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13. The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. You enter into a short position on €1,000. At maturity, the spot exchange rate is $1.60/€. How much have you made or lost? A) Loss of $100 B) Gain of €100 C) Loss of $50 D) Gain of $150
A
5. Under the Bretton Woods system A) each country established a par value for its currency in relation to the dollar. B) the U.S. dollar was pegged to gold at $35 per ounce. C) each country was responsible for maintaining its exchange rate within 1 percent of the adopted par value by buying or selling foreign exchanges as necessary. D) all of the options
5. Under the Bretton Woods system A) each country established a par value for its currency in relation to the dollar. B) the U.S. dollar was pegged to gold at $35 per ounce. C) each country was responsible for maintaining its exchange rate within 1 percent of the adopted par value by buying or selling foreign exchanges as necessary. D) all of the options
) When a country's currency depreciates against the currencies of major trading partners, A) the country's exports tend to rise and imports fall. B) the country's exports tend to fall and imports rise. C) the country's exports tend to rise and imports rise. D) the country's exports tend to fall and imports fall.
A
10. Concentrated ownership of a public company A) can be an effective way to alleviate the agency problem between shareholders and managers. B) is the norm in Great Britain. C) tends to be an ineffective way to alleviate conflicts of interest between groups of shareholders. D) none of the options
A
14. The SF/$ spot exchange rate is SF1.25/$ and the 180-day forward exchange rate is SF1.30/$. The forward premium (discount) on annualized basis is A) the dollar trading at an 8% premium to the Swiss franc. B) the dollar trading at a 4% premium to the Swiss franc. C) the dollar trading at an 8% discount to the Swiss franc. D) the dollar trading at a 4% discount to the Swiss franc.
A
2. Most interbank trades are A) speculative or arbitrage transactions. B) simple order processing for the retail client. C) overnight loans from one bank to another. D) brokered by dealers.
A
3. Gresham's Law states that A) bad money drives good money out of circulation. B) good money drives bad money out of circulation. C) if a country bases its currency on both gold and silver, at an official exchange rate, it will be the more valuable of the two metals that circulate. D) none of the options.
A
f the $/€ bid and ask prices are $1.50/€ and $1.51/€, respectively, the corresponding €/$ bid and ask prices are A) €0.6667 and €0.6623. B) $1.51 and $1.50. C) €0.6623 and €0.6667. D) cannot be determined with the information given.
C
) The goal of greater accounting transparency A) is to impose more rules and harsher penalties for their violation. B) is to reduce the information symmetry between corporate insiders and the public. C) is to encourage managerial self-dealings. D) is to reduce the information asymmetry between corporate insiders and the public, as well as discourage managerial self-dealings
D
) Undoubtedly, we are now living in a world where all the major economic functions— consumption, production, and investment— A) are still inherently local. B) are still regional in nature. C) are slowly becoming globalized. D) are highly globalized
D
1. Balance of payments A) is defined as the statistical record of a country's international transactions over a certain period of time presented in the form of a double-entry bookkeeping. B) provides detailed information concerning the demand and supply of a country's currency. C) can be used to evaluate the performance of a country in international economic competition. D) all of the options
D
1. The international monetary system can be defined as the institutional framework within which A) international payments are made. B) movement of capital is accommodated. C) exchange rates among currencies are determined. D) all of the options
D
Privatization refers to the process of A) having government operate businesses for the betterment of the public sector. B) government allowing the operation of privately owned business only. C) prohibiting government operated enterprises. D) a country divesting itself of the ownership and operation of a business venture by turning it over to the free market system.
D
Restrictions or impediments to free trade include such things as A) import quotas. B) import tariffs. C) costly transportation. D) all of the options
D
Self-interested managers may be tempted to A) indulge in expensive perquisites at company expense. B) adopt anti-takeover measures for their company to ensure their personal job security. C) waste company funds by undertaking unprofitable projects that benefit themselves but not shareholders. D) All of the options are potential abuses that self-interested managers may be tempted to visit upon shareholders.
