Question 1

Transaction exposure results in foreign exchange gains and losses.

Accepted Answer

A) True 
 B)False

Question 2

There is no guarantee that any currency will stay strong relative to other currencies,but the U.S.dollar is the exception.

Accepted Answer

A) True 
 B)False

Question 3

When a bank issues a letter of credit the bank absorbs ALL of the credit risk to the exporter.

Accepted Answer

A) True 
 B)False

Question 4

A joint venture with a local entrepreneur exposes the firm to the least amount of political risk and is a preferred method of investment by foreign governments.

Accepted Answer

A) True 
 B)False

Question 5

The future rates of currency tend to increase for dates further in the future because of the increasing uncertainty over time.

Accepted Answer

A) True 
 B)False

Question 6

A firm that might suffer a loss as a result of a decline in the value of the Japanese yen could offset part of that risk by selling Japanese yen futures.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is not true about American Depositary Receipts (ADRs) ?

Accepted Answer

A)   All the American shares owned of a foreign company are placed in trust in a New York bank.
B)   Most ADRs trade in the over-the-counter market.
C)   ADR prices tend to move parallel with the prices of the underlying security.
D)   Most ADRs trade on the New York Stock Exchange.E) A) and B)
F) A) and C)

Question 8

Foreign business operations are more complex than domestic operations because of all of the following except:

Accepted Answer

A)   the rate of inflation may be higher than that of Canada.
B)   the rules of taxation are different.
C)   the financial markets vary from country to country.
D)   of interprovincial trade barriers.E) A) and B)
F) A) and C)

Question 9

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called:

Accepted Answer

A)   foreign exchange risk.
B)   political risk.
C)   credit risk.
D)   strategic risk.E) A) and C)
F) A) and B)

Question 10

Investors and firms who diversify their Canadian portfolios by buying foreign stocks or investing in foreign subsidiaries take on a much higher level of risk than if they had invested in domestic stocks or companies.

Accepted Answer

A) True 
 B)False

Question 11

Because of political risk,it is generally disadvantageous for Canadian firms to list their stocks on the world stock exchanges.

Accepted Answer

A) True 
 B)False

Question 12

Transaction exposure associated with changes in the exchange rates between countries can be hedged with a currency futures contract.

Accepted Answer

A) True 
 B)False

Question 13

Eurocurrency are:

Accepted Answer

A)   Canadian dollars deposited in foreign banks.
B)   foreign dollars deposited in Canadian banks.
C)   investments of common market countries.
D)   Euro's converted to US dollars.E) All of the above
F) B) and C)

Question 14

The most widely used currency in the Eurobond market is the euro.

Accepted Answer

A) True 
 B)False

Question 15

While shopping in the Mexican market,you find that limes cost 12 pesos each.You remember that back home they cost 60 cents each.If the Purchasing Power Parity Theory holds,the rate of exchange is:

Accepted Answer

A)   20 pesos/dollar or 5 cents/peso.
B)   80 pesos/dollar or 1.25 cents/peso.
C)   5 pesos/dollar or 20 cents/peso.
D)   1 peso/dollar or 15 cents/peso.E) None of the above
F) A) and B)

Question 16

Which of the following statements about foreign affiliates funding is most accurate?

Accepted Answer

A)   In general,foreign affiliates are more profitable than domestic businesses.
B)   Foreign affiliates usually lower the portfolio risk of the parent company.
C)   Foreign affiliates may have a significant positive impact on the host company's economic growth,employment,trade,and balance of payments.
D)   Bank lending to foreign affiliates is based on some sort of a guarantee by the parent firm.E) All of the above
F) C) and D)

Question 17

What has motivated Canadian firms to move their operations to foreign countries?

Accepted Answer

A)   Trade barriers,lower production costs,access to skilled workers,Canadian tax deferral.
B)   Political stability,large market size,access to advanced technology.
C)   Import tariffs,foreign unions,foreign technology,expropriation.
D)   Lower production costs,tax deferral,access to natural resources and manufacturing,expropriation.E) B) and C)
F) A) and D)

Question 18

Balance of payments is a method of keeping the foreign exchange market in equilibrium.

Accepted Answer

A) True 
 B)False

Question 19

Forward contracts tend to be created in organized exchanges like the International Money Market of the Toronto Futures Exchange.

Accepted Answer

A) True 
 B)False

Question 20

When Country A's currency strengthens against Country B's,citizens of Country A will:

Accepted Answer

A)   pay less to buy Country B's products.
B)   pay more to buy Country B's products.
C)   pay more to buy domestically produced products.
D)   not be affected by the change in their currency's value.E) A) and B)
F) None of the above

Exam 21: International Financial Management

A joint venture with a local entrepreneur exposes the firm to the least amount of political risk and is a preferred method of investment by foreign governments.

Correct AnswerverifiedShow Answer

Transaction exposure associated with changes in the exchange rates between countries can be hedged with a currency futures contract.

Correct AnswerverifiedShow Answer

Because of political risk,it is generally disadvantageous for Canadian firms to list their stocks on the world stock exchanges.

Correct AnswerverifiedShow Answer

When Country A's currency strengthens against Country B's,citizens of Country A will:

Correct AnswerverifiedShow Answer

Which of the following statements about foreign affiliates funding is most accurate?

Correct AnswerverifiedShow Answer

Investors and firms who diversify their Canadian portfolios by buying foreign stocks or investing in foreign subsidiaries take on a much higher level of risk than if they had invested in domestic stocks or companies.

Correct AnswerverifiedShow Answer

Transaction exposure results in foreign exchange gains and losses.

Correct AnswerverifiedShow Answer

Foreign business operations are more complex than domestic operations because of all of the following except:

Correct AnswerverifiedShow Answer

Forward contracts tend to be created in organized exchanges like the International Money Market of the Toronto Futures Exchange.

Correct AnswerverifiedShow Answer

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called:

Correct AnswerverifiedShow Answer

Balance of payments is a method of keeping the foreign exchange market in equilibrium.

Correct AnswerverifiedShow Answer

There is no guarantee that any currency will stay strong relative to other currencies,but the U.S.dollar is the exception.

Correct AnswerverifiedShow Answer

Which of the following statements is not true about American Depositary Receipts (ADRs) ?

Correct AnswerverifiedShow Answer

The future rates of currency tend to increase for dates further in the future because of the increasing uncertainty over time.

Correct AnswerverifiedShow Answer

While shopping in the Mexican market,you find that limes cost 12 pesos each.You remember that back home they cost 60 cents each.If the Purchasing Power Parity Theory holds,the rate of exchange is:

Correct AnswerverifiedShow Answer

When a bank issues a letter of credit the bank absorbs ALL of the credit risk to the exporter.

Correct AnswerverifiedShow Answer

What has motivated Canadian firms to move their operations to foreign countries?

Correct AnswerverifiedShow Answer

A firm that might suffer a loss as a result of a decline in the value of the Japanese yen could offset part of that risk by selling Japanese yen futures.

Correct AnswerverifiedShow Answer

The most widely used currency in the Eurobond market is the euro.

Correct AnswerverifiedShow Answer

Eurocurrency are:

Correct AnswerverifiedShow Answer

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