International Financial Management
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Course Introduction
International Financial Management focuses on the principles and practices involved in managing financial resources in an international context. The course covers topics such as foreign exchange markets, international money and capital markets, exchange rate determination, risk management strategies, multinational capital budgeting, and the complexities of investing and financing across borders. Students will analyze the impact of international financial institutions, government regulations, and economic environments on multinational corporations, gaining skills to assess financial risks and devise effective strategies for global financial decision-making.
Recommended Textbook
International Money and Finance 8th Edition by Michael Melvin
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13 Chapters
694 Verified Questions
694 Flashcards
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Page 2
Chapter 1: The Foreign Exchange Market
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71 Verified Questions
71 Flashcards
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Sample Questions
Q1) If the spot exchange rate goes from 0.80 euro per dollar to 0.60 euro per dollar,the dollar has ___________ against the euro by _________ percent.
A) appreciated; 25.0
B) appreciated; 33.3
C) depreciated; -25.0
D) depreciated; -33.3
Answer: C
Q2) Which of the following currencies has the highest trading volume each day?
A) U.S. dollar
B) Euro
C) Yen
D) British pound
Answer: A
Q3) In the trade flow model,U.S.imports of goods and services will create a supply of U.S.dollars and foreign imports of U.S.goods and services will create a demand for U.S.dollars.
A)True
B)False
Answer: True
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Page 3
Chapter 2: International Monetary Arrangements
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52 Flashcards
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Sample Questions
Q1) A managed floating exchange rate is a market determined exchange system as long as rates stay between target zones as mandated by legislative commitments.
A)True
B)False
Answer: False
Q2) During the gold standard,national money supplies were constrained by:
A) International treaties
B) The growth of trade
C) Commodity indexes
D) The growth of the stock of gold
Answer: D
Q3) "Dollarization" and currency boards are examples of exchange rate systems that provide relatively large independent monetary policy as compared to floating exchange rates.
A)True
B)False
Answer: False
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Chapter 3: The Balance of Payments
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51 Flashcards
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Sample Questions
Q1) Refer to Table 3.1.The balance on the current account is:
A) + 100
B) + 200
C) - 100
D) 0
Q2) Because foreigners hold a greater claim to U.S.assets than U.S.residents to foreign assets,U.S.is a ________.
A) Net creditor
B) Trade creditor
C) Trade debtor
D) Net debtor
Q3) Which of the following is considered as a capital inflow to the U.S.?
A) A sale of U.S. financial assets to a foreign buyer.
B) A loan from U.S. bank to a foreign borrower.
C) A purchase of foreign financial assets by a U.S. buyer.
D) A U.S. company deposits $1 million in a bank account in Switzerland.
Q4) In the balance of payments debits are recorded as negative entries and credits are recorded as positive entries.
A)True
B)False
Page 5
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Chapter 4: Forward-Looking Market Instruments
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44 Flashcards
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Sample Questions
Q1) A foreign currency option gives the purchaser the right to buy or sell a given amount of currency only after the maturity date.
A)True
B)False
Q2) Foreign currency options contracts that give the buyer the right to sell are called:
A) Call options.
B) Selling rights.
C) Put options.
D) Strike rights.
Q3) A strike price is the price where:
A) A futures contract reaches maturity.
B) The owner of an options contract can transact.
C) The bank sets as an out-of-bounds in contract negotiations.
D) All currencies are brought to a standardized price.
Q4) In what market are currency prices sometimes referred to as a strike price?
A) Forward market
B) Swap market
C) Futures market
D) Options market
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Chapter 6: Exchange Rates, interest Rates, and Interest
Parity
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64 Flashcards
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Sample Questions
Q1) If the expected inflation in Brazil in higher than the expected inflation in the U.S.,and the real interest rates are equal across countries,then:
A) there is a forward premium on the dollar.
B) there is a forward flat on the dollar.
C) there is a forward discount on the dollar.
D) there is a spot discount on the dollar.
Q2) Which of the following reasons explain why interest rate parity may not hold perfectly?
I.Transaction costs
II.Business loan risks
III.Offshore risk accounting rules
IV.Political risk
A) I only
B) II and III
C) I and IV
D) I, III, and IV
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Chapter 7: Prices and Exchange Rates: Purchasing Power
Parity
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49 Flashcards
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Sample Questions
Q1) Absolute PPP can be seen as an extension of ________ by generalizing the price of a good to the countrywide level.
A) Relative PPP
B) Law of one price
C) Exchange rate equilibrium
D) Equilibrium currency
Q2) Under Purchasing Power Parity,
A) S<sub>$/£</sub> = P<sub>US</sub>/P<sub>UK</sub>
B) S<sub>$/£</sub> = P<sub>UK</sub>/P<sub>US</sub>
C) S<sub>$/£</sub> = P<sub>US</sub> + P<sub>UK</sub>
D) S<sub>$/£</sub> = P<sub>US</sub> - P<sub>UK</sub>
Q3) Assume that the United States faces a 5 percent inflation rate while the U.K has a 7 percent inflation rate.According to the relative PPP,the dollar would be expected to:
A) appreciate by 2 percent against the British pound
B) depreciate by 2 percent against the British pound
C) appreciate by 12 percent against the British pound
D) depreciate by 12 percent against the British pound
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Page 8
Chapter 8: Foreign Exchange Risk and Forecasting
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Sample Questions
Q1) A U.S.importer has to pay SKr1 million to a Swedish firm in 60 days.The current spot rate is $0.5 per Swedish krona,and the 60-day forward rate is $0.65.Bob forecasts that the spot rate in 60 days will be $0.45.Jane forecasts that the spot rate will be $0.85 in 60 days.The actual spot rate in 60 days turns out to be $0.68.If the U.S.importer believes Jane's forecast,it would:
A) buy SKr in the forward market at $0.65.
