Quiz 1, QUIZ 2, QUIZ 3, QUIZ 4

Which of the following would likely have the least direct influence on a country's current account?

a tax on income earned from foreign stocks.

An MNC may be more exposed to agency problems if most of its shares are held by:

a widely dispersed set of individual investors

An MNC will always use the same required rate of return in the valuation of foreign projects, as it would for its domestic projects.

FALSE

An MNC with receivables in Japanese Yen purchases yen forward to hedge its exposure to exchange rate fluctuations.

FALSE

An investor engaging in a transaction whereby he or she contracts to purchase British pounds one year from now is an example of a spot market transaction.

FALSE

Assume that an MNC has a subsidiary in Italy, which exports its products to various countries in Europe. Since all of the countries where it exports use Euro as their currency, this MNC is not subject to the exchange rate risk.

FALSE

Banks charge larger bid/ask spreads than they would on less liquid, less traded currencies.

FALSE

Country X frequently engages in trade flows with the U.S. (such as imports and exports). Country Y frequently engages in capital flows with the U.S. (such as financial investments). Everything else held constant, an increase in U.S. interest rates would affect the exchange rate of Country X's currency more than the exchange rate of Country Y's currency.

FALSE

Direct foreign investment by U.S.-based MNCs occurs primarily in the Bahamas and Brazil.

FALSE

Eurobonds are certificates representing bundles of stock.

FALSE

Exporting of products by one country to other countries at prices below cost is called elasticity.

FALSE

Global regulations require that shareholders in all countries have the same rights wherever there are stock markets.

FALSE

Government controls can only affect the supply of a given currency for sale and not the demand.

FALSE

If a U.S. firm sets up a plant in Mexico to benefit from low cost labor, it will likely have a comparative advantage over other firms in Mexico that sell the same product.

FALSE

If a U.S.-based MNC focused completely on exporting, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time.

FALSE

If managers of foreign subsidiaries make decisions that maximize the values of their respective subsidiaries, they automatically maximize the value of the entire corporation.

FALSE

If one foreign currency will appreciate against the dollar, then all foreign currencies will appreciate against the dollar but by different degrees.

FALSE

If there is a strong demand to borrow a currency, and a low supply of savings in that currency, the interest rate will be relatively low.

FALSE

Illiquid currencies tend to exhibit less volatile exchange rate movements than liquid currencies.

FALSE

In response to the Sarbanes-Oxley Act, the reporting costs were reduced, and many non-U.S. firms that issued new shares of stock decided to place their stock in the United States.

FALSE

Increases in relative income in one country vs. another result in an increase in the first country's currency value

FALSE

Institutional investors such as mutual funds or pension funds which have large holdings of an MNC's stock do not normally want to take control of it and therefore have no influence over management of the MNC.

FALSE

Movements of foreign currencies tend to be more volatile for shorter time horizons.

FALSE

The Basel Accord is an agreement among the major European countries to make regulations more uniform across European countries and to reduce taxes on goods traded between these countries.

FALSE

The Central American Trade Agreement (CAFTA) is intended to raise tariffs and regulations between the U.S., the Dominican Republic, and Central American countries.

FALSE

The Single European Act prevented a trend toward increased globalization in the banking industry.

FALSE

The Theory of Comparative Advantage begins by assuming that a given firm first becomes established in its home country and may subsequently penetrate foreign markets via geographic or product differentiation.

FALSE

The World Bank extends loans only to developed nations, while the International Development Association (IDA) extends loans only to developing nations.

FALSE

The capital account reflects changes in country ownership of long-term (but not short-term) assets.

FALSE

The current account represents the investment in fixed assets in foreign countries that can be used to conduct business operations.

FALSE

The degree of financial information that must be provided by public companies is the same among countries.

FALSE

The exchange rates of smaller countries are very stable because the market for their currency is very liquid.

FALSE

The existence of imperfect markets has prevented the internationalization of financial markets.

FALSE

The forward rate is the exchange rate used for immediate exchange of currencies.

FALSE

The interest rate commonly charged for loans between banks is called the cross rate.

FALSE

The interest rate in developing countries is usually very low.

FALSE

The legal protection of shareholders is the same among countries.

FALSE

The main effect of interest rate movements on exchange rates is through their effect on international trade

FALSE

The more intense the competition for the traded currency, the larger the bid/ask spread.

FALSE

The World Bank was established to:

enhance economic development through non-subsidized loans (at market interest rates).

