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International Business : The Challenge of Global Competition, 8/e

Donald Ball
Wendell H. McCulloch, California State University Long Beach
Paul L. Frantz, California State University Long Beach
Michael Geringer, California Polytechnic State University
Michael S. Minor, University of Texas Pan American

Financial Management

Multiple Choice Quiz


1	One problem faced by the financial management of an IC that can be turned into an opportunity is the question of in what currency to:
		A)	pay expatriates.
		B)	raise capital.
		C)	pay suppliers.
		D)	denominate contracts.


2	When a buyer has too little convertible currency, the seller may accept goods or services instead of money. Financial management must convert the goods or services to money, a growing phenomenon referred to as:
		A)	barter.
		B)	non-monetary trade.
		C)	countertrade.
		D)	mixed trade.


3	In import/export transactions, the party that must pay or receive foreign currency in the future takes the risk that the currency value will change to its disadvantage. This is known as _____________ risk.
		A)	transaction
		B)	translation
		C)	currency value
		D)	fluctuation


4	Trying to protect oneself against losses due to currency exchange rate fluctuations is known as:
		A)	insurance.
		B)	transaction protection.
		C)	coverage.
		D)	hedging.


5	An IMM contract is a
		A)	forward contract.
		B)	futures hedge.
		C)	currency option.
		D)	intra-IC hedge.


6	Almost all foreign exchange market officers, bank traders, and bank economists in America, Asia and Europe expressed definite views, opinions and forecasts about ____________ currency value changes.
		A)	short-term
		B)	long-term
		C)	both "a" and "b"
		D)	none of the above.


7	A credit hedge:
		A)	is very risky.
		B)	is rare
		C)	accomplished by a contract in the foreign exchange market.
		D)	involves borrowing money.


8	If the interest on the exporter's borrowing in the importer's country is significantly higher than the amount that the exporter can earn on the money in its country, the cost of the money market hedge:
		A)	is reasonable.
		B)	is predictable.
		C)	may be too great.
		D)	is unknown.


9	When an importer in a weak currency country buys from an exporter in a strong currency country with payment in the future, the usual practice is to:
		A)	convert or hedge immediately.
		B)	delay hedging.
		C)	demand payment in the importer's currency.
		D)	demand payment in the exporter's currency.


10	Taking open positions in two currencies that are expected to balance each other is known as:
		A)	balance netting.
		B)	open netting.
		C)	dual netting.
		D)	exposure netting.


11	Forecasting relative currency values:
		A)	is impossible.
		B)	is easy.
		C)	is fraught with peril.
		D)	should be avoided.


12	The losses or gains that can result from restating the values of the assets and liabilities/payables and receivables arising from investments abroad from one currency to another is termed:
		A)	translation risk.
		B)	transaction risk.
		C)	hedging.
		D)	none of the above.


13	Managers fear that shareholders and analysts still regard translated and reported foreign exchange losses as:
		A)	speculation.
		B)	bad management.
		C)	both "a" and "b".
		D)	none of the above.


14	Parallel loans are useful for avoiding:
		A)	interest.
		B)	taxes.
		C)	duties.
		D)	foreign exchange risk.


15	To cut the costs of capital, financial managers are increasingly exploring the uses of:
		A)	currency swaps.
		B)	parallel loans.
		C)	exposure netting.
		D)	IMM contracts.


16	Currency swaps:
		A)	should be avoided.
		B)	are rarely used.
		C)	enable a foreign borrower to get local currency at a lower interest rate.
		D)	are the same as exposure netting.


17	Derivatives are:
		A)	risk management tools.
		B)	financial instruments, the values of which are tied to the price movements of underlying commodities.
		C)	sometimes referred to as hedges and swaps.
		D)	all of the above.


18	The US Treasury Department estimates that 70 percent of American companies are affected by:
		A)	currency exchange risk.
		B)	changing interest rates.
		C)	the weather.
		D)	none of the above.


19	Which of the following is not a variety of countertrade?
		A)	Counterpurchase.
		B)	Compensation.
		C)	Switch.
		D)	Hedge.


20	Long-term relationships between DC companies and LDC plants in which some or all production is done in the LDC plant is known as:
		A)	in-bond plants.
		B)	industrial cooperation.
		C)	countertrade.
		D)	inter-trade.

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