely be divested by the U.S. parent if new information caused the parent to suddenly anticipate that:
A.	the Chinese yuan would depreciate in the future.
B.	the Chinese yuan would appreciate in the future.
C.	the Chinese yuan would remain somewhat stable in the future.
D.	none of the above; the value of the Chinese yuan has no impact on the feasibility of a divestiture.
Answer» B. the Chinese yuan would appreciate in the future.

Discussion

42.	If inflation in New Zealand suddenly increased while euro area inflation stayed the same, there would be:
A.	an inward shift in the demand schedule for NZ$ and an outward shift in the supply schedule for NZ$.
B.	an outward shift in the demand schedule for NZ$ and an inward shift in the supply schedule for NZ$.
C.	an outward shift in the demand schedule for NZ$ and an outward shift in the supply schedule for NZ$.
D.	an inward shift in the demand schedule for NZ$ and an inward shift in the supply schedule for NZ$.
Answer» B. an outward shift in the demand schedule for NZ$ and an inward shift in the supply schedule for NZ$.

Discussion

43.	The impact of blocked funds on the net present value of a foreign project will be greater if interest rates are _______ in the host country and there are _______ investment opportunities in the host country.
A.	very high; limited
B.	very low; limited
C.	very low; numerous.
D.	very high; numerous
Answer» C. very low; numerous.

Discussion

44.	The international Fisher effect suggests that should pound interest rates exceed US dollar interest rates:
A.	the pound s value will remain constant;
B.	the pound will be at a discount on the dollar;
C.	UK inflation rate will decrease.
D.	the pound will depreciate against the dollar;
Answer» E.

Discussion

45.	Assume that a bank's bid rate on Swiss francs is 0.25 and its ask rate is 0.26. Its bid-ask percentage spread is:
A.	4.00%.
B.	about 3.85%.
C.	4.26%.
D.	about 4.17%.
Answer» D. about 4.17%.

Discussion

46.	As opposed to transaction exposure, managing economic exposure involves developing a ________ solution.
A.	short-term
B.	immediate
C.	long-term
D.	none of the above
Answer» D. none of the above

Discussion

47.	The Bank of England may use a stimulative monetary policy with least concern about causing inflation if the pound's value is expected to:
A.	remain stable.
B.	strengthen.
C.	weaken.
D.	none of the above will have an impact on inflation.
Answer» C. weaken.

Discussion

Explore topic-wise MCQs in Master of Business Administration (MBA).

If a firm based in the Netherlands wishes to avoid the risk of exchange rate movements, and is due to receive USD100,000 in 90 days, it could:

Insurance purchased to cover the risk of expropriation __________, and will typically cover __________.

An increase in the current account deficit will place _______ pressure on the home currency value, other things equal.

______________ is (are) income received by investors on foreign investments in financial assets (securities).

Which of the following is not true regarding host government attitudes towards foreign direct investment (FDI)?

What are the three additional days known as that a drawer gives to the drawee for payment

If portable disk players made in China are imported into the United States, the Chinese manufacturer is paid with

Which one of the following areas is NOT a way companies often respond to exchange rate risk when they alter their product strategy?

With _______, the exporter ships the goods to the importer while still retaining actual title to the merchandise.

A bill of exchange requesting the bank to pay the face amount upon presentation of documents is a:

Who among these can check the price fluctuations in the market by holding back the goods when prices fall and releasing the goods when prices rise

The rate of return on its existing assets that a firm must earn to maintain the current value of the firm's stock is called the:

When computing the weighted average cost of capital, the weighting should be proportional based on the ______ rather than the _____ value of the firm.

An increase in UK interest rates relative to euro interest rates is likely to ________ the UK demand for euros and _________ the supply of euros for sale.

An Austrian firm that buys foreign exchange because its managers expect the euro to depreciate is

The currency of country X is pegged to the currency of country Y. Assume that county Y's currency depreciates against the currency of country Z. It is likely that country X will export _______ to country Z and import _______ from country Z.

