Top 250+ Solved International Financial Management MCQ Questions Answer
Q. Which one of the following areas is NOT a way companies often respond to exchange raterisk when they alter their product strategy?
a. shifting the firm's manufacturing base to another country
b. the timing of new-product introduction
c. changing the size of its product line
d. product innovation with advanced technology
Q. A perfect hedge (full coverage) on translation exposure can usually be achieved when:
a. using the money market hedge.
b. using the forward hedge.
c. using the futures hedge.
d. none of the above, since a perfect hedge is nearly impossible.
Q. If a firm based in the Netherlands wishes to avoid the risk of exchange rate movements, andis due to receive USD100,000 in 90 days, it could:
a. sell US dollars 90 days from now at the spot rate.
b. enter into a 90-day forward sale of US dollars for euros;
c. purchase US dollars 90 days from now at the spot rate;
d. enter into a 90-day forward purchase of US dollars for euros;
Q. A forward currency transaction:
a. Sets the future date when delivery of a currency must be made at an unknown spot exchange rate
b. Calls for exchange in the future of currencies at an agreed rate of exchange
c. Means that delivery and payment must be made within one business day (USA/Canada) or two business days after the transaction date
d. Is always at a premium over the spot rate
Q. Two important practical differences between the monetary/non-monetary method and thecurrent rate method of translation is found in their treatment of:
a. Fixed assets and owner's equity
b. Issued share capital and retained earnings
c. Inventories and fixed assets
d. Monetary assets
Q. If the Indian subsidiary of a US firm has net exposed assets of Rp9,000,000 and the Indian rupee drops in value from Rp45.00/$ to Rp50.00/$, the US firm has a translation:
a. Loss of $25,000
b. Gain of $20,000
c. Loss of $20,000
d. Gain of $25,000
Q. If a UK parent is setting up a French subsidiary, and funds from the subsidiary will be periodically sent to the parent, the ideal situation from the parent's perspective is a ____ after the subsidiary is established.
a. strengthening euro
b. stable euro
c. weak euro
d. B and C are both ideal.
Q. Assume the parent of a UK-based MNC plans to completely finance the establishment of its US subsidiary with existing funds from retained earnings in UK operations. According to the text, the discount rate used in the capital budgeting analysis on this project should be most affected by:
a. the cost of borrowing funds in the U.K.
b. the cost of borrowing funds in the U.S.
c. the parent's cost of capital.
d. A and B
Q. A firm considers an exporting project and will invoice the exports in pounds. The expected cash flows in pounds would be more difficult if the currency of the foreign country is ________.
a. fixed
b. volatile
c. stable
d. none of the above, as the firm is not exposed
Q. 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
c. depreciate; high
d. depreciate; low
Q. The impact of blocked funds on the net present value of a foreign project will be greater ifinterest 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
Q. A French-based MNC has just established a subsidiary in Algeria. Shortly after the plant was built, the MNC determines that its exchange rate forecasts, which had previously indicated a slight appreciation in the Algerian dinar were probably false. Instead of a slight appreciation, the MNC now expects that the dinar will depreciate substantially due to political turmoil in Algeria. This new development would likely cause the MNC to __________ its estimate of the previously computed net present value.
a. lower
b. increase
c. lower, but not necessarily if the MNC invests enough in Algeria to offset the decrease in NPV
d. increase, but not necessarily if the MNC reduces its investment in Algeria by an offsetting amount
Q. When a foreign subsidiary is not wholly owned by the parent and a foreign project is partially
a. financed with retained earnings of the parent and of the subsidiary, then:
b. the parent's perspective should be used to evaluate a foreign project.
c. the subsidiary's perspective should be used to evaluate a foreign project.
d. the foreign project should enhance the value of both the parent and the subsidiary.