test 2 quizzes: 8-13 & 20

Which of the following is one of the attractions of the Eurobond market? Multiple Choice There is no translation exposure. The tax status is favorable. There is regulatory control by the national government. There are more stringent disclosure requirements than for domestic bond markets.

The tax status is favorable.

Which of the following is the most important vehicle currency by trade volume? Multiple Choice U.S. dollar yen British pound euro

U.S. dollar

If many people want euros and euros are in short supply, and a few people want Japanese yen and yen are in plentiful supply, the yen is likely to ________ against the euro. Multiple Choice remain stable appreciate strengthen depreciate

depreciate

Assuming the 60-day forward exchange rate was $1 = ¥110 and the spot exchange rate was $1 = ¥120, the dollar is selling at a(n) ________ on the 60-day forward market. Multiple Choice increment premium margin discount

discount

The extent to which a firm's future international earning power is affected by changes in exchange rates in the long-run is known as ________ exposure. Multiple Choice financial translation transaction economic

economic

Firms that pursue a transnational strategy are trying to simultaneously do many things. Which of the following is one of those things? foster a multidirectional flow of skills between different subsidiaries avoid economies of scale standardize their product offering for the global market achieve higher costs through location economies

foster a multidirectional flow of skills between different subsidiaries

Although the initial cost of capital may be greater with local borrowing, it may be better to borrow locally if the local currency is expected to depreciate on the foreign exchange market. firm's home currency is expected to depreciate against the foreign currency. local currency is expected to appreciate on the foreign exchange market. firm's home currency is expected to appreciate against the foreign currency.

local currency is expected to depreciate on the foreign exchange market.

Customizing a firm's products is most closely associated with a(n) ________ strategy. Multiple Choice transnational international global standardization localization

localization

Chapter 11 The idea that each country should be allowed to choose its own inflation rate is called the ________ argument. Multiple Choice monetary discipline trade balance rigid economy monetary autonomy

monetary autonomy

A ________ rate means the value of the currency is fixed relative to a reference currency and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate. Multiple Choice currency board fixed exchange pegged exchange floating exchange

pegged exchange

Some U.S. multinationals add a premium percentage for risk to the discount rate when evaluating potential foreign investments. Critics argue that this practice Multiple Choice heavily penalizes distant cash flows. fails to recognize early cash flows. penalizes early cash flows too heavily. fails to penalize early cash flows.

penalizes early cash flows too heavily.

By limiting imports through quotas, governments decrease the attractiveness of FDI and licensing.

False

The emergence of single markets will make the business environment within each grouping less competitive.

False

Which of the following is compensation for professional services or expertise supplied to a foreign subsidiary by the parent company? royalty transfer price fronting loan fee

Fee

Which of the following is less likely to add to the pressure for a firm to be locally responsive differences in infrastructure host-government demands differences in consumer tastes and preferences switching costs for consumers

Switching costs for consumers

The rules for preparing financial statements are known as accounting standards. the exchange standard. auditing standards. the gold standard.

Accounting Standards

Identify the correct statement regarding the direction of FDI inflows. Multiple Choice Historically, most FDI has been directed at the developing nations of the world. Among the developed countries, the United Kingdom and France have historically been the lowest recipients of inward FDI. Developed nations still account for the largest share of FDI inflows. FDI into developing nations has been continuously declining over the last two decades.

Developed nations still account for the largest share of FDI inflows.

According to Lessard-Lorange model, the ________ rate is the spot exchange rate when the budget and performance are being compared. Multiple Choice initial ending projected ideal

Ending

A(n) ________ is any currency banked outside its country of origin. Multiple Choice foreign reserve currency international trade dollar international electronic fund balance Eurocurrency

Eurocurrency

The emerging role of the ________ in competition policy suggests the EU is increasingly willing and able to intervene and impose conditions on companies proposing mergers and acquisitions. Multiple Choice Court of Justice European Parliament European Commission European Council

European Commission

Chapter 8 The location-specific advantages argument associated with John Dunning explains why firms prefer FDI to licensing or to exporting.

False

The fast-food industry is a good example of a business sector where licensing is a poor option for FDI.

False

The ________ writes the generally accepted accounting principles by which the financial statements of U.S. firms must be prepared. U.S. Securities and Exchange Commission International Accounting Standards Board Financial Accounting Standards Board Office of Economic Analysis

Financial Accounting Standards Board

________ are sold outside of the borrower's country and denominated in the currency in which they are issued, and ________ are normally underwritten by an international syndicate of banks and placed in countries other than the one in which the bond is denominated. Multiple Choice National bonds; global bonds Common bonds; preferred bonds Simple bonds; compound bonds Foreign bonds; Eurobonds

Foreign bonds; Eurobonds

Chapter 10 ________ draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements. Multiple Choice Technical analysis Elliott wave analysis Fundamental analysis

Fundamental analysis

Using multilateral netting in international businesses helps firms to reduce the fixed costs of establishing a subsidiary. avail tax credit from governments. reduce the transaction costs. establish a tax heaven within its network.

