Additional Sample Questions.

Set I (red) Set II (blue), and Set III (black).

1. Which of the following would likely have the least direct influence on a country’s
current account?
a. Inflation.
b. National income.
c. Exchange rates.
d. Tariffs.
e. Tax on income earned on foreign stocks.

2. ______________ is (are) income received by investors on investments in foreign

financial assets (securities).
a. Portfolio income
b. Foreign direct investment income
c. Unilateral transfers
d. Factor income
e. All of the above

3. Also known as the “Central Banks’ Central Bank,” the ___________ attempts to
facilitate cooperation among countries with regard to international transactions and
provides assistance to countries experiencing a financial crisis.
a. World Bank
b. International Financial Corporation (IFC)
c. World Trade Organization
d. International Development Association (IDA)
e. Bank for International Settlements (BIS)

4. ___________ is not a factor that causes currency supply and demand schedules to
change.
a. Relative inflation rates
b. Change in exchange rates.
c. Relative interest rates
d. Relative income levels
e. Expectations

5. A large increase in the income level in Mexico along with no growth in the U.S.
income level, ceteris paribus, is expected to cause a/an _________ in Mexican
demand for U.S. goods, and the Mexican peso should ____________
a. Increase; appreciate
b. Increase; depreciate
c. Decrease; depreciate
d. Decrease; appreciate

1
6. An increase in U.S. interest (real) rates relative to German interest rates would likely
___________ the U.S. demand for euros and ____________ the supply of euros for
sale.
a. Reduce; increase
b. Increase; reduce
c. Reduce; reduce
d. Increase; increase

7. If U.S. inflation suddenly increased while European inflation stayed the same, there
would be:
a. An increased U.S. demand for euros and an increased supply of euros for sale.
b. A decreased U.S. demand for euros and an increased supply of euros for sale.
c. A decreased U.S. demand for euros and a decreased supply of euros for sale.
d. An increased U.S. demand for euros and a decreased supply of euros for sale.

8. Assume that British corporations begin to purchase more supplies from the U.S. as a
result of several labor strikes by British suppliers. This action reflects:
a. An increased demand for British pounds.
b. A decrease in the demand for British pounds
c. An increase in the supply of British pounds for sale.
d. A decrease in the supply of British pounds for sale.

9. Assume that the U.S. places a strict quota on goods imported from China and that
China does not retaliate. Holding other factors constant, this event should
immediately cause the U.S. demand for Chinese Yuan to _____and the value of the
Yuan to_____
a. Increase; appreciate
b. Increase; depreciate
c. Decrease; depreciate
d. Decrease; appreciate

10. Any event that increases the U.S. demand for euros should result in a (an) _________
in the value of the euro with respect to ___________, other things being equal.
a. Increase; U.S. dollar
b. Increase; non-dollar currencies
c. Decrease; non-dollar currencies
d. Decrease; U.S. dollar

11. Any event that reduces the supply of Swiss francs to be exchanged for U.S. dollars
should result in a (an) ___________ in the value of the Swiss franc with respect to
________, other things being equal.
a. Increase; U.S. dollar
b. Increase; non-dollar currencies
c. Decrease; non-dollar currencies
d. Decrease; U.S. dollar
2
12. A weak dollar is normally expected to cause:
a. High unemployment and high inflation in the U.S.
b. High unemployment and low inflation in the U.S.
c. Low unemployment and low inflation in the U.S.
d. Low unemployment and high inflation in the U.S.

13. A strong dollar is normally expected to cause:

a. High unemployment and high inflation in the U.S.
b. High unemployment and low inflation in the U.S.
c. Low unemployment and low inflation in the U.S.
d. Low unemployment and high inflation in the U.S.

14. The interest rate of a country with a currency board:

a. Is less stable than it would be without a currency board.
b. Is typically below the interest rate of the currency to which it is tied.
c. Will move in tandem with the interest rate of the currency to which it is tied.
d. Is completely independent of the interest rate of the currency to which it is tied.