A firm that buys foreign exchange in order to take advantage of higher foreign interest rates is

Which of the following is NOT one of the determinants of the gains of adopting a single currency?

With regard to hedging translation exposure, translation losses _______; and gains on forward contracts used to hedge translation exposure _______.

Authority which intervenes directly or indirectly in foreign exchange markets by altering interest rates is considered as

In equilibrium position, spread between foreign and domestic rate of interest must be equal to spread of

A _______ involves an exchange of currencies between two parties, with a promise to re-exchange currencies at a specified exchange rate and future date.

A _______ involves an exchange of currencies between two parties, with a promise to re- exchange currencies at a specified exchange rate and future date.

An international project's NPV is _________ related to the size of the initial investment and _________ related to the project's required rate of return.

An international project's NPV is _________ related to the size of the initial investment and _________ related to the project's required rate of return.

Two important practical differences between the monetary/non-monetary method and the current rate method of translation is found in their treatment of:

The potential effect of exchange rate fluctuations on foreign direct investment is expressed as _____ exposure.

Theory which considers change in exchange rate with fluctuations in inflation rates is classified as

Rule which states that similar set of goods and services produced in various countries should have equal price is classified as

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:

The spot rate for the Singapore dollar is 0.320. The 30-day forward rate is 0.325. The forward rate contains an annualized __________ of ___________%.

In a forward hedge, if the forward rate is an accurate predictor of the future spot rate, the real cost of hedging payables will be:

Which of the following would probably not cause the stock price of a foreign target to decrease?

The burden of a current account deficit would be the least if a nation uses what it borrows to finance:

The equilibrium exchange rate of pounds is $1.70. At an exchange rate of $1.72 per pound:

When the value of one currency falls relative to another currency, the exchange rate for the first currency has

European currency options can be exercised _______; American currency options can be exercised _______.

All else equal and under a system of floating exchange rates, if a country enters a period of exceptionally strong growth,

If U.S. inflation suddenly increased while European inflation stayed the same, there would be:

Other things being equal, a foreign subsidiary in China would more likely be divested by the U.S. parent if new information caused the parent to suddenly anticipate that:

Other things being equal, a foreign subsidiary in China would more likely be divested by the U.S. parent if new information caused the parent to suddenly anticipate that:

If inflation in New Zealand suddenly increased while euro area inflation stayed the same, there would be:

The impact of blocked funds on the net present value of a foreign project will be greater if interest rates are _______ in the host country and there are _______ investment opportunities in the host country.

The international Fisher effect suggests that should pound interest rates exceed US dollar interest rates:

Assume that a bank's bid rate on Swiss francs is 0.25 and its ask rate is 0.26. Its bid-ask percentage spread is:

As opposed to transaction exposure, managing economic exposure involves developing a ________ solution.

The Bank of England may use a stimulative monetary policy with least concern about causing inflation if the pound's value is expected to:

Insurance purchased to cover the risk of expropriation , and will typically cover .

When computing the weighted average cost of capital, the weighting should be proportional based on the __ rather than the _ value of the firm.

An increase in UK interest rates relative to euro interest rates is likely to the UK demand for euros and _ the supply of euros for sale.

The currency of country X is pegged to the currency of country Y. Assume that county Y's currency depreciates against the currency of country Z. It is likely that country X will export _ to country Z and import _ from country Z.

With regard to hedging translation exposure, translation losses _; and gains on forward contracts used to hedge translation exposure _.

An international project's NPV is _ related to the size of the initial investment and _ related to the project's required rate of return.

An international project's NPV is _ related to the size of the initial investment and _ related to the project's required rate of return.

The spot rate for the Singapore dollar is 0.320. The 30-day forward rate is 0.325. The forward rate contains an annualized of _%.

European currency options can be exercised _; American currency options can be exercised _.

The impact of blocked funds on the net present value of a foreign project will be greater if interest rates are _ in the host country and there are _ investment opportunities in the host country.