Problem 1: When a firm analyzes the feasibility of a project, it should consider the:
A) variability of the project's cash flow.
B) correlation of the project's cash flow relative to the prevailing cash flows of the MNC.
C) A and B
D) none of the above
Problem 2: The __________ a project's variability in cash flows, and the __________ the positive correlation between the project's cash flow and MNC's cash flow, the lower the risk of the project.
A) higher; higher
B) higher; lower
C) lower; lower
D) lower; higher
Problem 3: ____________ is not a disadvantage of direct foreign investment.
A) The expense of establishing a foreign subsidiary
B) The uncertainty of inflation and exchange rate movements
C) Political risk
D) All of the above are disadvantages of direct foreign investment
Problem 4: During periods of exchange rate volatility, firms dealing in _______ products face more exchange rate risk than the firms selling _________ products.
A) low demand, high demand
B) low supply, high supply
C) undifferentiated, differentiated
D) differentiated, undifferentiated
Problem 5: Suppose that the current 90?day London interbank offer rate is 11% (all rates are stated on an annualized basis. If next period's LIBOR is 10.5%, then a Eurodollar rate priced at LIBOR plus 1% will cost
A) 12% this period and 11.5% next period
B) 11% this period and 10.5% next period
C) 12% this period and 12% next period
D.) 11% this period and 11% next period