Chapter 21 International Financial Management Exam Questions

Fundamentals of Corporate Finance, 5e (Parrino)

Chapter 21 International Financial Management

1) Globalization refers to the removal of barriers to free trade and the closer integration of national economies.

Learning Objective: LO 1

Bloomcode: Knowledge

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

2) While the production of goods and services has become globalized, American consumers only purchase domestic goods.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

3) The production of goods and services has become highly globalized due to the emergence of large multinational companies.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

4) Integration of the financial system globally is a result of deregulation of foreign exchange markets, money and capital markets, and banking systems.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

5) A transnational corporation is a business that operates in more than one country but is managed from the perspective of a firm residing in a particular country.

Learning Objective: LO 1

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

6) Royal Dutch Shell is a transnational corporation.

Learning Objective: LO 1

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

7) Differences in legal systems and tax codes do not affect the way firms operate in foreign countries.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

8) Legal systems can vary on simple matters, such as opening a business, selecting a site location, and hiring employees.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

9) English is the world's social language.

Learning Objective: LO 1

Bloomcode: Knowledge

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

10) English is the language for international business, but not the world's social language.

Learning Objective: LO 1

Bloomcode: Knowledge

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

11) Cultural views shape business practices and people's attitudes toward business.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

12) Both China and the nations that formerly made up the Soviet Union are currently moving toward centrally planned economies.

Learning Objective: LO 1

Bloomcode: Knowledge

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

13) Country risk has no effect on a firm's cash flows, and firm value.

Learning Objective: LO 1

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

14) Maximizing stockholders' wealth is a widely embraced goal for firms in all countries around the world.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

15) The European manager's goal is to earn as much wealth as possible for a firm while considering the overall welfare of both the stockholders and stakeholders.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

16) European firms focus on maximizing market share rather than shareholders' wealth.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

17) Japanese managers focus on maximizing market share rather than shareholders' wealth.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

18) The foreign exchange market is an international market, connected electronically, where currencies are bought and sold in wholesale amounts.

Learning Objective: LO 2

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

19) Tokyo is the largest foreign exchange trading center in the world.

Learning Objective: LO 2

Bloomcode: Knowledge

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

20) When a U.S. bank in Chicago gives a quote of £0.5089/$, it is a direct quote.

Learning Objective: LO 2

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

21) A direct quote exchange rate is the amount of foreign currency exchanged for one dollar.

Learning Objective: LO 2

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

22) The bid quote is the rate at which the dealer will sell foreign currency.

Learning Objective: LO 2

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

23) The decision to accept positive NPV international projects increases the value of a firm, and it should be consistent with maximizing stockholders' wealth.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

24) Most companies find it easier to estimate the incremental cash flows for foreign projects than for domestic projects.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

25) To convert a project's future cash flows into another currency, we need to project or forecast the exchange rate.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

26) To convert a project's future cash flows into another currency, we need to use today's spot exchange rate.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

27) If a firm is located in a country with a relatively unstable political environment, management will require a lower rate of return on projects.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

28) A Eurodollar is defined as a U.S. dollar deposited in a bank outside the United States.

Learning Objective: LO 4

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

29) Eurocredits refer to long-term loans of a Eurocurrency made to multinational corporations and governments of poor credit quality.

Learning Objective: LO 4

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

30) Eurodollars and other Eurocurrency bonds have characteristics that are identical to U.S. corporate bonds.

Learning Objective: LO 4

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

31) American banks were encouraged by the U.S. government to offer services overseas in order to act as engines of territorial and economic expansion.

Learning Objective: LO 5

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

32) Evidence of globalization includes:

A) consumers in many countries only buy goods that are produced within their country even if a cheaper alternative is available from another country.

B) goods and services being limited to within a given country.

C) a highly fragmented financial system.

D) goods and services are produced around the world.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

33) Which of the following statements about multinational firms is NOT true?

A) A multinational corporation is a business firm that operates in more than one country but is headquartered or based in its home country.

B) Multinational corporations are owned by domestic stockholders only.

C) Multinational corporations may purchase raw materials from one country, obtain financing from a capital market in another country, and produce finished goods with labor and capital equipment from a third country.