D
Special Drawing Rights (SDR) are A) an artificial international reserve allotted to the members of the International Monetary Fund (IMF), who can then use it for transactions among themselves or with the IMF. B) a "portfolio" of currencies, and its value tends to be more stable than the currencies that it is comprised of. C) used in addition to gold and foreign exchanges, to make international payments. D) All of these choices are correct.
D
Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso appreciates drastically against the U.S. dollar. This means A) your company's products can be priced out of the Mexican market, as the peso price of American imports will rise following the peso's fall. B) your firm will be able to charge more in dollar terms while keeping peso prices stable. C) your domestic competitors will enjoy a period of facing lessened price competition from Mexican imports. D) your firm will be able to charge more in dollar terms while keeping peso prices stable and your domestic competitors will enjoy a period of facing lessened price competition from Mexican imports.
D
Suppose a bank customer wishes to trade out of British pounds and into Swiss francs. A) In dealer jargon, this is a currency against currency trade. B) The bank will frequently handle such a trade by buying British pounds for U.S. dollars and then selling Swiss francs with U.S. dollars. C) The bank would typically sell the British pounds directly for Swiss francs. D) Both A and B
D
What is the ASK cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price that a currency dealer will take in euros to sell Canadian dollars. A) €0.6094/CAD B) €0.6104/CAD C) €0.6181/CAD D) €0.6191/CAD
D
What major dimension sets apart international finance from domestic finance? A) Foreign exchange and political risks B) Market imperfections C) Expanded opportunity set D) all of the options
D
Which of the following statements describes "activist investors"? A) invests in stocks of a company for the explicit purpose of influencing the company's management B) plays an important role in promoting shareholder's interests. C) can influence a company to repurchase stocks. D) all of the above
D
n many countries with concentrated ownership A) the conflicts of interest between shareholders and managers are worse than in countries with diffuse ownership of firms. B) the conflicts of interest are greater between large controlling shareholders and small outside shareholders than between managers and shareholders. C) the conflicts of interest are greater between managers and shareholders than between large controlling shareholders and small outside shareholders. D) corporate forms of business organization with concentrated ownership are rare.
D
which of the following is significant because it indicates a country's international payment gap that must be accommodated with a government's official reserve transactions? A) The current account B) The capital account C) The statistical discrepancies D) The official settlement balance
D
3. The current account includes A) the export and import of goods and services. B) all purchases and sales of assets such as stocks, bonds, bank accounts, real estate, and businesses. C) all purchases and sales of international reserve assets such as dollars, foreign exchanges, gold, and special drawing rights (SDRs). D) capital transfers and the cross-border acquisition and disposal of nonproduced non¬financial assets such as natural resources and marketing assets
A
3. The emergence of global financial markets is due in no small part to a. advances in computer and telecommunications technology. b. enforcement of the Soviet system of state ownership of resources of production. c. government regulation and protection of infant industries. d. none of the options
A
3. When company ownership is diffuse, A) a "free rider" problem encourages shareholder activism. B) the large number of shareholders ensures strong monitoring of managerial behavior because with a large enough group, there's almost always someone who will to incur the costs of monitoring management. C) most shareholders will have a strong enough incentive to incur the costs of monitoring management. D) a "free rider" problem discourages shareholder activism and few shareholders have a strong enough incentive to incur the costs of monitoring management.
A
4. Suppose that the pound is pegged to gold at £20 per ounce and the dollar is pegged to gold at $35 per ounce. This implies an exchange rate of $1.75 per pound. If the current market exchange rate is $1.80 per pound, how would you take advantage of this situation? Hint: assume that you have $350 available for investment. A) Start with $350. Buy 10 ounces of gold with dollars at $35 per ounce. Convert the gold to £200 at £20 per ounce. Exchange the £200 for dollars at the current rate of $1.80 per pound to get $360. B) Start with $350. Exchange the dollars for pounds at the current rate of $1.80 per pound. Buy gold with pounds at £20 per ounce. Convert the gold to dollars at $35 per ounce. C) both of the options D) none of the options
A
4. The spot market A) involves the almost-immediate purchase or sale of foreign exchange. B) involves the sale of futures, forwards, and options on foreign exchange. C) takes place only on the floor of a physical exchange. D) all of the options
A
5. Suppose that the current exchange rate is €0.80 = $1.00. The direct quote, from the U.S. perspective is A) €1.00 = $1.25. B) €0.80 = $1.00. C) £1.00 = $1.80. D) none of the options
A
6. The "J-curve effect" shows A) the initial deterioration and the eventual improvement of a country's trade balance following a currency depreciation. B) the initial improvement and the eventual depreciation of a country's trade balance following a currency depreciation. C) the trade balance's lack of responsiveness to the exchanges rate changes. D) none of the options
A
6. The agency problem refers to the possible conflicts of interest between A) self-interested managers as principals and shareholders of the firm who are the agents. B) altruistic managers as agents and shareholders of the firm who are the principals. C) self-interested managers as agents and shareholders of the firm who are the principals. D) dutiful managers as principals and shareholders of the firm who are the agents.