MNCs can improve their internal control process by all of the following, except:

ensuring that the MNC always borrows from countries where interest rates are lowest

From 1944 to 1971, the exchange rate between any two currencies was typically:

fixed within narrow boundaries.

A weak home currency may not be a perfect solution to correct a balance of trade deficit because:

foreign companies may reduce the prices of their products to stay competitive.

An obligation to purchase a specific amount of currency at a future point in time is called a:

forward contract

Assume that Boca Co. wants to expand its business to Japan, and wants complete control over the operations in Japan. Which method of international business is most appropriate for Boca Co?

Licensing

The establishment of a new subsidiary is commonly considered by MNCs because the cost is less expensive than acquiring a foreign subsidiary of the same size.

TRUE

The government enforcement of securities laws varies among countries.

TRUE

The international money market is frequently accessed by MNCs for short-term investment and financing decisions, while longer term financing decisions are made in the international credit market or the international bond market and in international stock markets.

TRUE

The markets that have a smaller amount of foreign exchange trading for speculatory purposes than for trade purposes will likely experience more volatility than those where trade flows play a larger role.

TRUE

The parent of MNC can implement compensation plans that directly reward the subsidiary managers for enhancing the value of the MNC.

TRUE

The sale of patent rights by a U.S. firm to a Russian firm reflects a credit to the U.S. balance of payments account.

TRUE

The strike price on a currency option is also known as an exercise price.

TRUE

The term "eurobor" is widely used to reflect the interbank offer rate on euros.

TRUE

Under the Product Cycle Theory, foreign demand can be initially satisfied by exporting.

TRUE

Under the gold standard, each currency was convertible into gold at a specified rate, and the exchange rate between two currencies was determined by their relative convertibility rates per ounce of gold.

TRUE

Which of the following events would most likely result in an appreciation of the U.S. dollar?

The Fed indicates that it will raise U.S. interest rates.

The MNC's value depends on all of the following, except:

The value of MNC depends on all of the above factors

Which of the following is not true regarding electronic communications networks (ECNs)?

They have a visible trading floor

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 ____.

$16.50

Which of the following is not a possible bid/ask quotation for the Barbados dollar?

$.52/$.51

The value of euro was $1.30 last week. During last week the euro depreciated by 5%. What is the value of euro today?

$1.235 ((($1.3 × (1 − .05) = $1.235)))

Livingston Co. has a subsidiary in Korea. The subsidiary reinvests half of its net cash flows into operations and remits half to the parent. Livingston's expected cash flows from domestic business are $100,000 and the Korean subsidiary is expected to generate 100 million Korean won at the end of the year. The expected value of won is $.0012. What are the expected dollar cash flows of Livingston Co.?

$160,000

Baylor Bank believes the New Zealand dollar will appreciate over the next five days from $.48 to $.50. The following annual interest rates apply: Currency Lending Rate Borrowing Rate Dollars 7.10% 7.50% New Zealand dollar (NZ$) 6.80% 7.25% Baylor Bank has the capacity to borrow either NZ$10 million or $5 million. If Baylor Bank's forecast is correct, what will its dollar profit be from speculation over the five-day period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)?

$208,044. HOW: 1. Borrow $5 million. 2. Convert to NZ$: $5,000,000/$.48 = NZ$10,416,667. 3. Invest the NZ$ at an annualized rate of 6.80% over five days. NZ$10,416,667 × [1 + 6.80% (5/360)] = NZ$10,426,505 4. Convert the NZ$ back to dollars: NZ$10,426,505 × $.50 = $5,213,252 5. Repay the dollars borrowed. The repayment amount is: $5,000,000 × [1 + 7.5% (5/360)] = $5,000,000 × [1.00104] = $5,005,208 6. After repaying the loan, the remaining dollar profit is: $5,213,252 − $5,005,208 = $208,044

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?

$47,500

Assume that Live Co. has expected cash flows of $200,000 from domestic operations, SF200,000 from Swiss operations, and 150,000 euros from Italian operations at the end of the year. The Swiss franc's value and euro's value are expected to be $.83 and $1.29 respectively, at the end this year. What are the expected dollar cash flows of Live Co?

$559,500

Assume the following information regarding U.S. and European annualized interest rates: Currency Lending Rate Borrowing Rate U.S. Dollar ($) 6.73% 7.20% Euro (€) 6.80% 7.28% Trensor Bank can borrow either $20 million or €20 million. The current spot rate of the euro is $1.13. Furthermore, Trensor Bank expects the spot rate of the euro to be $1.10 in 90 days. What is Trensor Bank's dollar profit from speculating if the spot rate of the euro is indeed $1.10 in 90 days?