15. Assume a central bank exchanges (sells) its currency for other foreign currencies in
the foreign exchange market, but does not adjust for the resulting change in the
money supply. This is an example of:
a. Pegged intervention.
b. Indirect intervention.
c. Non-sterilized intervention.
d. Sterilized intervention.
e. A and D

16. If the Fed desires to weaken the dollar without affecting the dollar money supply, it
should:
a. Exchange (sell) dollars for foreign currencies, and sell equivalent value of its
existing Treasury Security holdings for dollars.
b. Exchange (sell) foreign currencies for dollars, and sell some of its existing
Treasury security holdings for dollars.
c. Exchange (sell) dollars for foreign currencies, and buy existing Treasury
securities with dollars.
d. Exchange (sell) foreign currencies for dollars, and buy existing Treasury
securities with dollars.

17. Which of the following is an example of direct intervention in foreign exchange

markets?
a. Lowering interest rates.
b. Increasing the discount rate.
c. Exchanging (selling) dollars for foreign currency.
d. Imposing barriers on international trade.

3
 18. A strong dollar places__________ pressure on inflation, which in turn places
__________ pressure on the dollar.
a. Upward; upward
b. Downward; upward
c. Upward; downward
d. Downward; downward

19. A weak dollar places ______ pressure on U.S. inflation, which in turn places ____
pressure on U.S. interest rates, which places ______ pressure on U.S. bond prices.
a. Upward; downward; upward
b. Upward; downward; downward
c. Upward; upward; downward
d. Downward; upward; upward
e. Downward; downward; upward

20. To strengthen the dollar using sterilized intervention, the Fed would ____________
dollars and simultaneously _______________ Treasury Securities.
a. Buy; sell
b. Sell; buy
c. Buy; buy
d. Sell; sell

21. The term “target zone arrangement” refers to a:

a. Situation where countries adjust their national economic policies to maintain
exchange rates within some pre-determined limits.
b. System where several central banks act in a coordinated intervention to keep the
price of one country’s currency within reasonable trading ranges.
c. System where currencies are pegged to gold, or to hard currency.
d. System where local currencies are replaced by dollars.

22. Which of the following are examples of currency control measures?

a. Import restrictions.
b. Prohibition of remittance of funds.
c. Ceilings on granting credit to foreign firms.
d. Dual/ multiple exchange rates
e. All of the above

23. If it was determined that current movement of exchange rates was not related to
previous exchange rate values, this implies that a ________ will not be valuable for
speculating on expected exchange rate movements.
a. Technical forecasting
b. Fundamental forecasting
c. Market-based forecasting
d. Purchasing power parity forecasting
e. None of the above
4
24. The “twin deficits” phenomena in the USA mean:
a. The U.S. deficits in both trade and capital accounts
b. The deficits of the federal and state governments
c. The deficits of the federal government and big business
d. The deficits of the federal government and the U.S. current account
deficits

25. A strong dollar places ______ pressure on U.S. inflation, which in turn places _____
pressure on U.S. interest rates, which places ______ pressure on U.S. bond prices.
a. Upward; downward; upward
b. Upward; downward; downward
c. Upward; upward; downward
d. Downward; downward; upward
e. Downward; downward; upward

26. __________ typically has (have) maturities of less than one year.
a. Eurobonds
b. Euro-commercial paper
c. Euronotes
d. ADRs.
e. GDRs

27. The term “privatization” is typically used to describe:

a. Firms that are purchased by their managers.
b. Firms that are purchased by the government.
c. Firms that are bought out by other firms.
d. Government enterprises that are purchased by corporations and other investors.

