FIN565 - Week - 4 - Midterm Graded - MCQs ONLY

1.

Question :

(TCO A) The commonly accepted goal of the U.S.-based MNC is to

Student Answer:

maximize short-term earnings.

maximize shareholder wealth.

minimize risk.

maximize international sales.

Question 2.

:

(TCO A) Licensing obligates a firm to provide _____, whereas franchising obligates a firm to provide _____.

Student Answer:

a specialized sales or service strategy; its technology

its technology; a specialized sales or service strategy

its technology; its technology

its technology; an initial investment

Question 3.

:

(TCO F) MNCs can improve their internal control process by all of the following, except

Student Answer:

establishing a centralized database of information.

ensuring that all data are reported consistently among subsidiaries.

ensuring that the MNC always borrows from countries where interest rates are lowest.

using a system that checks internal data for unusual discrepancies.

Question 4.

:

(TCO F) The Basel II accord would

Student Answer:

eliminate all bank capital requirements.

reduce the amount of capital banks are required to hold.

require banks to take more risks and to document their risks.

correct some inconsistencies that still exist.

Question 5.

:

(TCO C) An increase in U.S. interest rates relative to German interest rates would likely _____ the U.S. demand for euros and _____ the supply of euros for sale.

Student Answer:

reduce; increase

increase; reduce

reduce; reduce

increase; increase

Question 6.

:

(TCO C) If last week the British pound was worth $1.62 and this week is worth $1.60, it has _____ against the U.S. dollar by _____.

Student Answer:

depreciated; 1.23%

appreciated; 1.23%

depreciated; 1.25%

appreciated; 1.25%

Question 7.

:

(TCO D) You are a speculator who sells a put option on Canadian dollars for a premium of $0.03 per unit, with an exercise price of $0.86. The option will not be exercised until the expiration date, if at all. If the spot rate of the Canadian dollar is $0.78 on the expiration date, your net profit per unit is

Student Answer:

$0.08.

$0.05.

$0.09.

$0.04.

Question 8.

:

(TCO D) AG Inc., based in Washington, exports products to an Italian firm and will receive payment of €100,000 in 3 months. On June 1, the spot rate of the euro was $1.40, and the 3-month forward rate was $1.42. On June 1, AG negotiated a forward contract with a bank to sell €100,000 forward in 3 months. The spot rate of the euro on September 1 is $1.45. AG will receive $_____ for the euros.

Student Answer:

$140,000

$142,000

$100,000

$145,000

Question 9.

:

(TCO B) Assume the following information.

• 1-year deposit rate offered by U.S. banks = 12%.

• 1-year deposit rate offered on Swiss francs = 10%.

• 1-year forward rate of Swiss francs = $0.62.

• Spot rate of Swiss franc = $0.60.

• From the perspective of U.S. investors with $1,000,000, covered interest arbitrage would yield a rate of return of _____%.

Student Answer:

14.78

12.72

13.70

11.27

Question 10.

:

(TCO B) Assume the annual U.S. interest rate is 4%, whereas the Eurozone’s interest rate is 5%. According to _____, the euro should _____ by _____.

Student Answer:

IRP; depreciate; 0.95%

IFE; depreciate; 0.95%

PPP; appreciate; 0.95%

IIP; depreciate; 0.95%