A
7. In the graph, X, Y, and Z represent A) entrenchment, alignment, entrenchment. B) alignment, entrenchment, alignment. C) misalignment and alignment. D) agency costs of debt and equity.
A
8. The main cost of European monetary union is A) the loss of national monetary and exchange rate policy independence. B) increased exchange rate uncertainty. C) lessened political integration. D) none of the options
A
9. According to the "Trilemma" a country can attain only two of the following three conditions: (1) A fixed exchange rate, (2) free international flows of capital, and (3) an independent monetary policy. This difficulty is also known as A) the incompatible trinity. B) the Iron Triangle. C) the Tobin tax. D) none of the options
A
9. When the balance-of-payments accounts are recorded correctly, the combined balance of the current account, the capital account, the financial account, and the reserves account must be zero and are illustrated by the equation: A) BCA + BKA + BFA + BRA = 0 B) BCA + BFA = −BKA C) BCA + BKA + BFA = BRA D) BRA = −BCA
A
A country with a current account surplus A) acquires IOUs from foreigners, thereby increasing its net foreign wealth. B) must borrow from foreigners or draw down on its previously accumulated foreign wealth. C) will experience a reduction in the country's net foreign wealth. D) must borrow from foreigners or draw down on its previously accumulated foreign wealth and will experience a reduction in the country's net foreign wealth.
A
According to the theory of optimum currency areas, A) the relevant criterion for identifying and designing a common currency zone is the degree of factor (i.e., capital and labor) mobility within the zone. B) exchange rates should reflect the degree to which workers are willing to move to get a better job. C) exchange rates are determined by portfolio managers seeking the highest return. D) none of the options
A
Brexit has some serious difficulties associated with free trade and global integration that espouses A) free movements of goods, services, capital and people across countries. B) free movements of goods and services only. C) free movments of capital and people across countries. D) none of the above
A
Corporate scandals at firms such as Enron, WorldCom and the Italian firm Parmalat A) show that managers might be tempted to pursue their own private interests at the expense of shareholders. B) show that Italian shareholders are better at monitoring managerial behavior than U.S. shareholders. C) show that white-collar criminals hardly ever get punished. D) show that socialism is a better way to go than capitalism.
A
For firms with free cash flows, A) debt can be a stronger mechanism than stocks for credibly bonding managers to release cash flows to investors. B) equity dividends can be a stronger mechanism than bonds for credibly bonding managers to release cash flows to investors. C) preferred stock dividends can be a stronger mechanism than bonds for credibly bonding managers to release cash flows to investors. D) none of the options
A
If the interest rate rises in the U.S. while other variables remain constant A) capital inflows into the U.S. will increase. B) capital inflows into the U.S. may not materialize. C) capital will flow out of the U.S. D) none of the options
A
Residual control right refers to: A) the rights or control to make decisions under contingencies that are not specifically covered by complete contracts B) the portion of the complete contract that deals with future contingencies forseen C) neither the rights or control to make decisions under contingencies that are not specifically covered by complete contracts or the portion of the complete contract that deals with future contingencies forseen D) both the rights or control to make decisions under contingencies that are not specifically covered by complete contracts and the portion of the complete contract that deals with future contingencies forseen
A
Suppose a country is currently experiencing a trade deficit. In the long run, this could be self- correcting if A) the deficit exists because of the import demand for capital goods. B) the deficit exists because of the import demand for consumption goods. C) the deficit exists because foreigners want to buy the country's currency as an investment. D) none of the options
A
Suppose that the United States is on a bimetallic standard at $30 to one ounce of gold and $2 for one ounce of silver. If new silver mines open and flood the market with silver, A) only the silver currency will circulate. B) only the gold currency will circulate. C) no change will take place since citizens could exchange their gold currency for silver currency at any time. D) none of the options.