28. In general, products and services are generally becoming ________ standardized
across countries, which tends to _________ the globalization of business.
a. More; encourage
b. More; discourage
c. Less; discourage
d. Less; encourage

29. ________ are most commonly classified as a Foreign Direct Investment (FDI).
a. Foreign acquisitions
b. Purchases of international stocks
c. Licensing agreements
d. Exporting or importing transactions
e. Strategic alliances

30. Which of the following is not an additional risk resulting from international business?
a. Exchange rate fluctuations.
b. Political risk
c. Interest rate risk.
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 d. Exposure to foreign economies.
31. An increase in the current account deficit will place ________ pressure on the home
currency value, other things equal.
a. Upward
b. Downward
c. Neutral
d. Upward or downward based on the size of the deficit

32. If the home currency begins to appreciate against other currencies, this should
___________ the current account balance, other things equal.
a. Increase
b. Have no impact on
c. Reduce
d. All of the above are equally possible

33. The World Bank was established to:

a. Enhance development solely in Asia through grants.
b. Enhance economic development through provision of market interest loans.
c. Enhance economic development through low-interest(subsidized) rate loans
d. Enhance economic development of the private sector through investment in stock
of corporations.
34. The components of the current account are:
a. Balance on merchandise trade and balance on transfers.
b. Balance on merchandise trade and on money market flows.
c. Balance of capital market flows and money market flows
d. Balance on goods, services, factors and transfer payments.

35. The demand for U.S. exports tends to increase when:

a. Economic growth in foreign countries decreases.
b. The currencies of foreign countries strengthen against the dollar.
c. U.S. inflation rises.
d. U.S. income rises.

36. Assume the British pound is worth $1.60, and the Canadian dollar is worth $.80.
Compute the value of the Canadian dollar in terms of the pound (the pound price of
one Canadian dollar or £/C$)?
a. 2.00.
b. 2.40.
c. 0.80.
d. 0.50.
e. None of the above.

6
36. The international money market primarily concentrates on:
a. Short-term lending (one year or less).
b. Medium-term lending (2 to 5 years).
c. Long-term lending.
d. Placing bonds with investors.
e. Placing newly issued stock in foreign markets.

37. The international credit market primarily concentrates on:

a. Short-term lending (one year or less).
b. Medium-term lending (2 to 5 years)
c. Long-term lending.
d. Providing an exchange of foreign currencies for firms who need them.
e. Placing newly issued stock in foreign markets.

38. The LIBOR is the:

a. Interest rate commonly charged for loans between international banks.
b. Average inflation rate in European countries.
c. Maximum loan rate ceiling on loans in the international money market.
d. Maximum deposit rate ceiling on deposits in the international money market.
e. Maximum interest rate offered on bonds that are issued in London.

39. A syndicated Euro credit loan:

a. Represents a loan by a single bank to a syndicate of corporations.
b. Represents a loan by a single bank to a syndicate of country governments.
c. Represents a direct loan by a syndicate of oil-producing exporters to a developing
country.
d. Represents a loan by a group of banks to borrower.

40. The foreign exchange market is the world’s largest financial market. The size of daily
global transaction is about___________ in 2010.
a. $200 billion.
b. $400 billion
c. $1.5 trillion
d. $4 trillion.
e. $9.25 trillion

41. 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 the above

7
42. If inflation increases substantially in Australia while U.S. inflation remains
unchanged, this is expected to place ___________ pressure on the value of the
Australian dollar with respect to the U.S. dollar.
a. Upward
b. Downward
c. Either upward or downward depending on the timing of the increase.
d. None of the above (there will be no impact)