$579,845 HOW: 1. Borrow €20 million. 2. Convert the €20 million to €20,000,000 × $1.13 = $22,600,000. 3. Invest the $22,600,000 at an annualized rate of 6.73% for 90 days. $22,600,000 × [1 + 6.73% (90/360)] = $22,980,245 4. Determine euros owed: €20,000,000 × [1 + 7.28% (90/360)] = €20,364,000. 5. Determine dollars needed to repay euro loan: €20,364,000 × $1.10 = $22,400,400. 6. The dollar profit is $22,980,245 − $22,400,400 = $579,845.

Which of the following is not one of the more common methods used by MNCs to improve their internal control process?

-Establishing a centralized database of information -Ensuring that all data are reported consistently among subsidiaries -Speeding the process by which all departments and all subsidiaries have access to the data that they need -Making executives more accountable for financial statements by personally verifying their accuracy

Agency costs faced by multinational corporations (MNCs) may be larger than those faced by purely domestic firms because

-Monitoring of managers located in foreign countries is more difficult. -Foreign subsidiary managers raised in different cultures may not follow uniform goals. -MNCs are relatively large.

A centralized management style for an MNC results in relatively high agency costs.

FALSE

The most risky method(s) by which firms conduct international business is (are):

-The acquisitions of existing operations. -The establishment of new subsidiaries.

International trade:

-is a relatively conservative approach to foreign market penetration. -entails minimal risk. -does not require large amount of investment.

Which of the following could reduce agency problems for an MNC?

-stock options as managerial compensation. -hostile takeover threat. -investor monitoring.

A centralized management style, where major decisions about a foreign subsidiary are made by the parent company, results in an increase in agency costs.

FALSE

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)?

0.014.

Assume that the spot rate of the Singapore dollar is $.664. The ADR of a Singapore firm is convertible into 3 shares of stock. The price of an ADR is $20. What is the share price of the firm in Singapore dollars?

10

The ADR of a British firm is convertible into 3 shares of stock. The share price of the firm was 30 pounds when the British market closed. When the U.S. market opens, the pound is worth $1.63. The price of this ADR should be $____.

146.70

The bid/ask spread for small retail transactions is commonly in the range of ____ percent.

3 to 7

Assume that the bank's bid quote of Mexican peso is $.126 and ask price is $.129. If you have Mexican pesos, what is the amount of pesos that you need to purchase $100,000?

793,651

Certificates representing bundles of stock of non-U.S. firms are called:

ADRs

A currency put option provides the right, but not the obligation, to buy a specific currency at a specific price within a specific period of time.

FALSE

A macroeconomic perspective focuses on the financial management decisions that affect the value of MNC.

FALSE

A microeconomic perspective focuses on external forces such as economic conditions that can affect the value of an MNC.

FALSE

Which of the following is not true regarding ADRs?

ADRs are denominated in the currency of the stock's home country.

Which of the following will probably not result in an increase in a country's current account balance (assuming everything else constant)?

An appreciation of the country's currency

Which of the following interactions will likely have the least effect on the dollar's value? Assume everything else is held constant

An increase in U.S. inflation accompanied by an increase in nominal, but not real, U.S. interest rates

A put option is the amount or percentage by which the existing spot rate exceeds the forward rate

FALSE

A tariff is a maximum limit on imports.

FALSE

A weakening of the U.S. dollar with respect to the British pound would likely reduce U.S. exports to the U.K. and increase U.S. imports from the U.K.

FALSE

Also known as the "central banks' central bank," the ____ attempts to facilitate cooperation among countries with regard to international transactions and provides assistance to countries experiencing a financial crisis.

Bank for International Settlements (BIS)

Which of the following is probably not appropriate for an MNC wishing to reduce its exposure to British pound payables?

Buy a pound put option

Although MNCs may need to convert currencies occasionally, they do not face any exchange rate risk, as exchange rates are stable over time.

FALSE

Which of the following countries purchases the largest amount of exports by U.S. firms?

Canada

___ purchases more U.S. exports than the other countries listed here.

Canada

Which of the following is not an example of political risk?

Consumers' income levels will decrease, thus decreasing consumption.

Saller Co. has a subsidiary in Mexico. The expected cash flows in pesos to be received in the future from this subsidiary have not changed since last month, but the valuation of Saller Co. has declined since last month. What could've caused this decline in value?

