8815 + Mcqs in National Page 48 McqOptions

2351.	Which of the following would NOT be a cause for an increased American demand for the euros?
A.	The United States having lower interest rates than the Euro Area
B.	Increased American demand for Euro Area goods
C.	The expectation by speculators that the value of the euro is edging up
D.	More economic expansion in the United States
Answer» C. The expectation by speculators that the value of the euro is edging up

Discussion

2352.	What does financial leverage measure?
A.	No change with EBIT and EPS
B.	The sensibility of EBIT with % change with respect to output
C.	The sensibility of EPS with % change in the EBIT level
D.	% variation in the level of production
Answer» D. % variation in the level of production

Discussion

2353.	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 fluctuations.
D.	exposure to fund blockage.
Answer» B. foreign government tax rules may change over time.

Discussion

2354.	Any event that reduces the euro area demand for Japanese yen should result in a(n) _______ in the value of the Japanese yen with respect to _______, other things being equal.
A.	increase; euro
B.	increase; noneuro currencies
C.	decrease; noneuro currencies
D.	decrease; euro
Answer» E.

Discussion

2355.	The capital budget is associated with.
A.	Long terms and short terms assets
B.	Fixed assets
C.	Long terms assets
D.	Short term assets
Answer» D. Short term assets

Discussion

2356.	______________ is(are) not a form of political risk.
A.	Exchange rate movements
B.	Attitude of consumers in the host country
C.	Actions of the host government
D.	Blockage of fund transfers
Answer» B. Attitude of consumers in the host country

Discussion

2357.	To enter markets where superior profits are possible, an MNC should:
A.	acquire a competitor that has controlled its local market.
B.	establish a subsidiary or acquire a competitor in a new market.
C.	establish a subsidiary in a market where tougher trade restriction will adversely affect the firm's export volume.
D.	establish subsidiaries in markets whose business cycles differ from those where existing subsidiaries are based.
Answer» B. establish a subsidiary or acquire a competitor in a new market.

Discussion

2358.	When economic conditions of two countries are ________, then a firm would _______ its risk by operating in both countries instead of concentrating just in one.
A.	highly correlated; reduce
B.	not highly correlated; reduce
C.	not highly correlated; not reduce
D.	none of the above
Answer» D. none of the above

Discussion

2359.	Foghat Co. has 1,000,000 euros as receivables due in 30 days, and is certain that the euro will depreciate substantially over time. Assuming that the firm is correct, the ideal strategy is to:
A.	sell euros forward.
B.	write euro currency put options.
C.	purchase euro currency call options.
D.	purchase euros forward.
Answer» B. write euro currency put options.

Discussion

2360.	Covered interest arbitrage involves both
A.	the purchase of a foreign asset and a forward contract in the market for foreign exchange.
B.	the purchase of a domestic asset and a spot contract in the market for foreign exchange.
C.	the sale of a foreign asset and the purchase of a forward contract in the market for foreign exchange.
D.	the sale of domestic stocks and the purchase of foreign bonds.
Answer» E.

Discussion

2361.	If a UK parent is setting up a French subsidiary, and funds from the subsidiary will be periodically sent to the parent, the ideal situation from the parent's perspective is a ____ after the subsidiary is established.
A.	strengthening euro
B.	stable euro
C.	weak euro
D.	B and C are both ideal.
Answer» B. stable euro

Discussion

2362.	Other things being equal, countries with relatively _______ populations and _______ inflation are more likely to have a low cost of capital.
A.	young; high
B.	old; high
C.	old; low
D.	young; low
Answer» D. young; low

Discussion

2363.	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

2364.	An increase in the current account deficit will place _______ pressure on the homecurrency 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

2365.	A bill of exchange requesting the bank to pay the face amount upon presentation ofdocuments is a:
A.	banker's acceptance.
B.	time draft.
C.	letter of credit.
D.	sight draft.
Answer» E.

Discussion

2366.	A(n) ___________ is an unconditional promise drawn by one party, instructing the buyer to pay the face amount upon presentation.
A.	draft
B.	bill of lading
C.	trade acceptance
D.	letter of credit
Answer» B. bill of lading

Discussion

2367.	Covered interest rate parity occurs as the result of:
A.	the actions of market-makers.
B.	purchasing power parity
C.	interest rate arbitrage.
D.	stabilising speculation.
Answer» D. stabilising speculation.