A
Suppose you observe the following exchange rates: €1 = $1.25 and £1 = $2.00. Calculate the euro-pound cross-rate. A) £1 = €1.60 B) £1 = €0.625 C) £2.50 = €1 D) £1 = €2.50
A
Under a flexible exchange rate regime, governments can retain monetary policy independence because the external balance will be achieved by A) the exchange rate adjustments. B) the price-specie flow mechanism. C) the Triffin paradox. D) none of the options
A
What is the BID cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price that a currency dealer will pay in euros to buy Canadian dollars. A) €0.6094/CAD B) €0.6104/CAD C) €0.6181/CAD D) €0.6191/CAD
A
) The Mexican Peso Crisis was touched off by A) an unsurprising announcement by the Mexican government to devalue the peso against the dollar by 14 percent. B) an unexpected announcement by the Mexican government to devalue the peso against the dollar by 14 percent. C) an announcement by the Mexican government to enact a currency board arrangement with the U.S. dollar. D) contagion from other Latin American and Asian financial markets
B
1. Corporate governance can be defined as A) the economic, legal, and institutional framework in which corporate control and cash flow rights are distributed among shareholders, managers and other stakeholders of the company. B) the general framework in which company management selects and monitors the Board of Directors. C) the rules and regulations adopted by boards of directors specifying how to manage companies. D) the government-imposed rules and regulations affecting corporate management.
B
1. The difference between a broker and a dealer is A) dealers sell drugs; brokers sell houses. B) brokers bring together buyers and sellers, but carry no inventory; dealers stand ready to buy and sell from their inventory. C) brokers transact in stocks and bonds; currency is bought and sold through dealers. D) none of the options.
B
12. The forward market A) involves contracting today for the future purchase or sale of foreign exchange at the spot rate that will prevail at the maturity of the contract. B) involves contracting today for the future purchase or sale of foreign exchange at a price agreed upon today. C) involves contracting today for the right but not the obligation for the future purchase or sale of foreign exchange at a price agreed upon today. D) none of the options
B
14. The key requirements of the Cadbury Code of Best Practice state that A) the compensation, nominating, and audit committees to be entirely composed of independent directors. B) the positions of CEO and chairman of the board should not reside in the same individual. C) listed companies to have boards of directors with a majority of independents. D) none of the options
B
15) The advent of the euro marks the first time that sovereign countries have voluntarily given up their A) national borders to foster economic integration. B) monetary independence to foster economic integration. C) fiscal policy independence to foster economic integration. D) national debt to foster economic integration.
B
2. The international monetary system went through several distinct stages of evolution. These stages are summarized, in alphabetic order, as follows: 1. (i) Bimetallism 2. (ii) Bretton Woods system 3. (iii) Classical gold standard 4. (iv) Flexible exchange rate regime 5. (v) Interwar period The chronological order that they actually occurred is: A) (iii), (i), (iv), (ii), and (v) B) (i), (iii), (v), (ii), and (iv) C) (vi), (i), (iii), (ii), and (v) D) (v), (ii), (i), (iii), and (iv)
B
2. The key weakness of the public corporation is A) too many shareholders, which makes it difficult to make corporate decisions. B) relatively high corporate income tax rates. C) conflicts of interest between managers and shareholders. D) conflicts of interests between shareholders and bondholders.
