International Financial Management Cheol Eun 8th Editionth Edition

Assessment Resource For Global Financial Management Cheol Eun 8th Edition

ISBN-10:125971778X , ISBN-13:978-1259717789

Chapter 1 – The Worldwide Financial Market

1) What distinguishes international finance from domestic finance?

A) Exposure to global economic risks

B) Market inefficiencies

C) Increased range of choices

D) all possibilities

2) An illustration of political risk is

A) confiscation of assets.

B) unfavorable changes in tax policies.

C) the opposition party coming into power.

D) both asset confiscation and adverse changes in tax policies are correct.

3) The internationalization of goods and services production to a large extent is primarily due to

A) depletion of natural resources in various countries.

B) high mobility of skilled labor.

C) multinational corporations seeking inputs and production locations where costs are lower and profits are higher.

D) universal preferences worldwide for the same goods and services.

4) Financial markets have become highly interconnected recently. This progress

A) enables investors to diversify their investments globally.

B) allows minority shareholders to trade stocks.

C) has raised the cost of capital for firms.

D) none of the alternatives

5) Japan has recorded substantial trade surpluses. Responding to this, Japanese investors have

A) sold off their stock holdings to purchase dollar-denominated bonds.

B) heavily invested in U.S. and other foreign financial markets.

C) pressured the U.S. government to devalue its currency.

D) lobbied the Japanese government to appreciate the yen.

6) Assume your company allocates $100,000 in a project in Italy. At that time, the exchange rate is $1.25 = €1.00. A year later, the exchange rate remains the same, but the Italian government has seized your company’s assets compensating only €80,000. This serves as an illustration of

A) exchange rate risk.

B) political risk.

C) market imperfections.

D) none of the provided choices, as $100,000 equals €80,000 × $1.25/€1.00.

7) Suppose you start with $100 and purchase stock for £50 when the exchange rate is £1 = $2. A year later, the stock value increases to £60. Despite the 20% return on the stock, when you sell the stock and convert your £60 to dollars, you receive only $45 as the pound has dropped to £1 = $0.75. This loss is an example of

A) exchange rate risk.

B) political risk.

C) market imperfections.

D) weakness in the dollar.

8) If the British pound depreciates against the U.S. dollar, and Great Britain is a major export market for your U.S.-based multinational corporation,

A) your firm can charge more in dollar terms while maintaining pound prices stable.

B) your firm might face pricing challenges in the U.K. market, given that dollar costs remain fixed but pound prices will rise.

C) to retain U.K. market share, your firm may need to reduce the dollar price of goods to maintain pound pricing.

D) your firm might face pricing challenges in the U.K. market, given that dollar costs remain fixed but pound prices will rise; additionally, to retain U.K. market share, your firm may need to reduce the dollar price of goods to maintain pound pricing.

9) In a scenario where Mexico is a significant export market for your U.S.-based business and the Mexican peso appreciates substantially against the U.S. dollar, this implies

A) your company’s products could become uncompetitive in the Mexican market due to the rise in peso value of American imports following the peso’s ascent.

B) your company can charge more in dollar terms while keeping peso prices steady.

C) your domestic rivals may experience a period of reduced price competition from Mexican imports.

D) your company can charge more in dollar terms while keeping peso prices steady and your domestic rivals may experience a period of reduced price competition from Mexican imports.

10) In a scenario where Mexico is a significant export market for your U.S.-based business and the Mexican peso depreciates dramatically against the U.S. dollar, as it did in December 1994, this means

A) your company’s products could become uncompetitive in the Mexican market due to the rise in peso value of American imports following the peso’s fall.

B) your company can charge more in dollar terms while keeping peso prices steady.

C) your domestic rivals may experience a period of reduced price competition from Mexican imports.

D) none of the provided options

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