Question 1: Unilever has a subsidiary in Japan.

The valuation of this MNC should rise when an event

causes the expected cash flows from Japan to ____ and when JPY is expected to ____.

a. increase; appreciate
b. decrease; appreciate
c. decrease; depreciate
d. increase; depreciate

Question 2: Which of the following theories suggests that firms seek to penetrate new markets over
time?

a. theory of comparative advantage.

b. imperfect markets theory.
c. none of the above
d. product cycle theory.

Question 3: International trade generally results in ____ exposure to international political risk and ____
exposure to international economic conditions, when compared to other methods of international
business.

a. higher; lower
b. lower; lower
c. higher; higher
d. lower; higher

Question 4: If Vietnam experience an increase in its current account surplus or financial account, this will
place ____ pressure on the local currency value, other things equal.

a. downward
b. upward
c. no
d. upward or downward (depending on the size of the deficit)

Question 5: The ____, an accord among 117 nations, called for lower tariffs around the world.

a. General Agreement on Tariffs and Trade (GATT)

b. North American Free Trade Agreement (NAFTA)
c. Single European Act of 1987
d. European Union Accord

Question 6: Vietnam was granted with ODA capital from Japan with high-tech equipment used in rural
hospital and other fixed assets for schools in remote highland regions. This fund is credited in ____ in
the Balance of Payment of this country.

a. Transfer payments of current account

 b. capital transfers of capital account
c. financial account
d. None of the answers

Question 7: If Vietnam's government imposes a tariff on imported goods such imported cars, its current
account balance (X-M GIẢM = TANG) will likely ____ (assuming no retaliation by other governments) and
this may reduce the ____ pressure on local currency.

a. improve/downward
b. decrease/upward
c. remain unaffected
d. either A or C are possible

Question 8: If the home currency begins to appreciate against other currencies, this should ____ the
current account balance, other things equal (assume that substitutes are readily available in the
countries, and that the prices charged by firms remain the same).

a. reduce
b. have no impact on
c. increase
d. all of the above are equally possible

Question 9: The International Development Association was established to:

a. enhance economic development through low-interest rate loans (below market rates).
b. enhance economic development through non-subsidized loans (at market interest rates).
c. enhance development solely in Asia through grants.
d. enhance economic development of the private sector through investment in stock of
corporations.

Question 10: A high home inflation rate relative to other countries would ____ the home country's
current account balance, other things equal. A high growth in the home income level relative to other
countries would ____ the home country's current account balance, other things equal.

a. decrease; decrease
b. increase; decrease
c. increase; increase
d. decrease; increase

Question 11: ABC, Inc. is a U.S.-based MNC that frequently imports raw materials from Australia. ABC is
typically invoiced for these goods in Australian dollars and is concerned that the Australian dollar will
appreciate in the near future. Which of the following is not an appropriate hedging technique under
these circumstances?

a. purchase Australian dollar put options. NO

 b. purchase Australian dollars forward. YES
c. purchase Australian dollar futures contracts. YES
d. purchase Australian dollar call options. YES

Question 12: ABC, Inc., based in Washington, exports products to a Swiss firm and will receive payment
of SF100,000 in three months. On May 1, the spot rate of the Swiss France was $1.12, and the 3-month
forward rate was $1.10. On May 1, ABC negotiated a forward contract with a bank to sell SF100,000
forward in three months. The spot rate of the SF on August 1 is $1.15. ABC will receive $____ for the
Swiss France.

a. 112,000
b. 200,000
c. 110,000
d. 115,000

Question 13: The 120-day forward rate for the euro is $1.07, while the current spot rate of the euro is
$1.05. What is the annualized forward premium or discount of the euro?

a. 5.7 percent premium.

b. 1.9 percent discount.
c. 1.9 percent premium.
d. 5.7 percent discount.

Question 14: Currency options sold through an options exchange:

a. contain a right but not a commitment to the owner, and are standardized.
b. contain a commitment to the owner, and are standardized.
c. contain a commitment to the owner, and can be tailored to the desire of the owner.
d. contain a right but not a commitment to the owner, and can be tailored to the desire of the
owner

Question 15: The shorter the time to the expiration date for a currency, the ____ will be the premium of
a call option, and the ____ will be the premium of a put option, other things equal.

a. lower; lower
b. greater; greater
c. greater; lower
d. lower; greater

Question 16: Consider a trader who takes a long (BUY) position in a six-month forward contract on the
euro. The forward rate is $1.75 = €1.00 and the contract size is €62,500. At the maturity of the contract
the spot exchange rate is $1.65 = €1.00. In this situation the trader has

a. lost $6,250.
b. made $6,250.
 c. lost $66,287.88.
d. lost $625.

Question 17: Which of the following would cause an increase in the value of the U.S. dollar as compared
to the Pound?

a. A tax on the British for buying U.S. bonds.

b. A decrease in UK inflation relative to U.S. inflation.
c. An increase in UK income levels relative to U.S. income levels.
d. All of the answers are correct.