B
4. The capital account includes A) the export and import of goods and services. B) capital transfers and acquisitions and disposals of nonpro¬duced, nonfinancial assets between U.S. residents and foreigners. C) all purchases and sales of international reserve assets such as dollars, foreign exchanges, gold, and special drawing rights (SDRs). D) goods trade, services, primary income, and secondary income
B
4. The key strength(s) of the public corporation is/are A) their capacity to allow efficient risk sharing among many investors. B) their capacity to raise large amounts of funds at relatively low cost. C) their capacity to consolidate decision-making. D) all of the options
B
5. The goal of shareholder wealth maximization a. is not appropriate for non-U.S. business firms. b. means that all business decisions and investments that a firm makes are done for the purpose of making the owners of the firm better off financially. c. is a sub-objective the firm should attempt to achieve after the objective of customer satisfaction is met. d. is in conflict with the privatization process taking place in third-world countries
B
6. The bid price A) is the price that the dealer has just paid for something, his historical cost of the most recent trade. B) is the price that a dealer stands ready to pay. C) refers only to auctions like eBay, not over-the-counter transactions with dealers. D) is the price that a dealer stands ready to sell at.
B
7. The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 = $1.00. What is the euro-yen cross rate? A) €125 = ¥1.00 B) €1.00 = ¥125 C) €1.00 = ¥0.80 D) none of the options
B
7. The financial account measures A) the sum of U.S. sales of assets to foreigners and U.S. purchases of foreign assets. B) the difference between U.S. sales of assets to foreigners and U.S. purchases of foreign assets. C) the difference between U.S. sales of manufactured goods to foreigners and U.S. purchases of foreign products. D) none of the options
B
A currency depreciation will begin to improve the trade balance immediately A) if the demand for imports and exports are inelastic. B) if the demand for imports and exports are elastic. C) if imports decrease and exports decrease. D) if imports and exports increase
B
Country A can produce 10 yards of textiles or 6 pounds of food per unit of input. Compute the opportunity cost of producing one additional unit of food instead of textiles. a. 1.67 pounds of food per yard of textiles b. 1.67 yards of textiles per pound of food c. 0.6 pounds of food per yard of textiles d 0.6 yards of textiles per pound of food
B
Suppose that the current exchange rate is €1.00 = $1.60. The indirect quote, from the U.S. perspective is A) €1.00 = $1.60. B) €0.6250 = $1.00. C) €1.60 = $1.00. D) none of the options
B
The central issue of corporate governance is A) how to protect creditors from managers and controlling shareholders. B) how to protect outside investors from the controlling insiders. C) how to alleviate the conflicts of interest between managers and shareholders. D) how to alleviate the conflicts of interest between shareholders and bondholders
B
The financial account is divided into three subcategories: direct investment, portfolio investment, and other investment. Portfolio investment involves A) acquisitions of controlling interests in foreign businesses. B) investments in foreign stocks and bonds that do not involve acquisitions of control. C) bank deposits, currency investment, trade credit, and the like. D) all of the options
B
The genius of public corporations stems from their capacity to allow efficient sharing or spreading of risk among many investors, who can buy and sell their ownership shares on liquid stock exchanges and let professional managers run the company on behalf of shareholders. This risk sharing stems from A) the illiquidity of the shares. B) the limited liability of shareholders. C) the limited liability of bondholders. D) the limited ability of shareholders.
B
Under the pure flexible exchange rate regime, A) a current account surplus or deficit will not be matched by a financial account deficit or surplus B) the balance on the current and financial accounts will be equal in size, but opposite in sign. C) a current account surplus or deficit must be matched by an official reserves deficit or surplus. D) a financial account surplus or deficit must be matched by an official reserves deficit or surplus.
B
When individual investors become aware of overseas investment opportunities and are willing to diversify their portfolios internationally, A) they trade one market imperfection, information asymmetry, for another, exchange rate risk. B) they benefit from an expanded opportunity set. C) they should not bother to read or to understand the prospectus, since it's probably written in a foreign language. D) they should invest only in dollars or euros.
B
) Monetary policy for the countries using the euro as a currency is now conducted by A) the Federal Reserve. B) the Bundesbank. C) European Central Bank. D) none of the options
C
10. A "good" (or ideal) international monetary system should provide A) liquidity, elasticity, and flexibility. B) elasticity, sensitivity, and reliability. C) liquidity, adjustments, and confidence. D) none of the options
C
10. Under the pure flexible exchange rate regime, a current account surplus or deficit (assuming the capital account is negligible) must be matched by a financial account deficit or surplus, and vice versa. this is illustrated by the equation: A) BCA + BKA + BFA + BRA = 0 B) BCA + BKA + BFA = −BRA C) BCA + BKA = −BFA D) BRA = −BCA
C
11. Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and management A) by moving to a better county. B) by listing their stocks in countries with strong investor protection. C) by voluntarily complying with the provisions of the U.S. Sarbanes-Oxley Act. D) by having a press conference and promising to be nice to their investors.
