Top 250+ Solved International Financial Management MCQ Questions Answer
Q. An American firm has just bought merchandise from a British firm for £50,000 on terms of net 90 days. The U.S. company has purchased a 3-month call option of 50,000 pounds at a strike of $1.7 per pound and premium cost of $0.02 per pound. On the day the option matures, the spot exchange rate is $1.8 per pound. Should the U.S. company exercise the option at that time or buy British pounds in the spot market?
a. exercise the option
b. buys British pound spot
c. does not make any difference
d. cannot tell
Q. Diz ltd. is a UK-based MNC with net cash inflows of euros and net cash inflows of Swiss francs. These two currencies are highly correlated in their movements against the dollar. Yanta ltd is a UK-based MNC that has the same level of net cash flows in these currencies as Diz ltd except that its euros represent net cash outflows. Which firm has a higher exposure to exchange rate risk?
a. Diz ltd
b. Yanta ltd
c. the firms have about the same level of exposure.
d. neither firm has any exposure.
Q. Subsidiary A of Mega plc has net inflows in Australian dollars of A$1,000,000, while Subsidiary B has net outflows in Australian dollars of A$1,500,000. The expected exchange rate of the Australian dollar is £0.30. What is the net inflow or outflow as measured in pounds?
a. £150,000 outflow.
b. £150,000 inflow
c. £1,666,000 inflow.
d. £1,666,000 outflow.
Q. Assume zero transaction costs. If the 90-day forward rate of the euro is an accurate estimateof the spot rate 90 days from now, then the real cost of hedging payables will be:
a. positive.
b. negative.
c. positive if the forward rate exhibits a premium, and negative if the forward rate exhibits a discount.
d. zero.
Q. Foghat Co. has 1,000,000 euros as receivables due in 30 days, and is certain that the euro will epreciate substantially over time. Assuming that the firm is correct, the ideal strategy is to:
a. sell euros forward.
b. write euro currency put options.
c. purchase euro currency call options.
d. purchase euros forwar
Q. A _______ involves an exchange of currencies between two parties, with a promise to re- exchange currencies at a specified exchange rate and future date.
a. long-term forward contract
b. parallel loan
c. currency swap
d. money market hedge
Q. Which of the following is the least effective way of hedging transaction exposure in the long run?
a. long-term forward contract.
b. currency swap.
c. Parallel Loan
d. Money Market Hedge
Q. 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. zero.
c. highly negative.
d. none of the above
Q. With regard to hedging translation exposure, translation losses _______; and gains on forward contracts used to hedge translation exposure _______.
a. are not tax deductible; are taxed
b. are not tax deductible; are not taxed
c. are tax deductible; are taxed
d. are tax deductible; are not taxed
Q. Assume a UK firm uses a forward contract to hedge all of its translation exposure. Also assume that the firm underestimated what its foreign earnings would be. Assume that the foreign currency depreciated over the year. The firm would generate a translation _______, which would be _______ than the gain generated by the forward contract.
a. loss; smaller
b. gain; larger
c. loss; larger
d. gain; smaller
Q. An effective way for an MNC to assess its economic exposure is to look at the firm's:
a. income statement.
b. retained earnings.
c. liquidity.
d. level of stockholder's equity.
Q. As opposed to transaction exposure, managing economic exposure involves developing a________ solution.
a. short-term
b. immediate
c. long-term
d. none of the above
Q. Spears Co. will receive SF1,000,000 in 30 days. Use the following information to determine the total dollar amount received (after accounting for the option premium) if the firm purchases and exercises a put option: Exercise price = $.61 Premium = $.02 Spot rate = $.60 Expected spot rate in 30 days = $.56 30 day forward rate = $.62
a. $630,000.
b. $610,000.
c. $600,000.
d. $590,000.
Q. When the dollar strengthens, the reported consolidated earnings of U.S. based MNCs are _______ affected by translation exposure. When the dollar weakens, the reported consolidated earnings are __________ affected.
a. favorably; favorably affected but by a smaller degree
b. favorably; favorably affected by a higher degree
c. unfavorably; favorably affected
d. favorably; unfavorably affected