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Exam 17: Multinational

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Question 31

Multiple Choice

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In Japan, 90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return. In the United States, 90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%. All securities are of equal risk, and 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) The yen-dollar exchange rate in the 180-day forward market equals the yen-dollar exchange rate in the 90-day spot market.
E) The relationship between spot and forward interest rates cannot be inferred.

F) None of the above
G) B) and E)

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Question 32

Multiple Choice

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Multinational financial management requires that

A) the effects of changing currency values be included in financial analyses.
B) legal and economic differences need not be considered in financial decisions because these differences are insignificant.
C) political risk should be excluded from multinational corporate financial analyses.
D) traditional U.S. and European financial models incorporating the existence of a competitive marketplace not be recast when analyzing projects in other parts of the world.
E) cultural differences need not be accounted for when considering firm goals and employee management.

F) B) and D)
G) None of the above

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Question 33

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Legal and economic differences among countries, although important, do NOT pose significant problems for most multinational corporations when they coordinate and control worldwide operations and subsidiaries.

A currency trader observes the following quotes in the spot market: Given this information, how many Mexican pesos can be purchased for 1 Danish krone?

If one U.S. dollar buys 0.63 euro, how many dollars can you purchase for one euro?

Which of the following are reasons why companies move into international operations?

Suppose hockey skates sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollar. If purchasing power parity (PPP) holds, what is the price of hockey skates in the United States?

A product sells for $750 in the United States. The spot exchange rate is $1 to 1.65 Swiss francs. If purchasing power parity (PPP) holds, what is the price of the product in Switzerland?

When the value of the U.S. dollar appreciates against another country's currency, we may purchase more of the foreign currency with the U.S. dollar.

Suppose that currently, 1 British pound equals 1.98 U.S. dollars and 1 U.S. dollar equals 1.02 Swiss francs. How many Swiss francs are needed to purchase 1 pound?