ch 17 18

A U.S. firm could issue bonds denominated in euros and partially hedge against exchange rate risk by:

• ​invoicing its exports in U.S. dollars.

• ​requesting that any imports ordered by the firm be invoiced in U.S. dollars. ​

• invoicing its exports in euros. ​requesting that any imports ordered by the firm be invoiced in euros.

• invoicing its exports in euros. ​

An argument for an MNC to have a debt-intensive capital structure is that:

• it can reduce the MNC's exposure to exchange rate risk on earnings remitted by subsidiaries to the parent.

• it can reduce the chance of bankruptcy.

• it spreads the shareholder base.

• it forces subsidiaries to pay dividends to shareholders.

Which of the following factors is generally not expected to have a favorable impact on an MNC's cost of capital according to the text?

• easy access to international capital markets

• high degree of international diversification

• high exposure to exchange rate fluctuations

• All of these are correct.

Which of the following is a corporate characteristic that may affect an MNC's capital structure decision?

• the MNC's cash flow stability

• the MNC's access to retained earnings

• the MNC's credit risk

• All of these may affect an MNC's capital structure decision.

When a country's risk-free rate rises, the cost of equity to an MNC in that country _____, and the cost of debt to an MNC in that country ____, other things held constant.

• increases; increases

• increases; is not affected

• is not affected; increases

• is not affected; is not affected

Which of the following is not a characteristic that favorably affects an MNC's cost of capital, compared to the cost of capital for a domestic firm?

• the MNC's exposure to exchange rate risk

• the MNC's size

• the MNC's access to international capital markets

• the MNC's international diversification

A U.S. firm receives a large amount of cash inflows periodically in Swiss francs as a result of exporting goods to Switzerland. It has no other business outside the United States. It could best reduce its exposure to exchange rate risk by:

• issuing Swiss franc–denominated bonds.

• purchasing Swiss franc–denominated bonds.

• purchasing U.S. dollar–denominated bonds.

• issuing U.S. dollar–denominated bonds.

Countries in emerging markets such as in Latin America tend to have ____ interest rates, and so the yields offered on bonds issued in those countries are ____.

• low; high

• high; low

• high; high

• None of these are correct.

MNCs can use ____ to reduce exchange rate risk. This occurs when two parties provide simultaneous loans with an agreement to repay at a specified point in the future.

• forward contracts

• currency swaps

• parallel loans

• None of these are correct.

When an MNC finances with a floating rate loan in a currency that matches its long-term cash inflows, the MNC is exposed to ____ risk.

• interest rate

• credit

• exchange rate

• None of these are correct.