D) Multinational corporations may be owned by foreign stockholders.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

34) Which of the following factors do not cause international business transactions to differ from domestic deals?

A) Exchange rate risk, legal systems, and country risk

B) Legal systems, cultural factors, and economic systems

C) Time value of money, expected returns procedures, and size of market

D) Economic systems, cultural factors, and country risk

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

35) Which of the following statements about the goal of a firm in different countries is true?

A) Maximizing stockholder's value is not the accepted goal for firms in India.

B) Firms in Germany focus on maximizing stakeholder wealth.

C) The goal of a Japanese business manager is to decrease the wealth and growth of the keiretsu business group.

D) Firms in Germany focus on maximizing corporate wealth.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

36) Which of the following statements about the goal of a firm in different countries is true?

A) Corporate wealth maximization is the accepted goal for firms in India.

B) Firms in Australia focus on maximizing corporate wealth.

C) The goal of a Japanese business manager is to increase the wealth and growth of the keiretsu business group.

D) Private-sector firms in China focus on providing full employment in the economy.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

37) Economic benefits provided by the foreign exchange markets do NOT include:

A) a mechanism to transfer purchasing power from individuals who deal in one currency to people who deal in a different currency.

B) a way for corporations to pass the risk associated with foreign exchange price fluctuations to professional risk-takers.

C) a channel for importers and exporters to acquire credit for international business transactions.

D) an inability to transfer currency risk.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

38) In 2020, the three largest foreign exchange markets based on daily volume were:

A) London, New York, and Hong Kong.

B) New York, Tokyo, and Zurich.

C) London, Tokyo, and Zurich.

D) London, New York, and Paris.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

39) The major participants in the foreign exchange markets are:

A) multinational commercial banks, large investment banking firms, and domestic firms.

B) multinational commercial banks, local banks, and domestic firms.

C) multinational commercial banks, large investment banking firms, and currency boutiques.

D) multinational commercial banks, local banks, and currency boutiques.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

40) Which of the following statements is true?

A) Equilibrium occurs at the price at which the quantity of the currency demanded exceeds the quantity supplied.

B) When pounds become more expensive relative to dollars, British products become less expensive for Americans to buy.

C) From the British buyers' perspective, the lower the dollar price of pounds, the less pounds that have to be exchanged for dollars to buy foreign goods.

D) When euros become less expensive relative to dollars, German products become less expensive for Americans to buy.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

41) If the foreign exchange rate is the price in foreign currency for a dollar, then the exchange rate quote is called:

A) an American quote.

B) an indirect quote.

C) a direct quote.

D) a cross quote.

Learning Objective: LO 2

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

42) A European quote is the same as:

A) an American quote.

B) an indirect quote.

C) a bidding quote.

D) a cross quote.

Learning Objective: LO 2

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

43) Which of the following is an indirect quote from an American perspective?

A) £0.5125/$

B) $0.006900/¥

C) $1.5637/€

D) ¥115.23/€

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

44) The bid quote represents the rate at which:

A) the dealer will buy foreign currency from investors.

B) the dealer will sell foreign currency to investors.

C) the dealer will buy domestic currency from investors.

D) the dealer will sell domestic currency to the exchange.

Learning Objective: LO 2

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

45) The ask quote represents the rate at which:

A) the dealer will buy foreign currency from investors.

B) the dealer will sell foreign currency to investors.

C) the dealer will buy domestic currency from the exchange.

D) the dealer will sell domestic currency to investors.

Learning Objective: LO 2

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

46) The difference between the forward rate and the spot rate is called the:

A) cross exchange rate.

B) forward premium or forward discount.

C) indirect quote.

D) direct quote.

Learning Objective: LO 2

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

47) Venkat Ram purchased a pair of dress shoes in Italy for €131.25. If the spot exchange rate is $1.5621/€, what did the shoes cost in dollars? (Round your final answer to two decimal places.)

A) $205.03

B) $84.02

C) €131.25

D) €84.02

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

48) Starling Corp. purchased some components from a Mexican manufacturer. They have to pay 110 million Mexican pesos (MP) for the goods today. The spot rate today is MP10.3540/$. What is the dollar cost of this product? (Round your final answer to the nearest dollar.)