B) wait and buy SKr 60 days later at $0.68.
C) buy SKr now at $0.68 and let it sit in the company's safe.
D) wait and buy SKr in the forward market 60 days later at $0.65.
Q2) Suppose that the 1-year forward rate of dollar per Swiss franc is $0.42,the current spot rate $/SFr is $0.40,and the expected future spot rate $/SFr is $0.45.The expected premium equals to:
A) - 7.5%
B) 5%
C) 6.67%
D) 12.5%
Q3) Information exposure is a type of foreign exchange risk.
A)True
B)False
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Page 9
Chapter 9: Financial Management of the Multinational Firm
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Sample Questions
Q1) Letters of credit are used because:
A) Subsidiaries often have little capital
B) Profits are taxed differently in different countries
C) Contracts are difficult to enforce internationally
D) They prevent seizures by foreign governments
Q2) The evaluation of prospective investment alternatives and the commitment of funds to preferred projects is referred to as:
A) Capital budgeting
B) Cash management
C) Flow budgeting
D) Decentralized management
Q3) A letter of credit LOC is a contract written by a bank to guarantee that the exporter will pay the importer the amount of money owed.
A)True
B)False
Q4) Capital budgeting refers to the evaluation of prospective investment alternatives and the commitment of funds to preferred projects.
A)True
B)False
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Chapter 10: International Portfolio Investment
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Sample Questions
Q1) The risk present in all investment opportunities is known as ________ risk.
A) Systematic
B) Nonsystematic
C) Portfolio
D) Diversification
Q2) Risk premiums decrease for domestic assets when:
A) The domestic government prohibits foreign investors
B) Domestic investors fail to properly diversify internationally
C) A country moves from a global market to a segmented market
D) A country moves from a segmented market to a global market
Q3) When an investor prefers a portfolio that is diverse,has a smaller return than an alternative,and has a much smaller variance then the investor must be:
A) Risk seeking
B) Risk loving
C) Risk neutral
D) Risk averse
Q4) The risk present in all investment opportunities is known as systematic risk.
A)True
B)False
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Chapter 12: Determinants of the Balance of Trade
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Sample Questions
Q1) When a country ________,it supplies foreign exchange as payment.
A) Imports
B) Exports
C) Borrows
D) Lends
Q2) Assume that the supply of foreign production is perfectly inelastic.If the dollar is devalued then the total import value in dollars will:
A) Increase
B) Decrease
C) Stay the same
D) Uncertain
Q3) If the domestic currency is devalued and both export and import contracts are written in foreign currency,then the trade balance will:
A) Increase
B) Decrease
C) Stay the same
D) Uncertain
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Chapter 13: The Is-Lm-Bp Approach
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Sample Questions
Q1) The ________ represents all the points where money supplied is equal to money demanded.
A) IS curve
B) LM curve
C) BP curve
D) None of the above
Q2) With fixed exchange rates,a country cannot conduct ________ to alter domestic income.
A) Fiscal policy
B) Monetary policy
C) Currency devaluations
D) Currency appreciation
Q3) "The BP curve could be vertical,if capital is perfectly mobile."
A)True
B)False
Q4) Typically,the IS curve is:
A) Horizontal
B) Vertical
C) Downward-sloping
D) Upward-sloping
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Chapter 14: The Monetary Approach
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Sample Questions
Q1) The MABP implies that the change in international reserves equals to the foreign inflation rate plus the growth rate of domestic output minus the change in domestic money creation.
A)True
B)False
Q2) In a perfectly floating exchange rate regime,according to the monetary approach to the exchange rate MAER,what would be the effect of a decrease in U.S.output growth by 3% on the dollar price of a Swiss franc $/SFr?
A) Swiss franc would depreciate against the dollar.
B) Swiss franc would appreciate against the dollar.
C) The exchange rate remains unaffected.
D) The dollar would appreciate against the Swiss Franc.
Q3) "Under the specie flow mechanism,a trade-surplus nation would realize gold inflows,an increase in its money supply,and a rise of domestic inflation."
A)True
B)False
Q4) Under MABP,the full effect of the monetary policy is felt on the exchange rate.
A)True
B)False
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Chapter 15: Extensions to the Monetary Approach of Exchange Rate Determination
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Sample Questions
Q1) When a high degree of currency substitution exists,in order to prevent currencies from becoming too variable:
A) Central banks must not intervene.
B) Countries need international coordination of monetary policy.
C) Fixed currency rates must be adopted.
D) Exchange markets must be temporarily closed.
Q2) Since news is unexpected and catches people off-guard,
A) it is easy to forecast the future exchange rate.
B) it causes exchange rates to fluctuate substantially.
C) it causes prices of goods and services to vary more than exchange rates.
D) it has no effect on exchange rates.
Q3) The Theory of Exchange Rate Overshooting explains high exchange rate volatility by assuming that CIRP does not hold in the short run,but PPP does.
A)True
B)False
Q4) "Changes in market expectations have their greatest impact on exchange-rate changes over the long run as opposed to the short run."
A)True
B)False
Page 15
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