Multinational Financial Management: Multiple Choice: Conceptual

CHAPTER 19
MULTINATIONAL FINANCIAL MANAGEMENT

(Difficulty: E = Easy, M = Medium, and T = Tough)
Multiple Choice: Conceptual
Easy:
International operations motivation Answer: e Diff: E
1. Which of the following are reasons why companies move into international
operations?
a. To take advantage of lower production costs in regions of inexpensive

labor.
b. To develop new markets for their finished products.
c. To better serve their primary customers.
d. Because important raw materials are located abroad.
e. All of the statements above are correct.
Multinational financial management Answer: d Diff: E

2. Multinational financial management requires that
a. The effects of changing currency values be included in financial

analyses.
b. Legal and economic differences be considered in financial decisions.
c. Political risk be excluded from multinational corporate financial
analyses.
d. Statements a and b are correct.
e. All of the statements above are correct.
Currency depreciation Answer: a Diff: E

3. If the inflation rate in the United States is greater than the inflation
rate in Sweden, other things held constant, the Swedish currency will
a. Appreciate against the U.S. dollar.

b. Depreciate against the U.S. dollar.
c. Remain unchanged against the U.S. dollar.
d. Appreciate against other major currencies.
e. Appreciate against the dollar and other major currencies.
EMU Answer: c Diff: E

4. What is the common currency of the EMU?
a. U.S. dollar.
b. British pound.
c. Euro.
d. French franc.
e. None of the statements above is correct.
Chapter 19 - Page 1
Medium:
International bond markets Answer: d Diff: M
5. Which of the following statements is incorrect?
a. Any bond sold outside the country of the borrower is called an

international bond.
b. Foreign bonds and Eurobonds are two important types of international
bonds.
c. Foreign bonds are bonds sold by a foreign borrower but denominated in
the currency of the country in which the issue is sold.
d. The term Eurobond specifically applies to any foreign bonds denominated
in U.S. currency.
e. None of the statements above is correct.
Interest rate parity Answer: a Diff: M
6. In Japan, 90-day securities have a 4 percent annualized return and 180-day
securities have a 5 percent annualized return. In the United States, 90-
day securities have a 4 percent annualized return and 180-day securities
have an annualized return of 4.5 percent. All securities are of equal
risk. Japanese securities are denominated in terms of the Japanese yen.
Assuming that interest rate parity holds in all markets, which of the
following statements is most correct?
a. The yen-dollar spot exchange rate equals the yen-dollar exchange rate
in the 90-day forward market.
b. The yen-dollar spot exchange rate equals the yen-dollar exchange rate
in the 180-day forward market.
c. The yen-dollar exchange rate in the 90-day forward market equals the
yen-dollar exchange rate in the 180-day forward market.
d. Statements a and b are correct.
e. Statements b and c are correct.
Interest rate parity Answer: c Diff: M
7. Currently, a U.S. trader notes that in the 6-month forward market, the
Japanese yen is selling at a premium (that is, you receive more dollars per
yen in the forward market than you do in the spot market), while the British
pound is selling at a discount. Which of the following statements is most
correct?
a. If interest rate parity holds, 6-month interest rates should be the

same in the U.S., Britain, and Japan.
b. If interest rate parity holds among the three countries, the United
States should have the highest 6-month interest rates and Japan should
have the lowest rates.
c. If interest rate parity holds among the three countries, Britain should
have the highest 6-month interest rates and Japan should have the
lowest rates.
d. If interest rate parity holds among the three countries, Japan should
have the highest 6-month interest rates and Britain should have the
lowest rates.
e. If interest rate parity holds among the three countries, the United
States should have the highest 6-month interest rates and Britain
should have the lowest rates.
Chapter 19 - Page 2

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CHAPTER 19

MULTINATIONAL FINANCIAL MANAGEMENT

Multiple Choice: Conceptual

a. To take advantage of lower production costs in regions of inexpensive

Multinational financial management Answer: d Diff: E

a. The effects of changing currency values be included in financial

Currency depreciation Answer: a Diff: E

a. Appreciate against the U.S. dollar.

EMU Answer: c Diff: E

a. Any bond sold outside the country of the borrower is called an

a. If interest rate parity holds, 6-month interest rates should be the

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