A) $110,000,000

B) $10,623,913

C) $11,110,235

D) $1,138,940,000

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

49) Tantrix, Inc. purchased its inventory from an Indian manufacturer at a cost of Rs.5,325,000. The dollar cost of this payable is $125,634.07 at today's spot rate. What is the today spot rate?

A) $4.2385/Rs

B) $42.3850/Rs

C) Rs.42.3850/$

D) Rs.4.2385/$

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

50) Suppose a Tata Nano car is priced at Rs.100,000 in New Delhi and $3,129 in New York. In which place is the car more expensive if the spot rate is $0.0242/Rs.?

A) In New Delhi

B) In New York

C) It is the same in both places.

D) It cannot be determined.

Learning Objective: LO 2

Bloomcode: Analysis

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

51) If the spot rate is quoted as $0.009369/¥, what is the exchange rate in terms of yen per dollar? (Round your final answer to four decimal places.)

A) ¥0.0094/$

B) ¥0.9369/$

C) ¥106.7350/$

D) ¥16.7350/$

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

52) Given that the spot rate is $1.5136/€ and the 90-day forward quote is $1.4974/€, we can say that:

A) the U.S. dollar is at a forward premium against the euro.

B) the U.S. dollar is at a forward discount against the euro.

C) the euro is at a forward premium against the U.S. dollar.

D) the dollar is at neither a premium nor a discount against the euro.

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

53) Given that the spot rate is ¥106.74/$ and the 180-day forward quote is ¥100.37/$, we can say that:

A) the U.S. dollar is at a forward premium against the yen.

B) the yen is at a forward premium against the U.S. dollar.

C) the yen is at a forward discount against the U.S. dollar.

D) the U.S. dollar is at neither a premium nor a discount against the yen.

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

54) Celio, Inc. sold equipment to a French firm and will receive €1,249,425 in 30 days. If the company entered a forward contract to sell the euros at the 30-day forward rate of $1.5512/€, what is revenue received in dollars? (Round your final answer to the nearest dollar.)

A) $1,249,425

B) $805,457

C) $1,938,108

D) $1,312,224

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

55) Baljit, Inc. purchased machinery from a Japanese firm and will have to pay ¥278.45 million in 90 days. The bank quotes a forward rate of ¥105.46/$ to buy the required yen. What is the cost to Baljit in U.S. dollars? (Round your final answer to the nearest dollar.)

A) $2,640,338

B) $2,784,500

C) $2,936,534

D) $2,714,300

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

56) John Travers is planning a holiday to Thailand but is concerned that the U.S. dollar will depreciate before he makes his trip. His travel agent has planned a trip for him for a total cost of 41,250 Thai baht. John plans to purchase the baht forward and is given a dollar estimate of $1,247.17 based on the 30-day forward quote. What is the THB/$ forward rate?

A) THB41.2500/$

B) THB33.0749/$

C) $0.0302/THB

D) $1.2471/THB

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

57) A local bank has requested foreign exchange quotes for the Swedish krona (SK) from Citibank. Citibank quotes a bid rate of $0.1652/SK and an ask rate of $0.1667/SK. What is the percentage bid-ask spread? (Round your final percentage answer to one decimal place.)

A) 1.2%

B) 2.1%

C) 0.9%

D) 0.65%

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

58) A foreign exchange dealer is willing to buy the New Zealand dollar (NZ$) at $0.7621/NZ$ and will sell it at a rate of $0.7714/NZ$. What is the percentage bid-ask spread? (Round your final answer to two decimal places.)

A) 0.26%

B) 2.13%

C) 0.96%

D) 1.21%

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

59) Banco Herrero wants to make a bid-ask spread of 0.55 percent on its foreign exchange transactions. If the ask rate on the Mexican peso (MP) is MP10.4192/$, what does the bid rate have to be? (Round intermediate calculation to four decimal places.)

A) MP10.3619/$

B) MP10.4192/$

C) MP10.4249/$

D) MP10.2165/$

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

60) Bartman, Corp. observes that the Swiss franc (SF) is quoted at $0.6164/SF, while the Swedish krona (SK) is quoted at $0.1981/SK. What is the SK/SF cross rate? (Round your final answer to four decimal places.)