C
12. The objective of corporate governance reform should be what? A) Strengthen the protection of outside investors from expropriation by managers. B) Strengthen the protection of outside investors from expropriation by controlling insiders. C) Strengthen the protection of outside investors from expropriation by managers and controlling insiders. D) none of the options
C
2) Production of goods and services has become globalized to a large extent as a result of A) natural resources being depleted in one country after another. B) skilled labor being highly mobile. C) multinational corporations' efforts to source inputs and locate production anywhere where costs are lower and profits higher. D) common tastes worldwide for the same goods and services.
C
3. Intervention in the foreign exchange market is the process of A) a central bank requiring the commercial banks of that country to trade at a set price level. B) commercial banks in different countries coordinating efforts in order to stabilize one or more currencies. C) a central bank buying or selling its currency in order to influence its value. D) the government of a country prohibiting transactions in one or more currencies.
C
5. Free cash flow refers to A) a firm's cash reserve in excess of tax obligation. B) a firm's funds in excess of what's needed for undertaking all profitable projects. C) a firm's cash reserve in excess of interest and tax payments. D) a firm's income tax refund that is due to interest payments on borrowing.
C
5. In 2012, the United States had a current account deficit. The current account deficit implies that the United States A) had a surplus on legal consulting and engineering services. B) produced more output than it consumed. C) consumed more output than it produced. D) had a financial account surplus
C
7. Monetary policy for the countries using the euro as a currency is now conducted by A) the Federal Reserve. B) the Bundesbank. C) European Central Bank. D) none of the options
C
8. Governance mechanisms that exist to alleviate or remedy the agency problem include: A) independent board of directors & incentive contracts. B) concentrated ownership & Accounting transparency C) shareholder activism & overseas stock listings D) all of the options
C
8. The theory of comparative advantage a. claims that economic well-being is enhanced if each country's citizens produce only a single product. b. claims that economic well-being is enhanced when all countries compare commodity prices after adjusting for exchange rate differences in order to standardize the prices charged all countries. c. claims that economic well-being is enhanced if each country's citizens produce that which they have a comparative advantage in producing relative to the citizens of other countries, and then trade production. d. claims that no country has an absolute advantage over another country in the production of any good or service.
C
9. It is important for society as a whole to solve the agency problem, since the agency problem A) leads to waste of scarce resources. B) hampers capital market functions. C) retards economic growth. D) all of the options
C
Corporations today are operating in an environment in which exchange rate changes may adversely affect their competitive positions in the marketplace. This situation, in turn, makes it necessary for many firms to A) carefully manage their exchange risk exposure. B) carefully measure their exchange risk exposure. C) carefully manage and measure their exchange risk exposure. D) none of the options
C
Country A can produce 10 yards of textiles or 6 pounds of food per unit of input. Country B can produce 8 yards of textiles or 5 pounds of food per unit of input. Which of the following statements is true? a. Country A is relatively more efficient than Country B in the production of food. b. Country B is relatively more efficient than Country A in the production of textiles. c. Country A is relatively more efficient than Country B in the production of textiles. d. none of the options
C
If a country is grappling with a major balance-of-payment difficulty, it may not be able to expand imports from the outside world. Instead, the country may be tempted to A) impose measures to restrict imports but encourage capital outflows. B) impose measures to discourage capital outflows but encourage imports. C) impose measures to restrict imports and discourage capital outflows. D) none of the options
C
In a hostile takeover attempt, the bidder typically A) makes a tender offer to the target shareholders at a price substantially less than the prevailing share price. B) makes a tender offer to the target shareholders at the prevailing share price. C) makes a tender offer to the target shareholders at a price substantially exceeding the prevailing share price. D) seeks to merge with the target company with an exchange of shares.
