# FIN4604 Final Exam

## 84 terms

d) 1.52%

### 2). Assume that the U.S. interest rate is 11% while the interest rate on euros is 7%. If euros are borrowed by a U.S. firm, they would have to ________ against the dollar by _______ in order to have the same effective financing rate from borrowing dollars.

b) Appreciate; 3.74%

### 3). When a U.S. firm borrows a foreign currency and has no offsetting position in this currency, it will incur an effective financing rate that is always above the _______ if the currency ________.

a) Foreign currency's interest rate; appreciates

b) High; high

### 5). Assume the annual British interest rate is above the annual U.S. interest rate (iuk > ius). Also assume the pound's forward rate of \$1.75 equals the pound's current spot rate. Given this information, interest rate parity ________ exist, and the U.S. firm _________ lock in a higher return by investing in pounds for one year.

d) Does not; could

a) Locally

### 7). The effective financing rate is obtained by adjusting nominal financing rate for:

b) Spot exchange rate changes over the period of concern.

### 8). If interest rate parity holds and transaction costs are zero, foreign financing with a simultaneous forward purchase of the currency borrowed will result in an effective financing rate that is:

c) Equal to the domestic interest rate.

### 9). If interest rate parity holds, transactions costs are zero, and forward rate is an accurate predictor of the future spot rate, then the effective financing rate on a foreign currency would be:

c) Equal to the domestic interest rate.

e) 11.4%

### 11). Euro-notes are underwritten by:

b) Commercial banks.

a) -1.7%.

### 13). A negative effective financing rate for a U.S. firm implies that the firm:

e) Paid back an amount less than originally borrowed

### 14). A U.S. firm plans to borrow Swiss francs today for a one-year period. The Swiss interest rate is 9%. It uses today's spot rate as a forecast for the franc's spot rate in one year. The U.S. one-year interest rate is 10%. The expected effective financing rate on Swiss francs is:

c) Equal to the Swiss interest rate

### 15). Assume Jelly Corporation, a U.S.-based MNC, obtains a one-year loan of 1,500,000 Malaysian Ringgit (MYR) at a nominal interest rate of 7%. At the time the loan is extended, the spot rate of the ringgit is \$.25. If the spot rate of the ringgit in one year is \$.28, the dollar amount initially obtained from the loan is \$________, and \$_________ are needed to repay the loan.

a) 375,000; 449,400

c) -25.8%

### 17). ____________ are free of default risk.

e) None of the above

b) -10%

c) -1%

b) 7%

b) 1.90%

b) .1498

### 23) A firm will likely benefit most from international diversification if:

b) The correlations between country economies are low
e) Economies are segmented
f) Both b and e

### 24) Which of the following is a motivation for a firm to engage in international business?

a) Exploit economies of scale
c) Diversification
d) Internalization
e) All of the above

### 25) When evaluating international project cash flows, which of the following factors is relevant?

a) Future inflation
b) Blocked funds
c) Remittance provisions
d) Exchange rate dynamics
e) All of the above

### 26) In multinational capital budgeting analysis, the following methods are used for adjusting risk assessment except:

d) Exchange rate forecasting

### 27) Which of the following is not a characteristic of a country to be considered within a MNC's international tax assessment?

e) All of the above are characteristics to be considered

### 28) An argument for MNCs to have a greater debt-intensive capital structure is:

a) They are well diversified

### 29) Which of the following factors is not expected to generally have a favorable impact on the firm's cost of capital?

c) Volatile exchange rate changes

### 30) The capital asset pricing theory is based on the premise that:

b) Only systematic variability in cash flows is relevant

### 31) Based on the factors that influence a country's cost of capital, the cost of capital in less developed countries is likely to be ________ than that of the U.S. and _______ than that of Japan.

a) Higher; higher

### 32) The term "local target capital structure" is frequently used to represent:

c) The desired capital structure of a subsidiary of a particular MNC

### 33) The term "global capitals structure" is used to represent:

d) The capital structure of a particular MNC (including all subsidiaries)

b) Larger; lower

a) 21%

### 36) Which of the following is not a reason that the cost of debt can vary across countries?

b) A high price/earnings multiple

a) More; low

b) More; weak
c) Less; strong
e) Both b and c

### 39) A macro-assessment of country risk:

b) Excludes all aspects relevant to a particular firm or project

### 41) The Delphi technique:

c) Involves the collection of independent expert opinions on country risk

### 42) The most important variable in determining a country's degree of overall country risk:

d) May often vary with the country in question

b) Cash flows

### 44) A firm may incorporate a country risk rating into the capital budgeting analysis by:

b) Adjusting the discount rate upward as the country risk rating decreases (implying increased risk)

