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KellyV2012
KellyV2012, Bachelor's Degree
Category: Business and Finance Homework
Satisfied Customers: 308
Experience:  Business Administration Option is Accounting and Finance
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26. Which of the following is the most likely strategy for

Resolved Question:

26. Which of the following is the most likely strategy for a U.S. firm that will be receiving Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)?
A) purchase a call option on francs.
B) sell a futures contract on francs.
C) obtain a forward contract to purchase francs forward.
D) all of the above are appropriate strategies for the scenario described.

27. If you expect the euro to depreciate, it would be appropriate to _______ for speculative purposes.
A) buy a euro call and buy a euro put
B) buy a euro call and sell a euro put
C) sell a euro call and sell a euro put
D) sell a euro call and buy a euro put

28. If U.S. inflation suddenly increased while European inflation stayed the same, there would be:
A) an increased U.S. demand for euros and an increased supply of euros for sale.
B) a decreased U.S. demand for euros and an increased supply of euros for sale.
C) a decreased U.S. demand for euros and a decreased supply of euros for sale.
D) an increased U.S. demand for euros and a decreased supply of euros for sale.

29. Countries that have adopted the euro must agree on a single ________ policy.
A) monetary
B) fiscal
C) worker compensation
D) foreign relations

30. It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S. government would like to reduce unemployment. Which of the following is an appropriate action given this scenario?
A) weaken the dollar.
B) strengthen the dollar.
C) buy dollars with foreign currency in the foreign exchange market.
D) implement a tight monetary policy.

31. Assume a two country world: Country A and Country B. Which of the following is correct about purchasing power parity (PPP) as related to these two countries?
A) If Country A’s inflation rate exceeds Country B’s infla¬tion rate, Country A’s currency will weaken.
B) If Country A’s interest rate exceeds Country B’s infla¬tion rate, Country A’s currency will weaken.
C) If Country A’s interest rate exceeds Country B’s infla¬tion rate, Country A’s currency will strengthen.
D) If Country B’s inflation rate exceeds Country A’s infla¬tion rate, Country A’s currency will weaken.

32. Based on interest rate parity, the larger the degree by which the foreign interest rate exceeds the U.S. interest rate, the:
A) larger will be the forward discount of the foreign currency.
B) larger will be the forward premium of the foreign currency.
C) smaller will be the forward premium of the foreign currency.
D) smaller will be the forward discount of the foreign currency.

33. If interest rates on the euro are consistently below U.S. interest rates, then for the international Fisher effect (IFE) to hold:
A) the value of the euro would often appreciate against the dollar.
B) the value of the euro would often depreciate against the dollar.
C) the value of the euro would remain constant most of the time.
D) the value of the euro would appreciate in some periods and depreciate in other periods, but on average have a zero rate of appreciation.

34. Translation exposure reflects:
A) the exposure of a firm’s ongoing international transac¬tions to exchange rate fluctuations.
B) the exposure of a firm’s local currency value to transac¬tions between foreign exchange traders.
C) the exposure of a firm’s financial statements to exchange rate fluctuations.
D) the exposure of a firm’s cash flows to exchange rate fluctuations.




35. Depreciation of the euro relative to the U.S. dollar will cause a U.S.-based multinational firm’s reported earnings (from the consolidated income statement) to _______. If a firm desired to protect against this possi¬bility, it could stabilize its reported earnings by _______ euros forward in the foreign exchange market.
A) be reduced; purchasing
B) be reduced; selling
C) increase; selling
D) increase; purchasing

36. If revenues and costs are equally sensitive to exchange rate movements, MNCs may reduce their economic exposure by restructuring their operations to shift the sources of costs or revenues to other locations so that:
A) cash inflows exceed cash outflows in each foreign currency.
B) cash outflows exceed cash inflows in each foreign currency.
C) cash inflows match cash outflows in each foreign currency.
D) none of the above

37. When a foreign currency is perceived by a firm to be undervalued, the firm may consider direct foreign investment in that country, as the initial outlay should be relatively low.
A) true.
B) false.

38. Long-term forward contracts are a possible way to hedge the distant sale of fixed assets in foreign countries, but they may not be available for many emerging market currencies.
A) true.
B) false.

39. If a U.S. parent is setting up a French subsidiary, and funds from the subsidiary will be periodically sent to the parent, the ideal situation from the parent’s perspective is a ____ after the subsidiary is established.
A) strengthening euro
B) stable euro
C) weak euro
D) B and C are both ideal.


40. Like income tax treaties, ____________ help to avoid double taxation and stimulate direct foreign investment.
A) withholding taxes
B) excise taxes
C) tax credits
D) carryforwards

41. When a foreign subsidiary is not wholly owned by the parent and a foreign project is partially financed with retained earnings of the parent and of the subsidiary, then:
A) the parent’s perspective should be used to evaluate a foreign project.
B) the subsidiary’s perspective should be used to evaluate a foreign project.
C) the foreign project should enhance the value of both the parent and the subsidiary.
D) none of the above


42. The dominant world currency since the end of World War II has been the
a. The Euro
b. The British Pound
c. The US Dollar
d. Gold

43. Consider a country that presently has a high level of unemployment because of weak economic conditions. Its income levels are very low. This country may be an attractive target as a result of ______ motives by U.S. firms that engage in direct foreign investment.
A) revenue-related
B) cost-related
C) A and B
D) none of the above

44. Which of the following is a reason to consider interna¬tional business?
A) economies of scale.
B) exploit monopolistic advantages.
C) diversification.
D) all of the above

45. Direct foreign investment would typically be welcomed if:
A) the products to be produced are substitutes for other locally produced products.
B) people from its headquarters country are transferred to the foreign country to work at the subsidiary.
C) the products to be produced are going to be exported.
D) all of the above

46. A macro assessment of country risk:
A) is adjusted for the particular business of the firm involved.
B) excludes all aspects relevant to a particular firm or project.
C) A and B
D) none of the above

47. An MNC has a foreign manufacturing plant to capitalize on cheap production costs; the MNC exports all the goods pro¬duced. It should be most concerned about the country’s:
A) growth in gross national product.
B) government policies designed to increase tariffs on imported goods.
C) local consumer purchasing habits.
D) government environmental regulations and taxes on the lease or purchase of a production site.

48. Country risk can affect an MNC’s cash flows but cannot affect its cost of capital.
A) true.
B) false.

49. When entering into a forward contract, the forward rate usually contains a premium (or discount) that reflects the difference between:
A) The spot rate and the expected future spot rate
B) The home interest rate and the foreign interest rate
C) The current interest rate and the future expected interest rate
D) None of the above. The premium is just the bank charge

50. Transaction exposure reflects:
A) the exposure of a firm’s ongoing international transac¬tions to exchange rate fluctuations.
B) the exposure of a firm’s local currency value to transac¬tions between foreign exchange traders.
C) the exposure of a firm’s financial statements to exchange rate fluctuations.
D) the exposure of a firm’s cash flows to exchange rate fluctuations.
Submitted: 2 years ago.
Category: Business and Finance Homework
Expert:  FiveStarLaw replied 2 years ago.

I am happy to answer all of your questions but I would require them to be broken into groups of 3 or 4 per question page

If this is satisfactory, please start your questions with "FOR WEBLAW" I will give it my immediate attention
Expert:  KellyV2012 replied 2 years ago.
Hi,

Please download the file at the link below.

http://www.mediafire.com/?feagb5mdcvg0arl
(Please copy the whole link into the address bar)

I hope this help...

Thanks,
KellyV2012, Bachelor's Degree
Satisfied Customers: 308
Experience: Business Administration Option is Accounting and Finance
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