Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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The Turkish one-year interest rate is 27 percent, while the UK one-year interest
rate is 9 percent. If a UK firm creates a one-year deposit in Turkey, the turkish lira would
have to _______ against the pound by _______ in order to make that investment have an effective yield
that is at least as great as in the UK.
a. | appreciate; about 18% | b. | depreciate; about 36% | c. | depreciate; about
14% | d. | appreciate; about 14% | e. | depreciate;
8.5% |
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2.
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Which of the following is true?
a. | Some countries may prohibit netting. | b. | Some countries may prohibit forms of leading
and lagging. | c. | A and B | d. | None of the
above |
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3.
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Assume that a UK investor invests in a US CD offering a six-month interest rate
of 5%. Over this six-month period, the dollar depreciates by 9%. The effective yield on the US
CD for the UK investor is:
a. | 14.54 %. | c. | 14.00%. | b. | -3.54%. | d. | +3.54%. |
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4.
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The most useful measure of an MNC's liquidity is its:
a. | cash balance. | b. | amount of securities held as
investments. | c. | political risk rating. | d. | potential access to
funds. |
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5.
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The international Fisher effect suggests that:
a. | the effective yield on short-term foreign securities should, on average, equal the
yield on short-term domestic securities. | b. | the effective yield on short-term securities of
high inflation countries is greater than the yield on short-term domestic
securities. | c. | if domestic income grows faster than foreign income, the effective yield on
short-term foreign securities is higher than short-term domestic securities. | d. | if foreign tax rates
equal domestic tax rates, the exchange rates of different currencies will change by the same
degree. |
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6.
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A common purpose of inter-subsidiary leading or lagging strategies is to:
a. | allow subsidiaries with excess funds to provide financing to subsidiaries with
deficient funds. | b. | assure that the inventory levels at subsidiaries are maintained within tolerable
ranges. | c. | change the prices a high-tax rate subsidiary charges a low-tax rate
subsidiary. | d. | measure the performance of subsidiaries according to how quickly subsidiaries remit
dividend payments to the parent. |
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7.
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Assume Costner plc, a UK-based MNC, invests 2,500,000 Zambian kwacha (ZMK) for a
one-year period at a nominal interest rate of 9%. At the time the loan is extended, the spot rate of
the kwacha is £0.00033. If the spot rate of the kwacha in one year is £0.00030, the pound
amount initially invested in Zambia is £__________, and £___________ are paid out after one
year.
a. | 825; 817 | c. | 784; 823 | b. | 825; 905 | d. | 562; 617 |
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8.
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Assume that you forecast the value of the euro as follows for the next
year:
Percentage
Change
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of
Occurrence | -2% | 30% | 3% | 40% | 5% | 30% | | |
If the interest rate on the euro is 12%, the
expected effective yield from a euro-denominated deposit is: a. | 15.36%. | b. | 15.70%. | c. | 12.00%. | d. | 14.35%. | e. | none of the
above |
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9.
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Sciorra Corporation
To benefit from the low correlation between
the Trinidad dollar and the Japanese yen (¥), Sciorra Corporation decides to invest 50% of total
funds invested in Trinidad dollars and the remainder in yen. The domestic yield on a one-year deposit
is 8%. The Trinidad one-year interest rate is 10% and the Japanese one-year interest rate is 7%.
Sciorra has determined the following possible percentage changes in the two individual currencies as
follows: | Currency | Percentage Change | Probability | | Trinidad dollar | -1.0% | 35% | | Trinidad
dollar | 2.0% | 65% | | | | | | Japanese yen | -2.0% | 45% | | Japanese
yen | 1.0% | 55% | | | |
Refer to Sciorra Corporation. What is the expected
effective yield of the portfolio Sciorra is contemplating (assume the two currencies move
independently from one another)?
a. | 6.47%. | c. | 8.50%. | b. | 8.84%. | d. | none of the
above |
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10.
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Refer to Sciorra Corporation. What is the probability that the yield of
the two-currency portfolio is less than the domestic yield?
a. | .1575. | b. | .35. | c. | .6425. | d. | 1. | e. | none of the
above |
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11.
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Lockboxes are post office box numbers assigned to employees for picking up their
paychecks.
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12.
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Leading refers to the payment of supplies earlier than necessary; lagging refers
to the payment of supplies later than allowed.
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