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FIN 403 Final Exam Guide Set of 50 Questions Multiple Choice and True/False

1.

The current currency in Italy is called:

2.

A Forward contract:

3.

If the US Dollar appreciates compared to the Euro:

4.

All else equal, if the Fed increases interest rates:


5. In general, when speculating on exchange rate movements, the speculator will borrow the currency that is expected to appreciate and invest in the country whose currency is expected to depreciate.

6. To force the value of the pound to appreciate against the dollar, the Federal Reserve should:

7. A strong dollar is normally expected to cause:

8. The value of the Canadian dollar, Japanese yen, and Australian dollar with respect to the U.S. dollar are part of a:

9. Graylon, Inc., based in Washington, exports products to a German firm and will receive payment of â‚Ź200,000 in three months. On June1, the spot rate of the euro was $1.12, and the 3month forward rate was $1.10. On June 1, Graylon negotiated a forward contract with a bank to sell â‚Ź200,000 forward in three months.The spot rate of the euroon September 1 is $1.15. Graylon will receive $_________ for the euros.


10. The demand for U.S. exports tends to increase when:

11. Which of the following theories identifies specialization as a reason for international business?

12. As a result of the European Union, restrictions on exports between _______ were reduced or eliminated.

13. Which of the following is an example of direct foreign investÂŹment?

14. Which of the following industries would most likely take advantage of lower costs in some less developed foreign countries?

15.Direct foreign investment into the U.S. represents a ________.

16. Suppose the United States and Great Britain are on the gold standard and the price of gold in the U.S. is fixed at $100 per ounce and the price of gold in Britain is fixed at ÂŁ50. What exchange rate must prevail between the dollar and the pound?


17.The Euro is

18. Assume the Canadian dollar is equal to $.88 and the Peruvian Sol is equal to $.35. The value of the Peruvian Sol in Canadian dollars is:

19. Which of the following is not true with respect to spot market liquidity?

20. _________ is not a factor that causes currency supply and demand schedules to change.

21. One advantage of monetary union

22. A large increase in the income level in Mexico along with no growth in the U.S. income level is normally expected to cause (assuming no change in interest rates or other factors) a(n) ______ in Mexican demand for U.S. goods, and the Mexican peso should _______.

23. A forward contract can be used to lock in the __________ of a specified currency for a future point in time.


24. When the “real� interest rate is relatively low in a given country, then the currency of that country is typically expected to be:

25. Currency futures contracts sold on an exchange:

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)?

27. If you expect the euro to depreciate, it would be appropriate to _______ for speculative purposes.

28. If U.S. inflation suddenly increased while European inflation stayed the same, there would be:

29.

Countries that have adopted the euro must agree on a single ________ policy.


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?

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?

32. Based on interest rate parity, the larger the degree by which the foreign interest rate exceeds the U.S. interest rate, the:

33. If interest rates on the euro are consistently below U.S. interest rates, then for the international Fisher effect (IFE) to hold:

34. Translation exposure reflects:

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.


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:

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.

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.

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.

40. Like income tax treaties, ____________ help to avoid double taxation and stimulate direct foreign investment.

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:

42.

The dominant world currency since the end of World War II has been the


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.

44. Which of the following is a reason to consider interna¬tional business?

45. Direct foreign investment would typically be welcomed if:

46. A macro assessment of country risk:

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:

48.

Country risk can affect an MNC’s cash flows but cannot affect its cost of capital.

49. When entering into a forward contract, the forward rate usually contains a premium (or discount) that reflects the difference between:

50. Transaction exposure reflects:



Fin 403 final exam guide (uop course)