A) SK0.3214/SF

B) SK3.1116/SF

C) SK0.4183/SF

D) SK2.1467/SF

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

61) Xecor Pharma just received revenues of A$2,372,300 in Australian dollars (A$). The only quotes management received are A$2.0651/£ and $1.8538/£. What is the U.S. dollar value of the company's revenues? (Do not round your intermediate calculation, but round your final answer to the nearest dollar.)

A) $4,397,770

B) $4,899,037

C) $2,129,567

D) $9,081,834

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

62) Trident Corp. recently purchased machinery parts worth 23.5 million Mexican pesos (MP). Management needs to know the U.S. dollar cost of the payables. It has access to two quotes for Canadian dollars (C$): C$1.0774/$ and C$0.0981/MP. What will it cost Trident to purchase 23.5 million Mexican pesos? (Do not round your intermediate calculation, and round your final answer to the nearest dollar.)

A) $2,531,890

B) $2,305,350

C) $2,139,735

D) $1,987,325

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

63) Dresdner Bank has offered the following exchange rate quotes on Indian rupees (Rs) Rs.83.7612/£ and $1.8654/£. What is the cross rate between the Indian rupees and the U.S. dollar? (Round your final answer to four decimal places.)

A) Rs.44.9025/$

B) Rs.49.9375/$

C) Rs.51.2134/$

D) Rs.36,7122/$

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

64) The spot rate on the London market was £0.5434/$, while the 90-day forward rate was £0.5519/$. What is the annualized forward premium or discount on the U.S. dollar for the period? (Round your final answer to one decimal place.)

A) 1.6% premium

B) 6.3% premium

C) 6.3% discount

D) 1.6% discount

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

65) Bank of America quoted the 180-day forward rate on the Japanese yen at $0.009702/¥. The spot rate was quoted at $0.009466/¥. What is the forward premium or discount on the Japanese yen? (Round your final answer to the nearest percentage.)

A) 7% premium

B) 7% discount

C) 5% premium

D) 5% discount

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

66) State Bank of India has offered a spot rate quote on Indian rupees (Rs.) of Rs. 42.47/$. The Indian rupee is quoted at a 30-day forward discount of 7.65 percent against the dollar. What is the 30-day forward quote?

A) Rs.43.5622/$

B) Rs.41.5687/$

C) Rs.45.1226/$

D) Rs.42.7407/$

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

67) Tamcon Industries has purchased equipment from a Brazilian firm for a total cost of 1,272,500 Brazilian reals (BR). The firm has to pay in 30 days. Citicorp has given the firm a 30-day forward quote of $0.6123/BR. Assume that on the day the payment is due, the spot rate is at $0.6317/BR. How much would Tamcon save by hedging with a forward contract? (Round your final answer to the nearest dollar.)

A) $24,687

B) $803,838

C) $779,152

D) $31,278

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

68) Kapona Industries has purchased equipment from a Korean firm for a total cost of 11,500,000 Korean won. The firm has to pay in 90 days. J. P. Morgan has given the firm a 90-day forward quote of $0.0009791/won. Assume that on the day the payment is due, the spot rate is at $0.001004/ won. How much would Kapona save by hedging with a forward contract? (Round your final answer to the nearest dollar.)

A) $687

B) $338

C) $152

D) $286

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

69) Carrington Industries sold equipment to a Mexican firm. Payment of 41,275,000 pesos will be due in 30 days. Carrington has the option of selling the pesos at a 30-day forward rate of $0.09739/peso. If it waits 30 days to sell the pesos, the expected spot rate is $0.09596/peso. How much additional dollar revenue will Carrington gain by selling forward the pesos? (Round your final answer to the nearest dollar.)

A) $24,687

B) $83,838

C) $59,023

D) $31,278

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

70) Palermo, Corp. sold equipment to a French firm. Payment of €4,275,000 will be due in 90 days. Palermo has the option of selling the euros at a 90-day forward rate of $1.5922/€. If it waits 90 days to sell the euros, the expected spot rate is $1.5645/€. How much dollar revenue will Palermo lose by not selling the euros forward? (Round your final answer to the nearest dollar.)