Discussion

2368.	Other things being equal, a foreign subsidiary in China would more likely be divestedby 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

2369.	If a firm based in the Netherlands wishes to avoid the risk of exchange rate movements, andis 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

2370.	An Austrian firm that buys foreign exchange because its managers expect the euro todepreciate 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

2371.	The premium of a currency put option will increase if:
A.	the volatility of the underlying asset goes up.
B.	the time to maturity goes up.
C.	the spot rate declines.
D.	none of the above
Answer» E.

Discussion

2372.	A share of the ADR of a Dutch firm represents one share of that firm's stock that is traded on a Dutch stock exchange. The share price of the firm was 15 euros when the Dutch market closed. As the U.S. market opens, the euro is worth $1.10. Thus, the price of the ADR should be _____.
A.	$13.64
B.	$15.00
C.	$16.50
D.	16.50 euros
Answer» D. 16.50 euros

Discussion

2373.	When a country realizes a deficit on its current account:
A.	Its net foreign investment position becomes positive
B.	It becomes a net demander of funds from other countries
C.	It realizes an excess of imports over exports on goods and services
D.	It becomes a net supplier of funds to other countries
Answer» C. It realizes an excess of imports over exports on goods and services

Discussion

2374.	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

2375.	A foreign project generates a negative cash flow in year 1 and positive cash flows in years 2 through 5. The NPV for this project will be higher if the foreign currency _________ in year 1 and _________ in years 2 though 5.
A.	depreciates; depreciates
B.	appreciates; appreciates
C.	depreciates; appreciates
D.	appreciates; depreciates
Answer» D. appreciates; depreciates

Discussion

2376.	When the value of one currency falls relative to another currency, the exchange rate forthe first currency has
A.	revalued.
B.	depreciated.
C.	appreciat
Answer» C. appreciat

Discussion

2377.	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

2378.	In order to protect against foreign exchange risk, firms can use
A.	the spot market for foreign exchange.
B.	interest rate arbitrage.
C.	purchasing power parity.
D.	the forward market for foreign exchange.
Answer» C. purchasing power parity.

Discussion

2379.	A call option exists on British pounds with an exercise price of $1.60, a 90-day expiration date, and a premium of $.03 per unit. A put option exists on British pounds with an exercise price of $1.60, a 90-day expiration date, and a premium of $.02 per unit. You plan to purchase options to cover your future receivables of 700,000 pounds in 90 days. You will exercise the option in 90 days (if at all). You expect the spot rate of the pound to be $1.57 in 90 days. Determine the amount of dollars to be received, after deducting payment for the option premium. Choices:
A.	$1,169,000.
B.	$1,099,000.
C.	$1,106,000.
D.	$1,143,100.
Answer» D. $1,143,100.

Discussion

2380.	Which of the following is not a payment method used for international trade?
A.	consignment.
B.	open account.
C.	factoring.
D.	draft.
Answer» D. draft.

Discussion

2381.	Countertrade represents foreign trade:
A.	restrictions imposed by the government on imports from another country.
B.	restrictions imposed by the government on exports sent from the country.
C.	transactions that force the sales of goods of one country to be linked to the purchase or exchange of goods from the country.
D.	financing provided to an exporter in exchange for goods provided to the creditor by the exporter.
Answer» D. financing provided to an exporter in exchange for goods provided to the creditor by the exporter.

Discussion

2382.	If the Indian subsidiary of a US firm has net exposed assets of Rp9,000,000 and the Indian rupee drops in value from Rp45.00/$ to Rp50.00/$, the US firm has a translation:
A.	Loss of $25,000
B.	Gain of $20,000
C.	Loss of $20,000
D.	Gain of $25,000
Answer» D. Gain of $25,000

Discussion

2383.	When the dollar strengthens, the reported consolidated earnings of U.S. based MNCs are _______ affected by translation exposure. When the dollar weakens, the reported consolidated earnings are __________ affected.
A.	favorably; favorably affected but by a smaller degree
B.	favorably; favorably affected by a higher degree
C.	unfavorably; favorably affected
D.	favorably; unfavorably affected
Answer» D. favorably; unfavorably affected

Discussion

2384.	Given a home country and a foreign country, purchasing power parity suggests that:
A.	the home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate;
B.	the home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.
C.	the home currency will depreciate if the current home interest rate exceeds the current foreign interest rate;
D.	the home currency will depreciate if the current home inflation rate exceeds the current foreign interest rate;
Answer» C. the home currency will depreciate if the current home interest rate exceeds the current foreign interest rate;