### 45) Country risk analysis is important because it can be used by a MNC:

a) As a screening device to avoid countries with prohibitive/excessive risk
b) To monitor countries where the MNC is presently engaged in international business
c) To improve the analysis used to make long-term investing or financing decisions
d) To revise investment of financing decisions in the face of new risk profile.
e) All of the above

### 46) ______________ is (are) not a form of political risk.

a) Exchange rate movements

c) 10.16%

a) 5.13%

b) 13.15%

### 50) A Japanese Tokyo-based MNC has a German subsidiary that annually remits €50 million to Japan. If the Euro _______ against the yen, the value of remitted funds _______

b) Depreciates; decreases

### 51. Which of the following U.S. industries would most likely take advantage of lower costs in some developing foreign countries?

a. Assembly line production.

### 52. The term "privatization" is typically used to describe:

d. Government enterprises that are purchased by corporations and other investors.

### 53. In general, products and services are generally becoming ________ standardized across countries, which tends to _________ the globalization of business.

a. More; encourage

### 54. ________ are most commonly classified as a Foreign Direct Investment (FDI).

a. Foreign acquisitions

### 55. Which of the following is not an additional risk resulting from international business?

c. Interest rate risk.

c. Lower; lower

a. Higher; large

### 58. When economic conditions of two countries are _______, then a firm would _______ its risk by operating in both counties instead of concentrating just in one.

c. Not highly correlated; reduce

### 59. In capital budgeting analysis, the use of a cumulative NPV is useful for:

b. Determining the time required to achieve a positive NPV.

### 60. Other things being equal, firms from a particular home country will engage in more international acquisitions if they expect foreign currencies to ________ against their home currency, and if their cost of capital is relatively ________.

a. Appreciate; low

### 61. The impact of blocked funds on the net present value of a foreign project will be greater if interest rates are ___________ in the host country and there are _________ investment opportunities in the host country.

b. Very low; limited

### 62. An international project's APV is ________ related to the size of the initial investment and _________ related to the project's required rate of return.

d. Negatively; negatively

### 63. An international project's APV is __________ related to consumer demand and__________ related to the project's salvage value.

a. Positively; positively

### 64. As the financing of a foreign project by the parent _______ relative to the financing provided by the subsidiary, the parent's exchange rate exposure _______

c. Increases; increases

c. -12%

### 66. When determining whether a particular proposed project in a foreign country is feasible:

b. Country risk analysis should be incorporated within the capital budgeting analysis.

### 67. The best course of action most likely to reduce political risk is for a MNC to:

b. Make the cost of expropriation or confiscation prohibitive to the host country.

### 68. The following strategies may be employed to reduce exposure to country risk by MNCs except:

e. Joining local political parties.

### 69. __________ typically have maturities of less than one year.

b. Euro-commercial paper
c. Euronotes
e. Both b and c

### 70. MNCs can use short-term foreign financing to reduce their exposure to exchange rate fluctuations. For example, if an American-based MNC has _________ in Algerian dinars, it could borrow ____________, resulting in an offsetting effect.

b. Receivables; dinars

d. MNC value

### 72. Which of the following is not an input required for a multinational capital budgeting analysis, given that it is conducted from the parent's viewpoint?

d. Subsidiary's management philosophy

### 73. Which of the following is not a form of financial risk?

c. Blockage of fund transfers

### 74. _________ typically have maturities of one to six months; _________ typically have maturities of one to six months but can be tailored to the issuer's preferences.

c. Euronotes; euro-commercial paper

### 75. A _________ effective financing rate implies that as U.S. firm borrowing the foreign currency paid _________ in total loan repayment than the amount borrowed.

a. Negative; fewer
b. Positive; more
e. Both a and b

### 77. _______ is not a revenue-related motive for Foreign Direct Investment

b. Fully benefiting from economies of scale

### 78. The primary provider of political risk insurance to U.S. MNCs is the:

d. Overseas Private Investment corporation

c. Extractive

d. 5.1%

c. 13.85%

a. 5.61%

d. 3.4%

a. 20.51%