Chapter 21 LearnSmart

Which of the following refer to a firm with a large portion of its business outside of its parent country? A franchise An international corporation An indirect foreign investment A multinational

An international corporation A multinational

When compared to the home currency approach, which of the following are true for the foreign currency approach to capital budgeting?

The foreign currency approach is computationally easier. The foreign currency approach computes NPV in both foreign and domestic currencies.

Exploiting a disequilibrium between spot rates, forward rates, and differences in interest rates is called:

covered interest arbitrage

The foreign currency approach to capital budgeting analysis

is computationally easier than the home currency approach computes the NPV of a project in both the foreign and domestic currency produces the same results as the home currency approach

A foreign subsidiary can remit funds to the parent company in which of the following ways?

management fees dividends royalties

The natural consequences of international operations in a world were relative currency values move up and down is called _____.

exchange rate risk

One of the most significant complications faced daily by multinationals is _____.

foreign exchange

The use of _____ exchange agreements can help reduce the short term exposure to exchange rate risk.

forward

Which of the following issues are not faced by a purely domestic Canadian firm? Foreign exchange rates Sarbanes-Oxley requirements Canadian government intervention Foreign tax rates

Foreign exchange rates Sarbanes-Oxley requirements Foreign tax rates

The unbiased forward rate condition may not hold if _____.

traders in the forward market are willing to pay a premium to avoid uncertainty

Which of the following are true concerning triangle arbitrage?

arbitrage opportunities can exist in either the spot for the forward markets it is a profitable situation involving three separate currency exchange transactions it helps keep the currency market in equilibrium