Discussion

2385.	Which of the following is NOT one of the determinants of the gains of adopting a singlecurrency?
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

2386.	An American firm has just bought merchandise from a British firm for £50,000 on terms of net 90 days. The U.S. company has purchased a 3-month call option of 50,000 pounds at a strike of $1.7 per pound and premium cost of $0.02 per pound. On the day the option matures, the spot exchange rate is $1.8 per pound. Should the U.S. company exercise the option at that time or buy British pounds in the spot market?
A.	exercise the option
B.	buys British pound spot
C.	does not make any difference
D.	cannot tell
Answer» B. buys British pound spot

Discussion

2387.	A _______ involves an exchange of currencies between two parties, with a promise tore-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

2388.	Assume the U.S. dollar is worth £0.55, and the Canadian dollar is worth £0.47. What is the value of the Canadian dollar in U.S. dollars to the nearest cent?
A.	1.54.
B.	0.42.
C.	0.15
D.	0.85
Answer» E.

Discussion

2389.	The __________ the percentage of an MNC's business conducted by its foreign subsidiaries, the _________ the percentage of a given financial statement item that is susceptible to translation exposure.
A.	greater; smaller
B.	smaller; greater
C.	greater; greater
D.	none of the above
Answer» D. none of the above

Discussion

2390.	In equilibrium position, spread between foreign and domestic rate of interest must be equalto spread of
A.	domestic rates
B.	forward and spot exchange rates
C.	forward rate
D.	spot rates
Answer» C. forward rate

Discussion

2391.	The real cost of hedging payables with a forward contract equals:
A.	the nominal cost of hedging minus the nominal cost of not hedging.
B.	the nominal cost of not hedging minus the nominal cost of hedging.
C.	the nominal cost of hedging divided by the nominal cost of not hedging.
D.	the nominal cost of not hedging divided by the nominal cost of hedging.
Answer» B. the nominal cost of not hedging minus the nominal cost of hedging.

Discussion

2392.	Which one of the following represents the best estimate for a firm's pre-tax cost of debt?
A.	the current yield-to-maturity on the firm's existing debt
B.	the firm's historical cost of capital
C.	twice the rate of return currently offered on risk-free securities
D.	the current coupon on the firm's existing debt
Answer» B. the firm's historical cost of capital

Discussion

2393.	A country with high unemployment could best increase its employment by:
A.	encouraging foreign firms to establish subsidiaries that produce the same products local firms produce.
B.	encouraging foreign firms to establish licensing arrangements for products local firms produce.
C.	encouraging foreign firms to establish subsidiaries that produce products local firms do not produce.
D.	none of the above would reduce employment.
Answer» D. none of the above would reduce employment.

Discussion

2394.	Interest Rate Parity (IRP) implies that:
A.	Interest rates should change by an equal amount but in the opposite direction to the difference in inflation rates between two countries
B.	The difference in interest rates in different currencies for securities of similar risk and maturity should be consistent with the forward rate discount or premium for the foreign currency
C.	The interest rates between two countries start in equilibrium, any change in the differential rate of inflation between the two countries tends to be offset over the longterm by an equal but opposite change in the spot exchange rate
D.	In the long run real interest rate between two countries will be equal
Answer» C. The interest rates between two countries start in equilibrium, any change in the differential rate of inflation between the two countries tends to be offset over the longterm by an equal but opposite change in the spot exchange rate

Discussion

2395.	In which case will locational arbitrage most likely be feasible?
A.	One bank's ask price for a currency is greater than another bank's bid price for the currency.
B.	One bank's bid price for a currency is greater than another bank's ask price for the currency.
C.	One bank's ask price for a currency is less than another bank's ask price for the currency.
D.	One bank's bid price for a currency is less than another bank's bid price for the currency.
Answer» C. One bank's ask price for a currency is less than another bank's ask price for the currency.

Discussion

2396.	From the below-mentioned items which are financial assets?
A.	Machines
B.	Bonds
C.	Stocks
D.	B and C
Answer» D. B and C

Discussion

2397.	One example of Small scale Fixed retailers among these is
A.	Pedlars
B.	General stores
C.	Hawkers
D.	Cheap Jacks
Answer» C. Hawkers

Discussion

2398.	Arbitrageurs in foreign exchange markets:
A.	take advantage of the small inconsistencies that develop between markets.
B.	attempt to make profits by outguessing the market.
C.	make their profits through the spread between bid and offer rates of exchange.
D.	need foreign exchange in order to buy foreign goods.
Answer» B. attempt to make profits by outguessing the market.