43. Any event that reduces the U.S. demand for Japanese yen should result in a (an)
__________ in the value of the Japanese yen with respect to _______, other things
being equal.
a. Increase; U.S dollar
b. Increase; non-dollar currencies
c. Decrease; non-dollar currencies
d. Decrease; U.S. dollar
44. Any event that increase the supply of British pounds to be exchanged for U.S. dollars
should result in a (an) __________ in the value of the British pound with respect to
________, other things begin equal.
a. Increase; U.S. dollar
b. Increase; non-dollar currencies
c. Decrease; non-dollar currencies
d. Decrease; U.S. dollar
45. News of a potential surge in U.S. inflation and zero Chilean inflation places ______
pressure on the value of the Chilean peso. The pressure will occur _______.
a. Upward; only after the U.S. inflation surges
b. Downward; only after the U.S. inflation surges
c. Upward; immediately
d. Downward; immediately
46. Assume that Canada places a strict quota on goods imported from the U.S. and that
the U.S. does not retaliate. Holding other factors constant, this event should
immediately cause the supply of Canadian dollars to be exchanged for U.S. dollars to
__________ and the value of the Canadian dollar to ___________.
a. Increase; increase
b. Increase; decrease
c. Decrease; decrease
d. Decrease; increase
47. Which of the following is not (now) a factor affecting exchange rates?
a. Relative interest rates.
b. Relative inflation rates.
c. Government controls.
d. Expectations.
8
 e. A country’s stock of gold.
48. If a country experiences high inflation relative to the U.S., its exports to the U.S.
should __________, its imports should ___________, and there is ____________
pressure on its currency value.
a. Decrease; increase; upward
b. Decrease; decrease; upward
c. Increase; decrease; downward
d. Decrease; increase; downward
e. Increase; decrease; upward

49. The development and expansion of the Eurocurrency market were fostered by the
following except:
a. Inward-looking regulations in national financial markets
b. US-Soviet cold war era strategies
c. Monetary cooperation between European countries
d. OPEC’s petrodollar recycling activities
e. Persistent US BOP deficits resulting in more foreign holding of US dollars

50. The concept of narrow spread in the Eurocurrency market means.

a. Dealers in the market buy at the bid rate and sell at the ask rate.
b. Lower transaction costs permit higher yields to depositors and lower costs
to borrowers.
c. Eurocurrencies are thinly traded.
d. Very few currencies are traded so that Eurocurrencies are a select few.
e. Required reserves and FDIC premiums are comparatively low in the market

51. The following products are designed for short term investment or financing needs of
clients in the Eurocurrency market except.
a. Euro-commercial paper
b. Euronotes
c. Eurobonds
d. Eurocredits
e. Euro CDs
f. Both c and d

53. Which of the following is (are) true concerning the Eurocurrency market.
a. It is a central mechanism to channel flow of international funds among banks
and corporations.
b. Exhibits low costs per transaction because of relatively large size of
transactions
c. It is a market for trading in European currencies
d. It is regulated by the European Central Bank
e. Membership is limited to Banks from EU member states
f. Both a and b

9
54. If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it is
receiving 100,000 pounds in 90 days, it could:
a. Purchase pounds forward for 90-days.
b. Sell pounds forward for 90-days.
c. Purchase pounds 90 days from now at the spot rate.
d. Sell pounds 90 days from now at the spot rate.

55. Call and put options premiums are affected by the level of existing spot price relative
to the strike price. A ____ spot price relative to the strike price results in relatively
____ premium for a call option but a relatively ____ premium for a put option.
a. High; High; Low
b. High; Low; High
c. Low; High; High
d. Low; Low; Low

Note: If a call option has a strike price close to the current spot rate, it will have a higher
premium than a call option whose strike price is far away from (or well above or below)
the current spot rate.

56. A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian
dollar (C$) receivable. The premium is $.01 and the exercise price of the option is
$.75. If the spot rate at the time of maturity is $.85, what is the net amount received
by the corporation if it acts rationally?
a. $74,000.
b. $84,000.
c. $75,000.
d. $85,000.

57. A U.S. corporation has purchased currency call options to hedge a 70,000 pound
payable. The premium is $.02 and the exercise price of the option is $.50. If the spot
rate at the time of maturity is $.65, what is the total amount paid by the corporation if
it acts rationally?
a. $33,600
b. $46,900
c. $44,100
d. $36,400

58. If you have acquired the right but not the obligation to sell, you are a:
a. Call writer.
b. Put buyer.
c. Futures buyer.
d. Put writer.
e. Call owner

10
 59. Your company expects to receive 5,000,000 Japanese yen 60 days from now. You
decide to hedge your position by selling Japanese yen forward. The current spot rate
of the yen is $.0089, while the forward rate is $.0095. You expect the spot rate in 60
days to be $.0090. How many dollars will you receive for the 5,000,000 yen 60 days
from now?
a. $44,500.
b. $45,000
c. $526,315,790.
d. $47,500
e. $555,555,556