Depreciation of the Mexican peso

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?

Direct foreign investment

Which of the following is not true regarding the Bretton Woods Agreement?

Each country used gold to back its currency.

An American tourist visiting Germany and spending money there (for lodging, food, etc.) will reduce the U.S. current account deficit and reduce Germany's current account balance.

FALSE

A U.S. purchase of patent rights from a firm in Mexico reflects a credit to the U.S. balance of payments account.

FALSE

A U.S.-based MNC has many foreign subsidiaries in Europe and does not expect to increase its investment there. Its value should increase if the value of the euro weakens over time.

FALSE

A balance of trade surplus indicates an excess of imports over exports.

FALSE

A balance of trade surplus indicates an excess of merchandise imports over merchandise exports.

FALSE

The preferences of corporations and governments to borrow in foreign currencies and of investors to make short-term investments in foreign currencies resulted in the creation of the international bond market.

FALSE

The primary component of the capital account is the balance of trade.

FALSE

The strike price is also known as the premium price.

FALSE

The supply curve for a currency is downward sloping since U.S. corporations would be encouraged to purchase more foreign goods when the foreign currency is worth less.

FALSE

The valuation of MNC accounts for all the cash flows received by the foreign subsidiaries plus all the cash flows remitted by the subsidiaries.

FALSE

Trade-related foreign exchange transactions are more responsive to news than financial flow transactions.

FALSE

U.S. government officials would likely prefer that China devalue the yuan against the dollar.

FALSE

U.S.-based MNCs are typically not monitored by mutual funds and pension funds, as these institutions rarely hold stock in MNCs.

FALSE

Under the Imperfect Markets Theory, it is assumed that factors of production are entirely mobile, so that firms can capitalize on a foreign country's resources.

FALSE

When expecting a foreign currency to depreciate, a possible way to speculate on this movement is to borrow dollars, convert the proceeds to the foreign currency, lend in the foreign country, and use the proceeds from this investment to repay the dollar loan.

FALSE

When receiving quotations on a currency's exchange rate, the bank's bid quote is the rate at which the bank is willing to sell currency.

FALSE

When the Japanese yen appreciates against the U.S. dollar, this means that the U.S. dollar is strengthening relative to the yen.

FALSE

When the parent's home currency is weak, remitted funds from foreign subsidiaries will convert to a smaller amount of the home currency.

FALSE

__ is (are) income received by investors on foreign investments in financial assets (securities).

Factor income

____ are most commonly classified as a direct foreign investment.

Foreign acquisitions

Which of the following is not mentioned in the text as a theory of international business?

Globalization of Business Theory

Which of the following is probably not an example of the use of forward contracts by an MNC?

Hedging pound payables by selling pounds forward

Which of the following is not true with respect to spot market liquidity?

If a currency is illiquid, an MNC is typically able to quickly purchase that currency at a reasonable exchange rate.

Like the International Monetary Fund (IMF), the ____ is composed of a collection of nations as members. However, unlike the IMF, it uses the private rather than the government sector to achieve its objectives.

International Financial Corporation (IFC)

The least risky method by which firms conduct international business is:

International Trade.

Which of the following does not constitute a form of direct foreign investment?

International trade

Which of the following is mentioned in the text as a possible means by which the government may attempt to improve its balance of trade position (increase its exports or reduce its imports)?

It could attempt to reduce its home currency's value

The largest global exchange is:

NYSE Euronext

Due to the risks involved in international business, firms should:

None of These

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:

Purchase call option

A balance of trade deficit indicates an excess of imports over exports.

TRUE

A cross exchange rate expresses the amount of one foreign currency per unit of another foreign currency.

TRUE

A decentralized management style of MNC results in relatively high agency costs.

TRUE

A decentralized management style, where subsidiary managers make the relevant decisions regarding their subsidiary, may result in better decision making, as subsidiary managers are generally better informed about their subsidiary's operations.

TRUE

A futures contract is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.

TRUE

A purely domestic firm may be affected by exchange rate fluctuations if it faces at least some foreign competition.

TRUE

An increase in U.S. inflation relative to Singapore inflation places upward pressure on the Singapore dollar.

TRUE

Assume that some U.S. firms will purchase supplies from either China or from U.S. firms. If the Chinese yuan appreciates against the dollar, it should reduce the U.S. balance of trade deficit with China.