Discussion

2399.	The most preferred form of securities for funding by firms in the U.S. is
A.	debt
B.	preferred stock
C.	common stock
D.	stock derivatives
Answer» B. preferred stock

Discussion

2400.	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» C. highly negative.

Discussion

Explore topic-wise MCQs in Current Affairs.

Which of the following would NOT be a cause for an increased American demand for the euros?

What does financial leverage measure?

An argument for MNCs to have a debt-intensive capital structure is:

Any event that reduces the euro area demand for Japanese yen should result in a(n) _______ in the value of the Japanese yen with respect to _______, other things being equal.

The capital budget is associated with.

______________ is(are) not a form of political risk.

To enter markets where superior profits are possible, an MNC should:

When economic conditions of two countries are ________, then a firm would _______ its risk by operating in both countries instead of concentrating just in one.

Foghat Co. has 1,000,000 euros as receivables due in 30 days, and is certain that the euro will depreciate substantially over time. Assuming that the firm is correct, the ideal strategy is to:

Covered interest arbitrage involves both

If a UK parent is setting up a French subsidiary, and funds from the subsidiary will be periodically sent to the parent, the ideal situation from the parent's perspective is a ____ after the subsidiary is established.

Other things being equal, countries with relatively _______ populations and _______ inflation are more likely to have a low cost of capital.

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

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

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

A(n) ___________ is an unconditional promise drawn by one party, instructing the buyer to pay the face amount upon presentation.

Covered interest rate parity occurs as the result of:

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

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

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

The premium of a currency put option will increase if:

A share of the ADR of a Dutch firm represents one share of that firm's stock that is traded on a Dutch stock exchange. The share price of the firm was 15 euros when the Dutch market closed. As the U.S. market opens, the euro is worth $1.10. Thus, the price of the ADR should be _____.

When a country realizes a deficit on its current account:

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 foreign project generates a negative cash flow in year 1 and positive cash flows in years 2 through 5. The NPV for this project will be higher if the foreign currency _________ in year 1 and _________ in years 2 though 5.

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

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

In order to protect against foreign exchange risk, firms can use

Which of the following is not a payment method used for international trade?

Countertrade represents foreign trade:

If the Indian subsidiary of a US firm has net exposed assets of Rp9,000,000 and the Indian rupee drops in value from Rp45.00/$ to Rp50.00/$, the US firm has a translation:

When the dollar strengthens, the reported consolidated earnings of U.S. based MNCs are _______ affected by translation exposure. When the dollar weakens, the reported consolidated earnings are __________ affected.

Given a home country and a foreign country, purchasing power parity suggests that:

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

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

Assume the U.S. dollar is worth £0.55, and the Canadian dollar is worth £0.47. What is the value of the Canadian dollar in U.S. dollars to the nearest cent?

The __________ the percentage of an MNC's business conducted by its foreign subsidiaries, the _________ the percentage of a given financial statement item that is susceptible to translation exposure.

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

The real cost of hedging payables with a forward contract equals:

Which one of the following represents the best estimate for a firm's pre-tax cost of debt?

A country with high unemployment could best increase its employment by:

Interest Rate Parity (IRP) implies that:

In which case will locational arbitrage most likely be feasible?

From the below-mentioned items which are financial assets?

One example of Small scale Fixed retailers among these is

Arbitrageurs in foreign exchange markets:

The most preferred form of securities for funding by firms in the U.S. is

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:

Any event that reduces the euro area demand for Japanese yen should result in a(n) _ in the value of the Japanese yen with respect to _, other things being equal.

When economic conditions of two countries are __, then a firm would _ its risk by operating in both countries instead of concentrating just in one.

Other things being equal, countries with relatively _ populations and _ inflation are more likely to have a low cost of capital.

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 foreign project generates a negative cash flow in year 1 and positive cash flows in years 2 through 5. The NPV for this project will be higher if the foreign currency _ in year 1 and _ in years 2 though 5.

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

When the dollar strengthens, the reported consolidated earnings of U.S. based MNCs are _ affected by translation exposure. When the dollar weakens, the reported consolidated earnings are ____ affected.

The __ the percentage of an MNC's business conducted by its foreign subsidiaries, the _ the percentage of a given financial statement item that is susceptible to translation exposure.