Problem 1: It is generally least difficult to effectively hedge various types of:
A) translation exposure.
B) transaction exposure.
C) economic exposure.
D) translation exposure AND economic exposure.
Problem 2: If a U.S. firm's expenses are less susceptible to exchange rate movements than revenue, the firm will _______ if the dollar _______.
A) benefit; weakens
B) be unaffected; weakens
C) be unaffected; strengthens
D) benefit; strengthens
Problem 3: Based on the text, it should be obvious that markets are _______ in reality, and consequently, monopolistic advantages _______ be exploited.
A) perfect; may possibly
B) perfect; cannot
C) imperfect; may possibly
D) imperfect; cannot
Problem 4: When an MNC is considering financing a portion of a foreign project within the foreign country, the best method to account for a foreign project's risk is to:
A) derive net present values based on the weighted average cost of capital.
B) adjust the weighted average cost of capital for the risk differential.
C) derive the net present value of the equity investment.
D) none of these.
Problem 5: When determining whether a particular proposed project in a foreign country is feasible:
A) a country risk rating can adequately substitute for a capital budgeting analysis.
B) country risk analysis should be incorporated within the capital budgeting analysis.
C) the effect of country risk on sales revenue is more important than the effect on cash flows.
D) the project with the highest country risk rating (lowest country risk) should be accepted.
E) country risk analysis should be incorporated within the capital budgeting analysis AND the project with the highest country risk rating (lowest country risk) should be accepted.
Problem 6: Eurenasia is a country that has frequently been assigned low macro-assessment ratings of country risk in the recent past due to its tendency to war with neighboring nations. MNC A is considering the establishment of a subsidiary to manufacture personal computers, while MNC B is considering the establishment of a subsidiary to manufacture tanks. Which of the two MNCs is likely to be less affected by the low macro-assessment?
A) MNC A.
B) MNC B.
C) Both MNC A and MNC B will be equally affected, since the macroassessment does not vary.
D) None of these.
Problem 7: Which of the following is not a reason the cost of debt can vary across countries?
A) differences in the risk-free rate.
B) a high price/earnings multiple.
C) differences in the risk premium.
D) differences in demographics.
Problem 8: _______ are beneficial because they may reduce transaction costs. However, MNCs may not be able to obtain all the funds that they need.
A) Private placements
B) Domestic equity offerings
C) Global equity offerings
D) Global debt offerings
Problem 9: Under a letter of credit arrangement, the bank issuing the letter of credit is known as the _______ bank, the correspondent bank in the beneficiaryââ?¬â?¢s country to which the issuing bank sends the letter of credit is known as the _______ bank, and the bank that agrees to examine documents under the letter of credit and pay the beneficiary is called the _______ bank.
A) issuing; negotiating; advising
B) issuing; advising; negotiating
C) advising; issuing; negotiating
D) negotiating; issuing; advising
E) advising; negotiating; issuing
Problem 10: Assume the U.S. financing rate is 10 percent and that the financing rate in Germany is 9 percent. An MNC would be indifferent between financing in dollars and financing in euros next year if the euro is expected to _______.
A) appreciate by 0.92%.
B) depreciate by 0.92%.
C) appreciate by 1.00%.
D) depreciate by 1.00%.