60. A speculator sells a put option on Canadian dollars for a premium of $.03 per unit.
with an exercise price of $.98. The size of the option contact is C$50,000 and will
not be exercised until expiration if at all. If the spot rate for Canadian dollar is $90 on
at expiration, the net profit for the speculator is:

Solution: 50,000[.03 +.90 - .98] = 50,000[-.05] = -$2500

a. $2500
b. -$2500
c. $49,989
d. -$49,989

61. The purchase of a currency put option would be appropriate for a U.S company
under which of the following?
a. Company expects to buy foreign bond in six months
b. Company expects to buy foreign current to finance foreign subsidiaries
c. Company expects to redeem a Euro bond in six months
d. Company expects to collect a foreign currency accounts receivable in six months
e. None of the above

62. If you have a derivative position where you might be obligated to buy Euros, you are
a. Call writer
b. Put writer
c. Put buyer
d. Futures seller

63. Assume the following information:

i. You have $900,000 to invest
ii. Current spot rate of Australian dollar (A$) is $0.62
iii. 180-day forward rate of the Australian dollar is $0.64
iv. 180-day interest rate in the U.S. is 3.5%
v. 180-day interest rate in Australia is 3.0%
What is the dollar profit obtainable after 180 days from covered interest arbitrage?
a. $56,903 b. $61,548 c. $27,000 d. $31,500

11
 64. Assume the following information:
• You have $900,000 to invest
• Current spot rate of Australian dollar (A$) is $0.62
• 180-day forward rate of the Australian dollar is $0.64
• 180-day interest rate in the U.S. is 3.5%
• 180-day interest rate in Australia is 3.0%
What is the percentage arbitrage profit obtainable after 180 days from covered interest
arbitrage?
a. 3.5%
b. 6.32%
c. 2.82%
d. 2.72%

65. The cross exchange rate quoted by Bank X for the Brazilian real (BRR) is 98
Japanese yen ( ¥/R= 98). Bank Y also quotes a price for the yen of $0.009, while
Bank Z quotes a price for the real of $0.88. You have $150,000 to conduct triangular
arbitrage. What is will be your return from conducting triangular arbitrage?
a. 0.23%
b. 7.26%
c. 11.10%
d. 7.42%
e. None of the above

66. Which of the following factors in not affected when market forces resulting from
covered interest arbitrage cause market realignment?
a. The current spot rate
b. The future spot rate
c. The forward rate
d. Home interest rates
e. Foreign interest rates

67. Which of the following is not true?

a. Transaction exposure is the degree to which the dollar value of contractual
transactions can be affected by exchange rate fluctuations.
b. Economic exposure is the degree to which a firm’s present value of future
cash flows can be influenced by exchange rate fluctuations.
c. Translation exposure is the exposure of an MNC’s consolidated financial
statements to exchange rate fluctuations.
d. Economic exposure includes transaction exposure.
e. All of the above are true.

12
68. Which of the following is not true regarding economic exposure?
a. A strong foreign currency may allow U.S.-based firms to increase their U.S.
market shares at the expense of foreign exporters, who may be priced out of
the U.S. market.
b. A U.S. exporter whose foreign competitors are willing to reduce their profit
margin during a weak-dollar period may not necessarily benefit from the
exchange rate movements.
c. U.S.-based MNCs can benefit from a strong dollar by increasing the volume
of their exports.
d. The effects of exchange rate movements on MNCs can vary with the currency
of concern, since exchange rates can change by varying degrees.
e. All of the above are true.

