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International Financial Management 9th Edition by Cheol Eun test bank

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 1.
Award: 1.00 point
 2.
Award: 1.00 point
What major dimension sets apart international finance from domestic finance?
Foreign exchange and political risks
Market imperfections
Expanded opportunity set
all of the options
References
Multiple Choice Difficulty: 1 Easy
An example(s) of a political risk is
expropriation of assets.
adverse change in tax rules.
the opposition party being elected.
both the expropriation of assets and adverse changes in tax rules are correct.
References
Multiple Choice Difficulty: 1 Easy



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 3.
Award: 1.00 point
 4.
Award: 1.00 point
 5.
Award: 1.00 point
Production of goods and services has become globalized to a large extent as a result of
natural resources being depleted in one country after another.
skilled labor being highly mobile.
multinational corporations' efforts to source inputs and locate production anywhere where costs are lower and
profits higher.
common tastes worldwide for the same goods and services.
References
Multiple Choice Difficulty: 1 Easy
Recently, financial markets have become highly integrated. This development
allows investors to diversify their portfolios internationally.
allows minority investors to buy and sell stocks.
has increased the cost of capital for firms.
none of the options
References
Multiple Choice Difficulty: 1 Easy
Japan has experienced large trade surpluses. Japanese investors have responded to this by
liquidating their positions in stocks to buy dollar-denominated bonds.
investing heavily in U.S. and other foreign financial markets.
lobbying the U.S. government to depreciate its currency.
lobbying the Japanese government to allow the yen to appreciate.
References
Multiple Choice Difficulty: 1 Easy


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 6.
Award: 1.00 point
 7.
Award: 1.00 point
Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate is $1.25 = €1.00. One year later the
exchange rate is the same, but the Italian government has expropriated your firm's assets paying only €80,000 in
compensation. This is an example of
exchange rate risk.
political risk.
market imperfections.
none of the options, since $100,000 = €80,000 × $1.25/€1.00.
References
Multiple Choice Difficulty: 1 Easy
Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2. One year later, the stock rises to
£60. You are happy with your 20 percent return on the stock, but when you sell the stock and exchange your £60 for
dollars, you only get $45 since the pound has fallen to £1 = $0.75. This loss of value is an example of
exchange rate risk.
political risk.
market imperfections.
weakness in the dollar.
References
Multiple Choice Difficulty: 1 Easy

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 8.
Award: 1.00 point
 9.
Award: 1.00 point
Suppose that Great Britain is a major export market for your firm, a U.S.-based MNC. If the British pound depreciates
against the U.S. dollar,
your firm will be able to charge more in dollar terms while keeping pound prices stable.
your firm may be priced out of the U.K. market, to the extent that your dollar costs stay constant and your pound
prices will rise.
to protect U.K. market share, your firm may have to cut the dollar price of your goods to keep the pound price
the same.
your firm may be priced out of the U.K. market, to the extent that your dollar costs stay constant and your pound
prices will rise, and to protect U.K. market share, your firm may have to cut the dollar price of your goods to keep
the pound price the same.
References
Multiple Choice Difficulty: 1 Easy
Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso appreciates drastically
against the U.S. dollar. This means
your company's products can be priced out of the Mexican market, as the peso price of American imports will
rise following the peso's fall.
your firm will be able to charge more in dollar terms while keeping peso prices stable.
your domestic competitors will enjoy a period of facing lessened price competition from Mexican imports.
your firm will be able to charge more in dollar terms while keeping peso prices stable and your domestic
competitors will enjoy a period of facing lessened price competition from Mexican imports.

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