Question. Which of the following is not a method used to reduce country risk:
hiring local labor
borrowing local funds
joint ventures
borrowing in the home country
None of the above
Question. Higher interest rates in a foreign country tend to:
slow economic growth
increase economic growth
decrease cost of capital
decrease risk
none of the above
Question. A U.S. MNC has a subsidiary in a country where the government restricts earnings that can be remitted to the U.S. The MNC should finance the subsidiary with:
financing from local banks in the foreign country
financing from banks in a neutral third country
debt financing by the parent
equity financing by the parent
none of the above
Question. The U.S. risk-free rate is currently 1% and the expected U.S. market return is 7%. A company is considering a project that has a beta of .85. What is the cost of dollar-denominated equity?
12.10%
6.10%
9.30%
7.00%
none of the above
Question. A German MNC wants to raise 20 million euro by issuing Yankee bonds in the U.S. The current exchange rate is 1 euro = $1.31. How many dollars does the MNC need to obtain the 20 million euros?
12,500,000
15,267,176
26,200,000
8,000,000
none of the above
Question. A U.S. company issues bonds in a foreign currency, and will need to convert dollars to service the debt. The company will pay less in debt service if:
the foreign currency strengthens
the foreign currency weakens
the dollar weakens
exchange rates remain the same
none of the above
Question. A U.S. company receives large pound cash inflows from goods it exports to Great Britain. The U.S. company has no other business outside the U.S. The company can best reduce its exposure to exchange rate risk by:
purchasing British pound-denominated bonds
purchasing U.S. dollar-denominated bonds
issuing British pound-denominated bonds
issuing euro-denominated bonds
none of the above
Question. The fixed rate payer in a plain vanilla swap believes interest rates are going to:
increase
decrease
fluctuate
remain the same
none of the above