Reduce the transaction cost

Unlike firms pursuing a global standardization strategy, firms pursuing an international strategy Increase profitability by customizing goods or services to local needs. face significant competition. pursue a low-cost strategy on a global scale. are not confronted with pressures to reduce their cost structure.

are not confronted with pressures to reduce their cost structure.

A function of a capital market is to Multiple Choice make speculation an attractive way to diversify a financial portfolio. bring together those who want to invest money with those who want to borrow money. provide an opportunity for firms and individuals to exchange currency. provide sellers of capital goods a way to find potential buyers.

bring together those who want to invest money with those who want to borrow money.

One of the impediments to integration arises from Multiple Choice concerns that too many multinational firms will lose investors. the fact that a nation as a whole typically does not benefit. the fact that economic integration aids a minority. concerns over national sovereignty.

concerns over national sovereignty.

A ________ occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency or forces authorities to expend large volumes of international currency reserves and sharply increase interest rates to defend the prevailing exchange rate. Multiple Choice currency crisis foreign debt crisis crisis of the World Bank banking crisis

currency crisis

Ion the balance of payments, how does a country record transactions involving the export and import of its goods and services? Multiple Choice capital account surplus account debit account current account

current account

A localization strategy focuses on increasing profitability by offering standardized goods and services. customizing the firm's goods or services to local conditions. using cost advantage to support aggressive pricing in world markets. capturing the cost reductions associated with mass-production.

customizing the firm's goods or services to local conditions.

South Korean firm wants to hedge against unpredictable movements in foreign exchange rates which can make the global capital market riskier. What should the company do to achieve this? Multiple Choice borrow from the IMF enter into a forward contract adjust the timing of the payments and receipts to stay ahead of speculative movements restrict transactions to the London market, which has favorable regulations

enter into a forward contract

A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a ________ rate. Multiple Choice fixed exchange free float exchange flexible exchange managed floating

fixed exchange

What is the name of the market in which the currency of one country is converted into currency of another country? Multiple Choice NYSE currency market carry trade market foreign exchange market

foreign exchange market

Jake's multinational company wants to reduce its costs by leveraging economies of scale, and it doesn't want to customize its products offerings or marketing plans for local conditions because that will increase costs. Which strategy should Jake's firm pursue? Transnational strategy global standardization strategy localization strategy international strategy

global standardization strategy

One of the consequences of the global financial crisis of 2008 and 2009 for hedge funds, which are private investment funds, was a(n) Multiple Choice near disappearance of hedge funds. call for nationalizing their companies to take operations out of private hands. investigation into their practices by the WTO. growing concern that deregulation had gone too far.

growing concern that deregulation had gone too far.

The Eurocurrency market has two significant drawbacks: ________ and ________. Multiple Choice higher probability of bank failure; foreign exchange risk nonconvertibilty; deregulation EU strict banking regulations; economic exposure translation exposure; transaction exposure

higher probability of bank failure; foreign exchange risk

A global capital market benefits borrowers by lowering the cost of capital and Multiple Choice providing a wider range of investment opportunities. diversifying their risk. minimizing or eliminating tax liabilities. increasing the supply of funds available for borrowing.

increasing the supply of funds available for borrowing.

Increasingly, the International Monetary Fund (IMF) has been acting as the macroeconomic police of the world economy by Multiple Choice insisting that countries seeking significant borrowings adopt IMF-mandated macroeconomic policies. calling for increased government spending in member countries. using inflationary monetary policies that keep the market balanced. enacting policies that cause a sharp increase in demand, thereby driving additional manufacturing.

insisting that countries seeking significant borrowings adopt IMF-mandated macroeconomic policies.

A managed float is the exchange rate policy where the government Multiple Choice intervenes in the exchange rate system only in a limited way. decides the exchange rate at which a country's currency is traded. forms an agreement with other countries to fix the exchange rate. does not intervene in the country's exchange rate system.

intervenes in the exchange rate system only in a limited way.

Computer Contractors has given a foreign entity the right to produce and sell its computer parts in return for a royalty fee on every unit sold. This is called Multiple Choice vertical FDI. licensing. an acquisition. a greenfield investment.

licensing.

