6. The goal of a multinational corporation is the maximization of shareholder wealth
a) True
b) False
a) True
7. Locational arbitrage explains
... [Show More] why spot exchange rates among banks at different locations normally will not differ by a significant amount
a) True
b) False
a) True
8. In determining the valuation of foreign projects, an MNC will always use the same required rate of return as it would for its domestic projects
a) True
b) False
b) False
9. The ______ hedge is not a technique to eliminate transaction exposure discussed in your text
a) Index
b) Futures
c) Forward
d) Money Market
e) Currency Option
a) Index
10. When the FX market opens in the US each morning, the opening exchange rate quotations will be based on the:
a) closing prices in the US during the previous day
b) closing prices in Canada during the previous day
c) prevailing prices in locations where the FX markets are already open
d) officially set by central banks before the US market opens
c) Prevailing prices in locations where FX markets are already open
11. Which of the following is NOT true regarding IRP, PPP, and the IFE?
a) IRP suggests that a currency's spot rate will change according to interest rate differentials
b) PPP suggests that a currency's spot rate will change according to inflation differentials
c) the IFE suggests that a currency's spot rate will change according to interest rate differentials
a) IRP suggests that a currency's spot rate will change according to interest rate differentials.
12. Japan's annual interest rate has been relatively compared to other countries for several years, because the supply of funds in its credit market has been very .
a. low; small
b. high; small
c. low; large
d. high; large
c) low; large
13. The strike price on a currency option is also known as the exercise price.
a) True
b) False
a) True
14. The real interest rate adjusts the nominal interest rate for:
a. exchange rate movements
b. income growth
c. inflation
d. government controls
e. None of these are correct.
c. inflation
15. Many MNCs use selective hedging, in which they consider each type of transaction separately.
a. True
b. False
a. True
16. In a forward hedge, if the forward rate is an accurate predictor of the future spot rate, the real cost of hedging payables will be:
a. highly positive
b. highly negative
c. zero
d. None of these are correct.
c. zero
17. Interest rate parity (IRP) states that the foreign currency's forward rate premium or discount is roughly equal to the interest rate differential between the United States and the foreign country.
a. True
b. False
a. True
18. The word "covered" in "covered interest arbitrage" refers to the investors hedging their position to protect against the possibility of default risk.
a. True
b. False
b. False
19. A money market hedge involves taking a money market position to cover a future payables or receivables position.
a. True
b. False
a. True [Show Less]