TRUE

Financial flow foreign exchange transactions are more responsive to news than trade-related transactions.

TRUE

Forecasting a currency's future value is difficult, because it is difficult to identify how the factors affecting the currency value will change, and how they will interact to impact the currency's value.

TRUE

If a U.S.-based MNC focused completely on importing, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time.

TRUE

If a publicly-traded MNC's managers make poor decisions that reduce its value, it may encourage other firms to acquire it.

TRUE

If markets were perfect, then labor and other costs of production would be easily transferable.

TRUE

If there is a large supply of savings relative to the demand for short-term funds, the interest rate for that country will be relatively low.

TRUE

Imperfect markets represent conditions under which factors of production are immobile.

TRUE

In general, common law countries such as the U.S., Canada, and the United Kingdom allow for more legal protection than French civil law countries such as France or Italy.

TRUE

Institutional investors such as commercial banks, mutual funds, insurance companies, and pension funds from many countries are major participants in the international bond market.

TRUE

Large commercial banks play a major role in the international money market by accepting short-term deposits in large amounts (such as the equivalent of $1 million or more) and in various currencies, and channeling the money to corporations and government agencies that need to borrow those short-term funds in the desired currencies.

TRUE

Licensing allows firms to use their technology in foreign markets without a major investment in foreign countries.

TRUE

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

Liquidity of a currency can affect the extent to which speculation can impact the currency's value.

TRUE

Outsourcing allows some MNCs to reduce costs but shifts jobs to other countries.

TRUE

Portfolio investments represent transactions involving long-term financial assets (such as stocks and bonds) between countries that do not affect the transfer of control.

TRUE

Regarding the U.S. balance of payments, capital account items are relatively minor compared to the financial account items.

TRUE

Relatively high Japanese inflation may result in an increase in the supply of yen for sale and a reduction in the demand for yen, other things being equal.

TRUE

Relatively high Japanese inflation may result in an increase in the supply of yen for sale and a reduction in the demand for yen. True

TRUE

Shareholders can have influence on a wider variety of management issues in some countries.

TRUE

Shareholders have more voting power in some countries than others.

TRUE

Shareholders in some countries may have more power to effectively sue publicly-traded firms if their executives or directors commit financial fraud.

TRUE

Signals regarding future actions of market participants in the foreign exchange market sometimes result in overreactions.

TRUE

The J curve effect is the initial worsening of the U.S. trade balance due to a weakening dollar because of established trade relationships that are not easily changed; as the dollar weakens, the dollar value of imports initially rises before the U.S. trade balance is improved.

TRUE

The LIBOR varies among currencies because the market supply of and demand for funds vary among currencies.

TRUE

The Sarbanes-Oxley Act (SOX) was enacted in 2002 required MNCs and other firms to implement an internal reporting process that could be easily monitored by executives and the board of directors.

TRUE

The Sarbanes-Oxley Act ensures a more transparent process for managers to report on the productivity and financial condition of their firm.

TRUE

The World Bank frequently enters into cofinancing agreements. Under these agreements, financing is provided by the World Bank and/or official aid agencies, export credit agencies, or commercial banks.

TRUE

The ask quote is the price for which a bank offers to sell a currency.

TRUE

The balance of payments is a measurement of all transactions between domestic and foreign residents over a specified period of time.

TRUE

Which of the following is not true about syndicated loans?

The loans are only denominated in U.S. dollars.

Which of the following is not a goal of the International Monetary Fund (IMF)?

To enhance a country's long-term economic growth via the extension of structural adjustment loans

__ represent aid, grants, and gifts from one country to another.

Transfer payments

The equilibrium exchange rate of pounds is $1.70. At an exchange rate of $1.72 per pound:

U.S. demand for pounds would be less than the supply of pounds for sale and there would be a surplus of pounds in the foreign exchange market.

The North American Free Trade Agreement (NAFTA) increased restrictions on:

a. trade between Canada and Mexico. b. trade between Canada and the U.S. c. direct foreign investment in Mexico by U.S. firms. ANSWER: NONE OF THESE

Which of the following is not a method that can be used to invest internationally?

a. Investment in MNC stocks b. American depository receipts (ADRs) c. World Equity benchmark Shares (WEBS) d. International mutual funds Correct: All of these are methods that can be used to invest internationally.