Which of the following is a home-country policy aimed at limiting outward FDI flow? Multiple Choice double taxation of foreign income implementing government-backed insurance programs to cover major types of foreign investment risk persuading host countries to relax their restrictions on inbound FDI limiting capital outflows

limiting capital outflows

A banking crisis refers to Multiple Choice high levels of trade deficit in a country. low interest rates offered by the banks. loss of confidence in the banking system. high reserve requirements on the banks.

loss of confidence in the banking system.

The International Monetary Fund was established at the Bretton Woods conference to Multiple Choice promote general economic development in the world. establish gold standards across the world. maintain order in the international monetary system. fund the initiatives of the United Nations.

maintain order in the international monetary system.

Five airlines control 90 percent of the aviation sector of a country. The aviation industry in the country would be an example of a(n) Multiple Choice oligopoly. monopoly. oligarchy. perfectly competitive market.

oligopoly.

Host governments use a wide range of controls to restrict FDI in one way or another. The two most common are ________ and performance requirements. Multiple Choice subsidies tax concessions low-interest loans ownership restraints

ownership restraints

Chapter 12 Economist Martin Feldstein has coined the term ________ money to pertain to long-term, cross-border capital flows. Multiple Choice patient border international hot

patient

Nicaragua bases the valuation of its currency on the U.S. dollar. The value of Nicaragua's currency is changed based on the changes in the value of the dollar. This is an example of a ________ exchange rate system. Multiple Choice managed float pegged currency board free float

pegged

The ________ suggests that given relatively efficient markets, the price of a "basket of goods" should be roughly equivalent in each country. Multiple Choice theory of price inflation theory of competitive advantage purchasing power parity theory law of one price

purchasing power parity theory

Martin Feldstein credits Mexico's economic problems in the 1990s to too much ________ flowing in and out of the country. Multiple Choice spot exchange patient money short-term capital PPP

short-term capital

A Japanese tourist in New York goes to a bank to convert his yens into dollars. The exchange rate that will be used for conversion will be the Multiple Choice historical exchange rate. futures exchange rate. forward exchange rate. spot exchange rate.

spot exchange rate.

What is the ultimate controlling authority within the EU because it has the power to turn legislation into law? Multiple Choice the European Court of Justice the European Commission the European Parliament the European Council

the European Council

According to the law of one price, identical products sold in different countries must sell for the same price when Multiple Choice they are sold by the same company. their price is based on the lowest price available. their price is expressed in terms of the same currency. they are sold by competing companies.

their price is expressed in terms of the same currency.

Chapter 20 Which of the following is the technique that financial managers use to try to quantify the benefits, costs, and risks of an investment? capital budgeting transfer pricing internal audit personal accounting

Capital Budgeting

Which of the following is true about core competence? R&D, human resources, logistics, and general management are not core competence skills. Core competence skills are typically expressed in product offerings that other firms find difficult to match or imitate. The term core competence refers to the design, creation, and delivery of the product. Firms that transfer core competence skills to foreign markets can realize location economies.

Core competence skills are typically expressed in product offerings that other firms find difficult to match or imitate.

The biggest economic risk that has come from economic mismanagement has been inflation. containment. isolationism. deregulation.

Inflation

Lessard and Lorange refer to company-generated forecasts of future spot rates as the Multiple Choice ending rate. internal forward rate. domestic rate. future rate.

Internal Foward Rate

Chapter 13 A U.S. company imports raw materials from Africa, has manufacturing facilities in China, and uses a company in India for assembly. This company is benefiting from ________ economies. standard translation location experience

Location

Firms respond to pressures for cost reduction by trying to Multiple choice: undertake product differentiation. diversify product lines. lower the costs of value creation. be locally responsive.

Lower the costs of value creation.

Under the gold standard, what occurs when Japan has a trade surplus? Multiple Choice No other countries will trade gold with Japan. There will be a net flow of gold from the United States to Japan. The United States will experience negative price inflation. The prices of commodities will be low in the United States.

There will be a net flow of gold from the United States to Japan.

Chapter 9 The movement toward regional economic integration has been most successful in Europe.

True

Offshore production refers to FDI undertaken to serve the home market.

True

People from every nation rely on the same petroleum and steel to drive their cars and build their homes. These two products are examples of ________ needs. basic bundled homogenous universal

Universal

When is a currency said to be externally convertible? Multiple Choice When both residents and nonresidents can purchase unlimited amounts of a foreign currency. When only residents can convert it into a foreign currency. When neither residents nor nonresidents are allowed to convert it into a foreign currency. When only nonresidents can convert it into a foreign currency without any limitations.

When only nonresidents can convert it into a foreign currency without any limitations.