34 terms

Quiz 1

When the foreign exchange market opens in the US each morning, the opening exchange rate quotations will be based on the:
prevailing prices in locations where the foreign exchange markets have been opened (london)
which theory identifies specialization as a reason for international business?
the theory of comparative advantage
Licensing obligates a firm to provide________, while franchising obligates a firm to provide _________.
its technology; a specialized sales or services strategy
(T or F) If a US-based focuses completely on exporting, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time.
The valuation of an MNC should rise when an event cause the expected cash flows from foreign to ____ and when foreign currencies denominating these cash flows are expected to ____.
increase; appreciate
Who purchases more US exports than the other countries?
The US typically has a balance of trade surplus with who?
No one
Assume the US has a balance of trade surplus with the Country of Thor. When individuals in Thor manufacture CDs and DVDs that look almost exactly like the original product produced in the US and other countries, they _______ the US balance of surplus with Thor. This activity is called _________.
reduce; pirating
Direct foreign investment into the US represents a ______.
capital inflow
Assume a US firm has to pay for Korean imports in 60 days. It expects that Korean won will depreciate, but it still wants to hedge its risk. What type of hedging is more appropriate in this situation?
purchase call option
Assume that a bank's bid rate on japanese yen is $.0041 and its ask rate is $.0043. Its bid-ask percentage spread is?
The Basel accord is focused on eliminating inconsistencies in _______across countries.
capital requirements
What is not a concern about the North American Free Trade Agreement?
its impact on US inflation
LIBOR is what?
London interbank offer rate
the interest rate commonly charged for loans between banks
A syndicated loan is what?
a loan by a group of banks to a borrower
A japanese yen is worth $.0080, and a Fijian dollar (F$) is worth $.5900. What is the value of the yen in Fijian dollars (how many Fijian dollars do you need to buy a yen)?
(T or F) The exchange rates of smaller countries are very stable because the market for their currency is very liquid?
An obligation to purchase a specific amount of currency at a future point in time is called a what?
forward contract
The value of the Australian dollar today is $0.73. Yesterday, the value of the Australian dollar was $0.69. The Australian dollar _______ by _______%
appreciated; 5.8%
If the Japanese yen is expected to appreciate against the US dollar and interest rates in the US and Japan are similar, banks may try speculating on this anticipated exchange rate movement by borrowing _______ and investing in ________
yen increase while dollar decreases
dollars; yen
What five factors influence exchange rates?
-interest rates
Look at number 2 on your quiz
Forward contract
an obligation to purchase a specific amount of currency at a future point in time at a certain exchange rate
currency futures contract
Specifies a standard volume of a particular currency to be exchanged on a specific settlement date
Currency call option
provides the right to buy a specific currency at a specific price (strike price or exercise price)
Currency put option
provides the right to sell a specific currency at a specific price within a specific period of time
If a US based company is valued at the present value of its future dollar cash flows, what two additional factors must be considered to value the company if it begins operations in Mexico?
Mexican earnings and exchange rate associated with the peso
Value=Earnings(Cash flows)/(1+K)^t
The commonly accepted goal of the MNC is to:
maximize shareholder wealth
what could reduce agency problems for an MNC?
stock options as managerial compensation
hostile takeover threat
investor monitoring
The J Curve effect describes what?
the short-run tendency for a country's balance of trade to deteriorate even while its currency is depreciating
The demand for US exports tends to increase when?
the currencies of foreign countries strengthens against the dollar
What are some important bank characteristics to customers in need of foreign exchange?
-quote of competitiveness
-speed of execution
-forecasting advice
-advice about current market conditions
are usually issued in bearer form
can be sold to anyone
the real interest rate adjusts the nominal interest rate for what?