A) $124,687

B) $118,418

C) $159,023

D) $131,278

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

71) When performing capital budgeting analysis on international projects, managers:

A) find it less difficult to estimate the incremental cash flows for foreign projects relative to domestic projects.

B) have to deal with foreign exchange rate risk on international and domestic capital investments.

C) must incorporate a country risk premium even when evaluating domestic business activities.

D) must incorporate a country risk premium when evaluating foreign business activities.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

72) The ways that a foreign government can increase the risk of a foreign project include:

A) allowing for its currency to be more available globally.

B) imposing laws related to labor, wages, and prices that are less restrictive than those applicable for domestic firms.

C) readily allowing any remittance of funds from the subsidiary to the parent firm throughout the duration of a project.

D) changing tax laws in a way that raises the overall tax of the firm.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

73) The ways that a foreign government can adversely affect the risk of a foreign project include all of the following EXCEPT:

A) changing tax laws in a way that adversely impacts the firm.

B) imposing laws related to labor, wages, and prices that are more restrictive than those applicable for domestic firms.

C) removing tariffs and quotas on any imports.

D) requiring that the subsidiary be headed by a local citizen or have a local firm as a major equity partner.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

74) Country risk should be incorporated into an international capital budgeting analysis by:

A) adjusting the firm's discount rate for the additional risk.

B) increasing cash flow estimates from the project.

C) including the country risk premium to sunk costs.

D) reducing the firm's discount rate.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

75) The Euromarkets are:

A) vast, largely unregulated money and capital markets existing in Tokyo, Hong Kong, and Singapore.

B) vast, regulated money and capital markets with major financial centers in the United Kingdom.

C) vast, regulated money and capital markets with major financial centers in the euro zone.

D) vast, largely unregulated money and capital markets with major financial centers in the euro zone.

Learning Objective: LO 4

Bloomcode: Comprehension

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

76) The Eurocurrency market is the:

A) medium-term portion of the Euromarket.

B) short-term portion of the Euromarket.

C) long-term portion of the Euromarket.

D) medium-term and long-term portions of the Euromarket.

Learning Objective: LO 4

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

77) Which of the following statements about Eurocredits is true?

A) The international banking system gathers funds from businesses and governments in the Eurocurrency market and then allocates funds to all banks regardless of lending opportunities.

B) Eurocredits are denominated in U.S. dollars only.

C) Eurocredits are medium to long-term loans made to multinational corporations and governments of medium to high credit quality.

D) Eurocredits can have a high degree of credit risk and are typically floating-rate loans structured as "rollovers."

Learning Objective: LO 4

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

78) Long-term debt sold by a foreign firm to investors in a foreign country and denominated in that country's currency is called a:

A) Eurobond.

B) municipal bond.

C) foreign bond.

D) currency bond.

Learning Objective: LO 4

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

79) Long-term debt instruments sold by firms to investors in countries other than the country in whose currency the bonds are denominated are called:

A) Samurai bonds.

B) Eurobonds.

C) foreign bonds.

D) currency bonds.

Learning Objective: LO 4

Bloomcode: Knowledge

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

80) Which of the following statements about Eurobonds is NOT true?

A) Multinational firms can use Eurobonds to finance international or domestic projects.

B) Eurobonds are bearer bonds.

C) Eurobonds have to be registered.

D) Eurobonds also pay interest annually.

Learning Objective: LO 4

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

81) Zylex Corporation's German unit is looking to borrow €4.5 million from Deutsche Bank. Deutsche Bank quotes a rate of three-month LIBOR plus 0.5 percent for the 90-day loan. Currently, the three-month LIBOR is 4.175 percent. If the exchange rate on the payoff date is €0.8334/$, what is the dollar cost of the loan? (Round your final answer to two decimal places.)

A) $63,107.45

B) $126,214.90

C) $39,143.76

D) $56,357.99

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

82) What are the six factors that can cause international business transactions to differ from domestic deals?

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Global Business

AICPA: Global and Industry Perspectives

83) How does the goal of a firm vary across countries?

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

84) Describe the global debt markets.

Learning Objective: LO 4

Bloomcode: Comprehension

AACSB: Diversity

IMA: Global Business

AICPA: Global and Industry Perspectives

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