___ is not a factor that affects the bid/ask spread.

a. Order costs b. Inventory costs c. Volume CORRECT All of these factors affect the bid/ask spread

___ is not a bank characteristic important to customers in need of foreign exchange.

a. Quote competitiveness b. Speed of execution c. Forecasting advice d. Advice about current market conditions CORRECT All of these are important bank characteristics to customers in need of foreign exchange.

___ is not a factor that causes currency supply and demand schedules to change.

a. Relative inflation rates b. Relative interest rates c. Relative income levels d. Expectations CORRECT All of these are factors that cause currency supply and demand schedules to change.

Which of the following is not mentioned in the text as a factor affecting exchange rates?

a. Relative interest rates b. Relative inflation rates c. Government controls d. Expectations CORRECT All of these are mentioned in the text as factors affecting exchange rates

Eurobonds:

a. can be issued only by European firms. b. can be sold only to European investors. c. A and B CORRECT none of these

The interest rate on the syndicated loan depends on the:

a. currency denominating the loan. b. maturity of the loan. c. creditworthiness of the borrower. d. interbank lending rate.

The U.S. dollar is not ever used as a medium of exchange in:

a. industrialized countries outside the U.S. b. in any Latin American countries. c. in Eastern European countries where foreign exchange restrictions exist. D. NONE OF THESE

Assume the Canadian dollar is equal to $.88 and the Peruvian Sol is equal to $.35. The value of the Peruvian Sol in Canadian dollars is:

about .3977 Canadian dollars.

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 4.26% ($.47 − $.45)/$.47 = 4.26%

Assume that a bank's bid rate on Japanese yen is $.0041 and its ask rate is $.0043. Its bid-ask percentage spread is:

about 4.65%.

Which of the following is not a way in which agency problems can be reduced through corporate control?

acquisition of a foreign subsidiary.

Assume that British corporations begin to purchase more supplies from the U.S. as a result of several labor strikes by British suppliers. This action reflects:

an increase in the supply of British pounds for sale

If U.S. inflation suddenly increased while European inflation stayed the same, there would be:

an increased U.S. demand for euros and a decreased supply of euros for sale.

If inflation in New Zealand suddenly increased while U.S. inflation stayed the same, there would be:

an inward shift in the demand schedule for NZ$ and an outward shift in the supply schedule for NZ$.

If the Fed announces that it will decrease the U.S. interest rates, and European Central Bank takes no action, then the value of euro will ____ against the value of U.S. dollar. The Fed's action is called ____ intervention.

appreciate; indirect

The value of the Australian dollar (A$) today is $0.73. Yesterday, the value of the Australian dollar was $0.69. The Australian dollar ____ by ____%.

appreciated; 5.80

The primary component of the current account is the:

balance of trade

If U.S. experiences a sudden surge in inflation and surge in interest rates while Japanese inflation and interest rates remain unchanged, the value of Japanese yen will ____ against the U.S. dollar.

cannot be determined from the information provided.

The Basel II accord is focused on eliminating inconsistencies in ____ across countries.

capital requirements

When obtaining a loan, the risk premium paid above LIBOR depends on the:

credit risk of the borrower.

Assume that Canada places a strict quota on goods imported from the U.S. and that the U.S. does not retaliate. Holding other factors constant, this event should immediately cause the supply of Canadian dollars to be exchanged for U.S. dollars to ____ and the value of the Canadian dollar to ____.

decline; increase

Any event that increases the supply of British pounds to be exchanged for U.S. dollars should result in a(n) ____ in the value of the British pound with respect to ____, other things being equal.

decrease; U.S. dollar

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

decrease; U.S. dollar

A high home inflation rate relative to other countries would ____ the home country's current account balance, other things equal. A high growth in the home income level relative to other countries would ____ the home country's current account balance, other things equal.

decrease; decrease

According to the "J curve effect," a weakening of the U.S. dollar relative to its trading partners' currencies would result in an initial ____ in the current account balance, followed by a subsequent ____ in the current account balance.

decrease; increase

If a country experiences high inflation relative to the U.S., its exports to the U.S. should ____, its imports should ____, and there is ____ pressure on its currency's equilibrium value.

decrease; increase; downward

British investors frequently invest in the U.S. or Italy, depending on the prevailing interest rates. If Italian interest rates suddenly rise high above U.S. rates, the investors will ____ the supply of pounds to be exchanged for dollars and thus put ____ pressure on the value of the pound against the U.S. dollar.

decrease; upward

Recently, the U.S. experienced an annual balance of trade representing a ____

deficit

Assume a Japanese firm invoices exports to the U.S. in U.S. dollars. Assume that the forward rate and spot rate of the Japanese yen are equal. If the Japanese firm expects the U.S. dollar to ____ against the yen, it would likely wish to hedge. It could hedge by ____ dollars forward.

depreciate; selling

As a result of the Smithsonian Agreement, the U.S. dollar was:

devalued relative to major currencies.

