1. Arkansas Co. believes in the international Fisher effect. It has excess funds that it can invest in money market securities for one year. It can invest in the U.S. at an interest rate of 4%, Japan at an interest rate of 2%, the United Kingdom at an interest rate of 6%, or Brazil at an interest rate of 9%. It would not cover any investment that it takes against exchange rate risk. Its expected return on its investment will be highest in_________________.
a. the U.K.
b. the U.S.
c. Brazil
d. Japan
e. same in all countries
2. A common purpose of intersubsidiary leading or lagging strategies is to
a. hedge payable when the MNC purchases supplies from host governments.
b. assure that the inventory levels at subsidiaries are maintained within tolerable ranges.
c. change the prices a high-tax rate subsidiary charges a low-tax rate subsidiary.
d. None of the above.
3. Generally, if interest rate parity holds and the forward rate is an unbiased predictor of the future spot rate, then a U.S. firm with excess funds for 3 months should invest in money market securities in
a. the U.S.
b. the country with the lowest interest rate
c. the country whose currency is least volatile against the dollar
d. the country with the highest interest rate