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Suppose a U.S.firm buys $200,000 worth of stereo speaker wire from a Mexican manufacturer for delivery in 60 days with payment to be made in 90 days (30 days after the goods are received) .The rising U.S.deficit has caused the dollar to depreciate against the peso recently.The current exchange rate is 5.50 pesos per U.S.dollar.The 90-day forward rate is 5.45 pesos/dollar.The firm goes into the forward market today and buys enough Mexican pesos at the 90-day forward rate to completely cover its trade obligation.Assume the spot rate in 90 days is 5.30 Mexican pesos per U.S.dollar.How much in U.S.dollars did the firm save by eliminating its foreign exchange currency risk with its forward market hedge?


A) $0
B) $1,834.86
C) $4,517.26
D) $5,712.31
E) $7,547.17

F) None of the above
G) A) and E)

Correct Answer

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When considering the risk of a foreign investment,a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification.

A) True
B) False

Correct Answer

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Legal and economic differences among countries,although important,do NOT pose significant problems for most multinational corporations when they coordinate and control worldwide operations of subsidiaries.

A) True
B) False

Correct Answer

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Exchange rates influence a multinational firm's inventory policy because changing currency values can affect the value of inventory.

A) True
B) False

Correct Answer

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Multinational financial management requires that financial analysts consider the effects of changing currency values.

A) True
B) False

Correct Answer

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Suppose Stackpool Inc.had inventory in Britain valued at 240,000 pounds one year ago.The exchange rate for dollars to pounds was 1£ = 2 U.S.dollars.This year the exchange rate is 1£ = 1.82 U.S.dollars.The inventory in Britain is still valued at 240,000 pounds.What is the gain or loss in inventory value in U.S.dollars as a result of the change in exchange rates?


A) −$240,000
B) −$43,200
C) $0
D) $43,200
E) $47,473

F) A) and D)
G) D) and E)

Correct Answer

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Suppose a foreign investor who holds tax-exempt Eurobonds paying 9% is considering investing in an equivalent-risk domestic bond in a country with a 28% withholding tax on interest paid to foreigners.If 9% after-tax is the investor's required return,what before-tax rate would the domestic bond need to pay to provide the required after-tax return?


A) 9.00%
B) 10.20%
C) 11.28%
D) 12.50%
E) 13.57%

F) A) and D)
G) C) and D)

Correct Answer

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Due to advanced communications technology and the standardization of general procedures,working capital management for multinational firms is no more complex than it is for large domestic firms.

A) True
B) False

Correct Answer

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If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.97 shekels per dollar,then the forward rate for the Israeli shekel is selling at a ____ to the spot rate.


A) premium of 8%
B) premium of 18%
C) discount of 18%
D) discount of 8%
E) premium of 16%

F) C) and D)
G) C) and E)

Correct Answer

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