A quotation representing the value of a foreign currency in dollars is referred to as a(n) ____ quotation; a quotation representing the number of units of a foreign currency per dollar is referred to as a(n) ____ quotation.

direct; indirect

The forward market:

does not exist for some currencies.

A country's net outflow of funds ____ affect its interest rates, and ____ affect its economic conditions.

does; does

If the Japanese yen is expected to appreciate against the U.S. dollar and interest rates in the U.S. and Japan are similar, banks may try speculating on this anticipated exchange rate movement by borrowing ____ and investing in ____.

dollars; yen

If inflation increases substantially in Australia while U.S. inflation remains unchanged, this is expected to place ____ pressure on the value of the Australian dollar with respect to the U.S. dollar.

downward

Assume that the total value of investment transactions between U.S. and Mexico is minimal. Also assume that total dollar value of trade transactions between these two countries is very large. Now assume that Mexico's inflation has suddenly increased, and Mexican interest rates have suddenly increased. Overall, this would put ____ pressure on the value of Mexican peso. The inflation effect should be ____ pronounced than the interest rate effect.

downward; more

Assume that the income levels in U.K. start to rise, while U.S. income levels remain unchanged. This will place ____ pressure on the value of British pound. Also, assume that U.S. interest rates rise, while the British pound remains unchanged. This will place ____ pressure on the value of British pound.

downward; upward

Assume that the inflation rate becomes much higher in the U.K. relative to the U.S. This will place ____ pressure on the value of the British pound. Also, assume that interest rates in the U.K. begin to rise relative to interest rates in the U.S. The change in interest rates will place ____ pressure on the value of the British pound.

downward; upward

The International Financial Corporation was established to:

enhance economic development of the private sector through investment in stock of corporations.

According to the text, the average foreign exchange trading around the world ____ per day.

exceeds $1 trillion

Dumping" is used in the text to represent the:

exporting of goods at prices below cost.

Investors from Germany, the United States, and the U.K. frequently invest in each other based on prevailing interest rates. If British interest rates increase, German investors are likely to buy ____ dollar-denominated securities, and the euro is likely to ____ relative to the dollar.

fewer; depreciate

If a currency's spot rate market is ____, its exchange rate is likely to be ____ to a single large purchase or sale transaction.

illiquid; highly sensitive

Which of the following theories identifies the non-transferability of resources as a reason for international business?

imperfect markets theory.

If a country's government imposes a tariff on imported goods, that country's current account balance will likely ____ (assuming no retaliation by other governments).

increase

Any event that increases the U.S. demand for euros should result in a(n) ____ in the value of the euro with respect to ____, other things being equal.

increase; U.S. dollar

If a country experiences an increase in interest rates relative to U.S. interest rates, the inflow of U.S. funds to purchase its securities should ____, the outflow of its funds to purchase U.S. securities should ____, and there is ____ pressure on its currency's equilibrium value.

increase; decrease; upward

A large increase in the income level in Mexico along with no growth in the U.S. income level is normally expected to cause (assuming no change in interest rates or other factors) a(n) ____ in Mexican demand for U.S. goods, and the Mexican peso should ____.

increase; depreciate

Over the last several years, international trade has generally:

increased for most major countries.

The direct foreign investment positions by U.S. firms have generally ____ over time. Restrictions by governments on direct foreign investment have generally ___ over time.

increased; decreased

You observe a quotation of the Japanese yen (¥) of $0.007. You are, however, interested in the number of yen per dollar. Thus, you calculate the ____ quotation of ____ ¥/$.

indirect; 142.86

The real interest rate adjusts the nominal interest rate for:

inflation.

Which of the following is not mentioned in the text as an additional risk resulting from international business?

interest rate risk.

An MNC's short-term financing decisions are satisfied in the ____ market, while its medium debt financing decisions are satisfied in the ____ market.

international money; international credit

According to the text, a disadvantage of licensing is that:

it is difficult to ensure quality control of the production process.

Licensing obligates a firm to provide ____, while franchising obligates a firm to provide ____.

its technology; a specialized sales or service strategy

The main participants in the international money market are:

large corporations.

