1. Peter Simpson thinks that the U.K. pound will cost $1.43/£ in six months. A 6-month currency futures contract is available today at a rate of $1.44/£. If Peter was to speculate in the currency futures market, and his expectations are correct, which of the following strategies would earn him a profit?
a. Sell pounds today.
b. Sell a pound currency futures contract.
c. Sell pounds in six months.
d. Buy a pound currency futures contract.
2. Another name for operating exposure is ________ exposure.
a. economic
b. strategic
c. all of the other answers
d. competitive
3. Consider these debt strategies being considered by a corporate borrower. Each is intended to provide $1,000,000 in financing for a three-year period. The current one-year rate is 5%. Which strategy (strategies) will eliminate credit risk? Strategy #1: Borrow $1,000,000 for three years at a fixed rate of interest of 7%. Strategy #2: Borrow $1,000,000 for three years at a floating rate of LIBOR + 2%, to be reset annually. The current LIBOR rate is 3.50% Strategy #3: Borrow $1,000,000 for one year at a fixed rate, and then renew the credit annually.
a. Strategy #1
b. Strategies #1 and #2
c. Strategy #3
d. Strategy #2
4. A/An ________ would be an example of an internalization advantage for an MNE.
a. economy of scale
b. patent
c. possession of proprietary information
d. unique source of raw materials
5. In theory, the MNE should support ________ debt ratios than a purely domestic firm because their cash flows are ________.
a. lower; less stable due to international diversification
b. lower; more stable due to international diversification
c. higher; more stable due to international diversification
d. higher; less stable due to international diversification