69. Under a ___________, the exporter is paid once shipment has been made and the
draft is presented to the buyer for payment; under a ___________, the exporter
provides instructions to the buyer’s bank to release shipping documents against
acceptance, by the buyer, of the draft.
a. Sight draft; time draft
b. Sight draft; banker’s acceptance
c. Bill of lading; banker’s acceptance
d. Time draft; sight draft

70. If trade transactions handled on a draft basis are processed through banking channels,
they may be
a. Documentary collections.
b. “Documents against payment.”
c. “Documents against acceptance.”
d. Trade acceptances.
e. All of the above.

71. Which of the following is not a payment method used for international trade?
a. Consignment
b. Open account
c. Factoring
d. Draft
e. Letter of credit

72. Which of the following is not a trade financing method used in international trade
from an exporter’s perspective?
a. Accounts receivable financing
b. Letter of credit
c. Barter
d. Open account
e. Factoring

13
 73. Which of the following is not a typical documentation required under a letter of
credit?
a. Sight draft
b. Time draft
c. Banker’s acceptance
d. Commercial invoice
e. Bill of lading

74. A (n) ________ allows the first beneficiary to transfer all or part of the original letter
of credit (LC) to a third party; a (n) ________ allows the original beneficiary of the
LC to pledge the amount in the LC to the end supplier.
a. Revocable LC; irrevocable LC
b. Regular LC; standby LC
c. Assignment of proceeds; transferable LC
d. Transferable LC; assignment of proceeds

75. Which of the following is not an agency actively promoting international trade?
a. Export-Import Bank of the U.S.
b. Private Export Funding Corporation (PEFCO)
c. Securities and Exchange Commission (SEC)
d. Overseas Private Investment Corporation (OPIC)
76. Assume that IRP holds. The U.S. five-year interest rate is 5% per year while the
Mexican five-year rate is 8% per year. If today’s spot rate of the peso is $0.2, what is
the approximate five-year forecast of the peso’s spot rate using the five year forward
rate?
a. $0.131
b. $0.226
c. $0.262
d. $0.140
e. $0.174

77. If the forward rate is expected to be an unbiased estimate of the future spot rate and
interest rate parity holds, then:
a. Covered interest arbitrage is feasible
b. International Fisher Equation holds
c. Purchasing power parity holds
d. Absolute forecast error would be zero
e. Triangular arbitrage is not feasible

78. Assume that Big Mac costs $3.06 in the US and 2505 Won in Korea. According to
absolute PPP, if the actual exchange rate is 1006 Won/$, then which of the following
is true?
a. The dollar is undervalued
b. The won is overvalued
c. Absolute PPP does not hold
d. It costs more in dollar to buy Big Mac in Korea
14
e. None of the above.
79. Given that Big Mac costs $3.50 in the US and SF 7.10 in Switzerland. According to
absolute PPP, if the actual exchange rate SF/$ is 1.25, then which of the following is
true?
a. The dollar is overvalued
b. The Swiss franc is undervalued
c. Absolute PPP holds
d. It costs more in dollar to buy Big Mac in Switzerland
e. None of the above.
_____________________________________________________________________
80. The __________ a project’s variability in cash flows, and the ___________ the
correlation between the project’s cash flow and MNC’s cash flow, the lower the risk
of the project.
a. Higher; higher
b. Higher; lower
c. Lower; lower
d. Lower; higher

81. Consider Firm “A” and Firm “B” that both produce the same product. Firm “A”
would more likely have more stable cash flows if its percentage of foreign sales were
______ and the number of foreign countries it sold products to was _______
a. Higher; large
b. Higher; small
c. Lower; small
d. Lower; large
82. When economic conditions of two countries are _______, then a firm would _______
its risk by operating in both counties instead of concentrating just in one.
a. Highly correlated; reduce
b. Not highly correlated; not reduce
c. Not highly correlated; reduce
d. None of the above
83. In capital budgeting analysis, the use of a cumulative NPV is useful for:
a. Determining a probability distribution of NPVs.
b. Determining the time required to achieve a positive NPV.
c. Determining how the required rate of return changes over time.
d. Determining how the cost of capital changes over time
e. A and B

84. Other things being equal, firms from a particular home country will engage in more
international acquisitions if they expect foreign currencies to ________ against their
home currency, and if their cost of capital is relatively ________
a. Appreciate; low
b. Appreciate; high

