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Flashcards in Final Deck (36)
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1
Q

The commonly accepted goal go the MNC is to

A

Maximize shareholder wealth

2
Q

The sarans only act

A

Makes executives more accountable for verifying financial statements

3
Q

(T/F)
The Sarbans Oxly Act was enacted in 2002 required MNC and other firms to implement an international reporting process that could easily monitored by executives and the board of directors

A

True

4
Q

(T/F)
Although MNCs may need to convert currencies occasionally, they do not face any exchange rate risk, as exchange rates are stable over time

A

False

5
Q

(T/F)
If a U.S based MNC focused completely on importing, than its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time

A

True

6
Q

Which of the following is not an example of political risk

  • Govt may impose taxes on subsidiary
  • Government may impose barriers on subsidiary
  • Consumers may boycott the MNC
  • consumers income levels will decrease, thus decreasing competition
A

consumers income levels will decrease, thus decreasing competition

7
Q

What country purchases a large amount of US goods

A

Canada

8
Q

The world bank was established to

A

Enhance economic development through non-subsidized loan (at market interest rates)

9
Q

As a result of the european union

A

Restrictions on exports between member countries were reduced or eliminated

10
Q

The Primary component of the current account is the

A

Balance of trade

11
Q

Also known as the central bank of central banks the ______ attempts to facilitate cooperation among countries with regard to international transactions and provides assistance to countries experiencing a financial crisis

A

Bank of international settlements (BIS)

12
Q

A balance of trade surplus indicates an excess of imports over exports

A

False

13
Q

Weakening of the US dollar with respect to the British pound would likely reduce the US exports to Britain and increase US imports from Britain over time

A

False

14
Q

A balance of trade deficit indicated an excess of imports over exports

A

True

15
Q

Outsourcing allows some MNCs to reduce costs but shifts jobs to other countries

A

True

16
Q

Balance of trade

A

Difference between imports and exports

17
Q

The all price is the price which the bank offers to sell the currency

A

True

18
Q

Forward rates are mainly used for

A

Hedging

19
Q

From 1944 to 1971 the exchange rate between any two currencies was typically

A

Fixed within narrow boundaries (1% breton woods)

20
Q

The bid ask spread can determine

A

The transaction cost of foreign exchange

21
Q

Futures

A
Sold on the change (IMF)
standardized 
-Value 
-date 
Commitment
22
Q

Options

A

Contains a right not a commitment to the owner and are standardized

23
Q

Main use for futures

A

hedge

24
Q

Main use for forwards

A

speculation

25
Q

Most common maturities for forward rates are

A

1, 3 , 6, 12 months

26
Q

Smithsonian agrement

A

establishment that exchange rates of most major countries were to be allowed to fluctuate 2.25 % above or below their initially set values

27
Q

Triangular arbitrage

A

Market forces should resign the cross exchange rates between two foreign currencies based on the spot exchange rate of the two currencies against the US dollar.

28
Q

If interest rate party exist than _____ is not feasible

A

covered interest rate arbitrage

29
Q

Inters rate of of home currency X is a much higher interest rate than the US interest rate. According to interest rate parity the forward rate of currency X

A

Should be a discount

30
Q

Agency problem

A

The conflict of interest between decision making managers and the owners of a MNC

31
Q

Theory of comparative advantage and international trade

A

Implies that countries should specialize in production of a product, thereby relying on other countries for some products

32
Q

The product cycle theory and growth of MNC

A

suggests that at some point in time the firm will attempt to capitalize on its perceived advantages in other markets

33
Q

High inflations impact in trade

A

increase imports and decrease exports

34
Q

Interest rate parity

A

The relationship between the interest rate differential of two countries and the forward rate

35
Q

Purchasing Power Parity

A

Suggest a relationship between the inflation differential of two countries and the percentage change in the spot exchange rate over time.

36
Q

International Fisher Effect

A

The relationship between the interest rate differential of two countries and the percentage change in spot rate