WorksheetsChapter 1: Overview on International Financial Market & MNCs
Total questions: 20
Worksheet time: 10mins
Which of the following theories identifies specialization as a reason for international business?
theory of comparative advantage.
imperfect markets theory.
product cycle theory.
Which of the following theories suggests that firms seek to penetrate new markets over time?
theory of comparative advantage.
imperfect markets theory.
product cycle theory.
Which of the following industries would most likely take advantage of lower costs in some less developed foreign countries?
assembly line production.
specialized professional services.
nuclear missile planning.
planning for more sophisticated computer technology.
The agency costs of an MNC are likely to be lower if it:
scatters its subsidiaries across many foreign countries.
increases its volume of international business.
uses a centralized management style.
Licensing is the process by which a firm provides its technology (copyrights, patents, trademarks, or trade names) in exchange for fees or some other specified benefits.
True
False
MNCs can improve their internal control process by all of the following, except:
establishing a centralized data base of information
ensuring that all data are reported consistently among subsidiaries
ensuring that the MNC always borrows from countries where interest rates are lowest
using a system that checks internal data for unusual discrepancies
In comparing exporting to direct foreign investment (DFI), an exporting operation will likely incur ____ fixed production costs and ____ transportation costs than DFI.
higher; higher
higher; lower
lower; lower
lower; higher
____ are most commonly classified as a direct foreign investment.
Foreign acquisitions
Purchases of international stocks
Licensing agreements
Exporting transactions
Which of the following is not a way in which agency problems can be reduced through corporate control?
executive compensation.
threat of hostile takeover.
acquisition of a foreign subsidiary.
monitoring by large shareholders.
Assume that an American firm wants to engage in international business without major investment in the foreign country. Which method is least appropriate in this situation?
International Trade
Licensing
Franchising
Direct foreign investment
Assume that a bank's bid rate on Swiss francs is $.45 and its ask rate is $.47. Its bid-ask percentage spread is:
about 4.44%.
about 4.26%.
about 4.03%.
about 4.17%.
____ is not a factor that affects the bid/ask spread.
Order costs
Inventory costs
Volume
All of the above factors affect the bid/ask spread
If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 100,000 in 90 days, it could:
obtain a 90-day forward purchase contract on euros.
obtain a 90-day forward sale contract on euros.
purchase euros 90 days from now at the spot rate.
sell euros 90 days from now at the spot rate.
A forward contract can be used to lock in the ____ of a specified currency for a future point in time.
purchase price
sale price
A or B
none of the above
The international money market primarily concentrates on:
short-term lending (one year or less).
medium-term lending.
medium-term lending.
placing bonds with investors.
The bid-ask spread on an exchange rate can be used to directly determine:
how an exchange rate will change.
the transaction cost of foreign exchange.
the forward premium.
the currency option premium.
A Japanese yen is worth $.0080, and a Fijian dollar (F$) is worth $.5900. What is the value of the yen in Fijian dollars (i.e., how many Fijian dollars do you need to buy a yen)?
73.75.
125
1.69.
0.014.
Assume a U.S. firm has to pay for Korean imports in 60 days. It expects that Korean won will depreciate, but it still wants to hedge its risk. What type of hedging is more appropriate in this situation:
Buy dollars forward
Sell dollars forward
Purchase call option
Purchase put option
Your company expects to receive 5,000,000 Japanese yen 60 days from now. You decide to hedge your position by selling Japanese yen forward. The current spot rate of the yen is $.0089, while the forward rate is $.0095. You expect the spot rate in 60 days to be $.0090. How many dollars will you receive for the 5,000,000 yen 60 days from now if you sell yen forward?
$44,500
$45,000
$526 million
$47,500
Which of the following is probably not appropriate for an MNC wishing to reduce its exposure to British pound payables?
Purchase pounds forward
Buy a pound futures contract
Buy a pound put option
Buy a pound call option
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