15
 c. Depreciate; high
d. Depreciate; low
85. The impact of blocked funds on the net present value of a foreign project will be
greater if interest rates are ___________ in the host country and there are
___________ investment opportunities in the host country.
a. Very high; limited
b. Very low; limited
c. Very low; numerous
d. Very high; numerous
86. An international project’s APV is ________ related to the size of the initial
investment and ____________ related to the project’s required rate of return.
a. Positively; positively
b. Positively; negatively
c. Negatively; positively
d. Negatively; negatively
87. An international project’s APV is ___________ related to consumer demand and
__________ related to the project’s salvage value.
a. Positively; positively
b. Positively; negatively
c. Negatively; positively
d. Negatively; negatively

88. As the financing of a foreign project by the parent _______ relative to the financing
provided by the subsidiary, the parent’s exchange rate exposure _______

a. Increases; decreases
b. Decreases; increases
c. Increases; increases
d. None of the above
89. A macro-assessment of country risk:
a. Adjusts for the particular business of the firm involved.
b. Excludes all aspects relevant to a particular firm or project.
c. Is an overall risk assessment on a global scale
d. None of the above
90. A micro-assessment of country risk:
a. Adjusts for the particular business of the firm involved.
b. Excludes all aspects relevant to a particular firm or project.
c. Is an overall risk assessment on a regional scale.
d. None of the above
91. The most important variable in determining a country’s degree of overall country risk
is:
a. Political risk.
b. Financial risk.
c. The probability of a host government takeover.
16
 d. May often vary with the country of concern.

92. When determining whether a particular proposed project in a foreign country is

feasible:
a. A country risk rating can adequately substitute for a capital budgeting
analysis.
b. Country risk analysis should be incorporated within the capital budgeting
analysis.
c. The effect of country risk on sales revenue is more important than the effect
on cash flows.
d. The project with the highest country risk rating (lowest country risk) should
be accepted.
e. B and D

93. The primary purpose of country risk analysis when applied to capital budgeting is
usually to:
a. Measure the effect of country risk on sales.
b. Measure the effect of country risk on cash flows.
c. Measure the effect of country risk on the consolidated balance sheet.
d. Measure the effect of country risk on the consolidated income statement.

94. Country risk analysis is important because it:

a. Can be used by MNCs as a screening device to avoid countries with excessive
risk.
b. Can be used by MNCs to monitor countries where the MNC is presently
engaged in international business.
c. Can be used to improve the analysis used to make long-term investing or
financing decisions.
d. All of the above.

95. Which of the following U.S. industries would most likely take advantage of lower
costs in some developing foreign countries?
a. Assembly line production.
b. Specialized professional services.
c. Nuclear missile planning.
d. Planning for more sophisticated computer technology.

96. MNCs can use short-term foreign financing to reduce their exposure to exchange rate
fluctuations. For example, if an American-based MNC has _________ in Algerian
dinars, it could borrow ____________, resulting in an offsetting effect.
a. Payables; dinars
b. Receivables; dinars
c. Payables; dollars
d. Receivables; dollars.

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97. A parent’s perspective is appropriate in attempting to determine whether a project
will enhance _____________.
a. Subsidiary earnings
b. Subsidiary value
c. MNC earnings
d. MNC value
e. None of the above

98. Which of the following is not an input required for a multinational capital budgeting
analysis, given that it is conducted from the parent’s viewpoint?
a. Fund-transfer restrictions
b. Project lifetime
c. Tax laws
d. Subsidiary’s management philosophy
e. Exchange rates

99. ____________ is not a form of political risk.

a. Exchange rate movements
b. Attitude of consumers in the host country
c. Attitude of host government
d. Blockage of fund transfers
e. All of the above are forms of political risk

100. Which of the following is not a form of financial risk?

a. Exchange rate movements
b. Inflation rates
c. Blockage of fund transfers
d. All of the above are forms of financial risk.

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