In recent years, the U.S. has had a relatively (compared to other countries) ____ balance of trade ____ with China.

large; deficit

For the MNC, agency costs are typically:

larger than agency costs of a small purely domestic firm.

In general, stock markets allow for more price efficiency and attract more investors when they have all of the following except:

less stringent accounting requirements.

Without the international capital flows, there would be ____ funding available in the U.S. across all risk levels, and the cost of funding would be ____ regardless of the firm's risk level.

less; higher

If a currency's spot market is ____, its exchange rate is likely to be ____ to a single large purchase or sale transaction.

liquid; insensitive

If companies can rely on stock markets to obtain funds, they will have to rely more heavily on the ____ market to raise long-term funds.

long-term credit

Japan's annual interest rate has been relatively ____ compared to other countries for several years, because the supply of funds in its credit market has been very ____.

low; large

According to the text, international trade (exports plus imports combined) as a percentage of GDP is:

lower in the U.S. than in European countries.

In comparing exporting to direct foreign investment (DFI), an exporting operation will likely incur ____ fixed production costs and ____ transportation costs than DFI.

lower; higher

International trade generally results in ____ exposure to international political risk and ____ exposure to international economic conditions, when compared to other methods of international business.

lower; lower

The Sarbanes-Oxley Act improves corporate governance of MNCs because it:

makes executives more accountable for verifying financial statements

If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it will need C$200,000 in 90 days to make payment on imports from Canada, it could:

obtain a 90-day forward purchase contract on Canadian dollars.

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 sale contract on euros.

The commonly accepted goal of the MNC is to:

maximize shareholder wealth.

The international credit market primarily concentrates on:

medium-term lending

As a result of the European Union, restrictions on exports between ____ were reduced or eliminated.

member countries

Futures contracts are sold on exchanges and are consequently ____ than forward contracts, which can be ____ to satisfy an MNC's needs.

more standardized; custom-tailored

Illiquid currencies tend to exhibit ____ volatile exchange rate movements, as the equilibrium prices of their currencies adjust to ____ changes in supply and demand conditions.

more; even minor

The World Bank's Multilateral Investment Guarantee Agency (MIGA):

offers various forms of political risk insurance.

Which of the following theories suggests that firms seek to penetrate new markets over time?

product cycle theory.

A forward contract can be used to lock in the ____ of a specified currency for a future point in time.

purchase price & sale price

Which of the following is an example of direct foreign investment?

purchasing existing companies in a country.

If the home currency begins to appreciate against other currencies, this should ____ the current account balance, other things equal (assume that substitutes are readily available in the countries, and that the prices charged by firms remain the same).

reduce

Assume that the British government eliminates all controls on imports by British companies. Other things being equal, the U.S. demand for pounds would ____, the supply of pounds for sale would ____, and the equilibrium value of the pound would ____.

remain unchanged; increase; decrease

A syndicated loan:

represents a loan by a group of banks to a borrower.

With regard to corporate goals, an MNC is mostly concerned with maximizing ____, and a purely domestic firm is mostly concerned with maximizing ____.

shareholder wealth; shareholder wealth

The international money market primarily concentrates on:

short-term lending (one year or less).

Assume that Swiss investors have francs available to invest in securities, and they initially view U.S. and British interest rates as equally attractive. Now assume that U.S. interest rates increase while British interest rates stay the same. This would likely cause:

the Swiss demand for dollars to increase and the dollar will appreciate against the Swiss franc.

Which currency is used the most to denominate Eurobonds?

the U.S. dollar.

The demand for U.S. exports tends to increase when:

the currencies of foreign countries strengthen against the dollar.

The phrase "the dollar was mixed in trading" means that:

the dollar strengthened against some currencies and weakened against others.

International money market transactions normally represent:

the equivalent of $1 million or more.

The "J curve" effect describes:

the short-run tendency for a country's balance of trade to deteriorate even while its currency is depreciating.

The bid-ask spread on an exchange rate can be used to directly determine:

the transaction cost of foreign exchange.

Assume that U.S. inflation is expected to surge in the near future. The expectation of surge in inflation will most likely place ____ pressure on U.S. dollar immediately.

upward

Which of the following theories identifies specialization as a reason for international business?

theory of comparative advantage.

News of a potential surge in U.S. inflation and zero Chilean inflation places ____ pressure on the value of the Chilean peso. The pressure will occur ____.

upward; immediately

The agency costs of an MNC are likely to be lower if it:

uses a centralized management style.