FIN428: Exam 1

An index that attempts to incorporate all of the economic, social, and political factors related to country risk is the
a) Per capita income rating
b) Gross domestic product
c) Profit Opportunity Recommendation Rating
d) Consumer Price Index
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An index that attempts to incorporate all of the economic, social, and political factors related to country risk is the
a) Per capita income rating
b) Gross domestic product
c) Profit Opportunity Recommendation Rating
d) Consumer Price Index
c) Profit Opportunity Recommendation Rating
_____ were the earliest multinationals
a) raw-material seekers
b) market seekers
c) cost minimizers
d) oil companies
a) Raw material seekers
The ___ are the archetype of the modern multinational firm that goes overseas to produce and sell in foreign markets
a) cost minimizers
b) market seekers
c) raw-material seekers
d) whaling companies
b) Market seekers
Which of the following is a consequence of increased global competition?
a) the creation of new steel plants in the old industrial countries
b) the end of free-trade agreements between governments and the world
c) increased comfort level of trade unions with the consequences
d) increased anxiety among workers in the old industrial countries
d) increased anxiety among workers in the old industrial countries
Companies gradually increase their commitment to international business with strategies that are progressively more sophisticated. Which one of the following steps is NOT one of the steps?
a) exporting
b) setting up a sales subsidiary
c) setting up a distribution system
d) creating a legal entity in the new target country
d) creating a legal entity in the new target country
Referring to the text, into which category of multinational is IBM most likely to fall?
a) raw material seekers
b) market seekers
c) cost minimizer
d) hedge fund
b) market seekers
__ is defined as the purchase of assets or commodities on one market for immediate resale on another in order to profit from a price discrepancy
a) internationalization
b) arbitrage
c) financing
d) total risk
b) arbitrage
High tax rates are a key indicator of country risk because they
a) destroy incentives to work, save, and invest
b) create large government deficits relative to GDP
c) involve substantial government expenditures yielding low rates of return
d) corrupt a well-functioning legal system
a) destroy incentives to work, save, and invest
Of the following, exchange rates depend the most upon relative
a) monetary systems
b) political systems
c) trade deficits
d) inflation rates between nations
d) inflation rates between nations
___ is another name for the complete replacement of the local currency within the U.S dollar
a) Seignorage
b) Dollarization
c) Depreciation
d) Appreciation
b) dollarization
The U.S dollar weakened during the 1970s for the following reasons EXCEPT a) U.S inflation accelerated b) the U.S economy weakened c) foreigners did not want to hold as many dollars as before d) foreigners did want to hold many more dollars than befored) foreigners did want to hold many more dollars than beforeA large government deficit relative to GDP, a high rate of money expansion accompanied by fixed exchange rates, along with substantial government expenditures are some of the common characteristics of ___ risk a) exchange rate b) interest rate c) country d) investmentc) countryOn Friday, September 13, 1992, the lira was worth DM 0.0013. Over the weekend the lira devalued against the DM to DM 0.0012. By how much had the lira devalued against the DM? a) 7.69% b) 8.33% c) 5.21% d) 9.27%a) 7.69%Which type of money is most likely to see its value fluctuate in the foreign exchange market? a) fiat money b) commodity money c) price-indexed money d) pegged-exchange ratea) fiat moneyWhich of the following is NOT a disadvantage of a strong dollar? a) Ford Corporation's competitiveness diminishes in foreign markets b) American-made Dell computers lose sales to their Chinese counterparts c) U.S unemployment levels rise in some sectors d) Americans will be less prone to buy foreign winesd) Americans will be less prone to buy foreign winesThe ___ is an exchange rate system that is relatively free from central bank and other government-type interventions a) managed float b) clean float c) dirty float d) target-zone arrangementb) clean floatThe current exchange rate system can be best characterized as a ____ system a) free float b) managed float c) fixed-rate d) hyrbidd) hybridThe European Monetary System is best described as a a) clean float b) target-zone arrangement c) dirty float d) managed floatb) target-zone arrangementThe Bretton Woods system a) ended in 1971 b) ended in 1939 when World War II began c) is currency the basis for the international monetary system d) is currently in use only by the major industrial nationsa) ended in 1971Managed floats do NOT fall into which of the following categories of central bank intervention? a) smoothing out daily functions b) leaning against the wind c) unofficial pegging d) letting market forces set exchange ratesd) letting market forces set exchange ratesThe Bretton Woods system fell apart because a) of the oil crisis b) U.S monetary policy was too expansionary c) The United States ran a large trade deficit d) the United States no longer supported a pegged gold standardb) U.S monetary policy was too expansionaryThe characteristic of gold that is most important to the success of a gold standard is that it is a) portable b) storable c) easily standardized d) expensive to produce as well as universally acceptabled) expensive to produce as well as universally acceptablePolitical risk is primarily a function of a) instability in the government b) uncertainty over property rights c) the level of violence in the society d) a country's national debtb) uncertainty over property rightsThe inflation rates in the U.S and France in January 1991 were expected to be 4% per annum and 7% per annum, respectively. If the current spot rate that day was $.1050, then the expected spot rate in three years was a) $.1150 b)$.1112 c)$.0964 d) $.0992c) $.0964The theory of relative purchasing power parity states that, between two nations, the a) inflation rates are unrelated b) exchange rate differential reflects the inflation rate differential c) inflation rate is smaller in weaker currencies d) the interest rate is greater than the inflation rate during depreciationsb) exchange rate differential reflects the inflation rate differentialIf the rate of inflation in all of the world's currency market rises from 5% to 7%, this will tend to make forward exchange rates move toward a) smaller premiums or larger discounts in relation to the dollar b) larger premiums or smaller discounts in relation to the dollar c) no change on average d) parityc) no change on averageWhat is the name of the theory that states exchange-adjusted prices on identical trade-able goods and financial assets must be within transaction costs of equality globally? The law of a) One Price b) Arbitrage c) Parity d) Capital Market Segmentationa) one priceIf the expected inflation is 20% and the real required return is 10%, then the Fisher effect says that the nominal interest rate should be exactly a) 30% b) 32% c) 22% d) 12%b) 32%The direct spot quote for the Canadian dollar is $.76 and the 180-day forward rate is $.74. The difference between the two rates is likely to mean that a) inflation in the U.S during the past year was lower than in Canada b) interest rates are rising faster in Canada than the U.S c) Prices in Canada are expected to rise more rapidly than in the U.S d) the Canadian dollar's spot rate is expected to rise in terms of the U.S dollarc) prices in Canada are expected to rise more rapidly than in the U.SWhich of the following is NOT a measure of political instability a) the number of political parties in one nation b) frequency of changes in government c) the level of violence d) conflicts with neighboring statesa) the number of political parties in one nation