C
Since the balance of payments is presented as a system of double-entry bookkeeping, A) every credit in the account is balanced by a double-matching debit. B) every debit in the account is balanced by a double-matching credit. C) every credit in the account is balanced by a matching debit and every debit in the account is balanced by a matching credit. D) none of the options
C
10. Suppose that Great Britain is a major export market for your firm, a U.S.-based MNC. If the British pound depreciates against the U.S. dollar, a. your firm will be able to charge more in dollar terms while keeping pound prices stable. b. your firm may be priced out of the U.K. market, to the extent that your dollar costs stay constant and your pound prices will rise. c. to protect U.K. market share, your firm may have to cut the dollar price of your goods to keep the pound price the same. d. your firm may be priced out of the U.K. market, to the extent that your dollar costs stay constant and your pound prices will rise, and to protect U.K. market share, your firm may have to cut the dollar price of your goods to keep the pound price the same.
D
2. A country experiencing a significant balance-of-payments surplus would be likely to A) expand imports, offering marketing opportunities for domestic enterprises. B) encourage imposing foreign exchange restrictions. C) expand exports, offering international marketing opportunities for domestic enterprises. D) expand imports, offering marketing opportunities for foreign enterprises, and encourage imposing foreign exchange restrictions.
D
31) When managerial self-dealings are excessive and left unchecked, A) they can have serious negative effects on share values. B) they can impede the proper functions of capital markets. C) they can impede such measures as GDP growth. D) all of the options
D
4. Deregulation of world financial markets a. provided a natural environment for financial innovations, like currency futures and options. b. has promoted competition among market participants. c. has encouraged developing countries such as Chile, Mexico, and Korea to liberalize by allowing foreigners to directly invest in their financial markets. d. all of the options
D
6. A multinational firm can be defined as a firm that a. invests short-term cash inflows in more than one currency. b. has sales affiliates in several countries. c. is incorporated in more than one country. d. incorporated in one country and has production and sales operations in several other countries.
D
6. The European Monetary System (EMS) has the chief objective(s) A) to establish a "zone of monetary stability" in Europe. B) to coordinate exchange rate policies vis-à-vis the non-EMS currencies. C) to pave the way for the eventual European monetary union. D) all of the options
D
7. MNCs can use their global presence to a. take advantage of underpriced labor services available in certain developing countries. b. gain access to special R&D capabilities residing in advanced foreign counties. c. boost profit margins and create shareholder value. d. all of the options
D
8. Foreign direct investment (FDI) occurs A) when an investor acquires a measure of control of a foreign business. B) when there is an acquisition, by a foreign entity in the U.S., of 10 percent or more of the voting shares of a business. C) with sales and purchases of foreign stocks and bonds that do not involve a transfer of control. D) Both A and B.
D
9. An example(s) of a political risk is a. expropriation of assets. b. adverse change in tax rules. c. the opposition party being elected. d. both the expropriation of assets and adverse changes in tax rules are correct
D
Advantages of a fixed exchange rate include A) reduction in exchange rate risk for businesses. B) reduction in transactions costs. C) reduction in trading frictions. D) all of the options
D
Advantages of a flexible exchange rate include which of the following? A) National policy autonomy. B) Easier external adjustments. C) The government can use monetary and fiscal policies to pursue whatever economic goals it chooses. D) all of the options
D
An MNC can A) be a factor that increases the opportunities of the citizens of less developed countries. B) be a factor that increases the opportunity set of domestic investors. C) increase economic efficiency. D) all of the options
D
13. The major components of the Sarbanes-Oxley Act are A) accounting regulation: The creation of a public accounting oversight board charged with overseeing the auditing of public companies, and restricting the consulting services that auditors can provide to clients. B) audit committee: The company should appoint independent "financial experts" to its audit committee. C) internal control assessment: Public companies and their auditors should assess the effectiveness of internal control of financial record keeping and fraud prevention. D) executive responsibility: Chief executive and finance officers (CEO and CFO) must sign off on the company's quarterly and annual financial statements. If fraud causes an overstatement of earnings, these officers must return any bonuses. E) all of the options
E