Question 18: Consider a put option written on €100,000. The strike price is $1.50 = €1.00 and the option
premium is $0.02 per euro. What is the theoretical maximum gain on this position?

a. $148,000
b. There is unlimited upside potential.
c. $80,000
d. $2,000

Question 19: Which of the following is correct?

a. The lower the exercise price relative to the spot rate, the greater the value of a currency call
option, other things equal.
b. The longer the time to maturity, the less the value of a currency call option, other things equal.
SAI
c. The longer the time to maturity, the less the value of a currency put option, other things equal.
SAI
d. The higher the spot rate relative to the exercise price, the greater the value of a currency put
option, other things equal. ( PHÍ THẤP) SAI

Question 20: When do relative interest rate increases in one country as compared to another lead to a
depreciation of the currency of the country with the interest rate increase?

a. When the interest rates are nominal rates, and the increase in rates reflects higher inflation.
(IFE)
b. When the interest rates are real interest rates.
c. When the interest rates are nominal rates, and the rates reflect a decline in inflation.
d. More than one of these.

Question 1: Which of the following is not true regarding letters of credit?

a. They guarantee that the goods shipped are the goods purchased/
b. A revocable letter of credit can be cancelled or revoked at any time without prior notification to
the beneficiary.
c. They are issued by banks on behalf of the importer promising to pay the exporter.
 d. All of the answers are correct are true.

Question 2: Under a letter of credit arrangement, the bank issuing the letter of credit is known as the
____ bank, the correspondent bank in the beneficiary's country to which the issuing bank sends the
letter of credit is known as the ____ bank, and the bank that agrees to examine documents under the
letter of credit and pay the beneficiary is called the ____ bank.

a. issuing; negotiating; advising

b. advising; issuing; negotiating
c. negotiating; issuing; advising
d. issuing; advising; negotiating

Question 3: The bid-ask quote for Pound/USD at bank A is $1.41- $1.42. The bid-ask quote for
Pound/USD at bank B is $1.39- $1.40. As locational arbitrage occurs:

a. the bid rate for pounds at Bank A will decrease; the ask rate for pounds at Bank B will
increase.
b. the bid rate for pounds at Bank A will increase; the ask rate for pounds at Bank B will increase.
c. the bid rate for pounds at Bank A will increase; the ask rate for pounds at Bank B will decrease
d. the bid rate for pounds at Bank A will decrease; the ask rate for pounds at Bank B will decrease.

Question 4:Under a ____, the exporter is paid once shipment has been made and the draft is presented
to the buyer for payment; under a ____, the exporter provides instructions to the buyer's bank to
release shipping documents against acceptance, by the buyer, of the draft.

a. sight draft; banker's acceptance

b. sight draft; time draft
c. bill of lading; banker's acceptance
d. time draft; sight draft

Question 8: If an MNC invests excess cash in a foreign county, it would like the foreign currency to ____;
if an MNC issues bonds denominated in a foreign currency, it would like the foreign currency to ____.

a. appreciate; depreciate
b. appreciate; appreciate
c. depreciate; depreciate
d. depreciate; appreciate.

Question 9: Assume that the Japanese yen is expected to depreciate substantially over the next year.
The U.S.-based MNC has a subsidiary in Japan, where its costs exceed revenues. The overall value of
MNC will ____ because of the yen's depreciation

a. decrease
b. remain unchanged
c. none of the answers are correct
 d. increase

Question 10: If an MNC expects cash inflows of equal amounts in two currencies, and the two currencies
are ____ correlated, the MNC's transaction exposure is relatively ____.

a. negatively; low
b. negatively; high
c. positively; low
d. none of the answers are correct.

Question 11: Appreciation in a firm's local currency causes a(n) ____ in cash inflows and a(n) ____ in
cash outflows.

a. increase; increase
b. reduction; reduction
c. Increase; reduction
d. reduction; increase.

Question 12: When evaluating international project cash flows, which of the following factors is
relevant?

a. all of the answers are correct.

b. blocked funds.
c. exchange rates.
d. future inflation.

Question 13: If a U.S. parent is setting up a French subsidiary, and funds from the subsidiary will be
periodically sent to the parent, the ideal situation from the parent's perspective is a ____ after the
subsidiary is established.

a. strengthening euro
b. stable euro
c. weak euro
d. None of the answers are correct

Question 14: An international project's NPV is ____ related to the size of the initial investment and ____
related to the project's required rate of return.

a. negatively; negatively
b. positively; negatively
c. negatively; positively
d. positively; positively

Question 15: Assume a U.S.-based MNC has a Chilean subsidiary that annually remits 30 million Chilean
pesos to the U.S. If the peso ____, the dollar amount of remitted funds ____.
 a. depreciates; is unaffected
b. appreciates; decreases
c. depreciates; decreases
d. appreciates; decreases.

Question 16: Which of the following is not a factor that favorably affects an MNC's cost of capital,
according to your text?

a. exchange rate risk.

b. size.
c. access to international capital markets.
d. international diversification.

Question 17: In general, MNCs probably prefer to use ____ foreign debt when their foreign subsidiaries
are subject to ____ local interest rates.

a. more; high
b. more; low
c. less; low
d. none of the answers are correct

Question 18: With ____, the exporter ships the goods to the importer while still retaining actual title to
the merchandise.

a. a consignment arrangement
b. an open account arrangement
c. a draft arrangement
d. a letter of credit arrangement.

Question 19: A bill of exchange requesting the bank to pay the face amount upon presentation of
documents is a:

a. sight draft.
b. time draft.
c. letter of credit.
d. banker's acceptance.

Question 20: Who bears the payment risk in a letter of credit?

a. the importer.
b. the exporter.
c. both the exporter and importer.
d. the issuing bank.

MCQs REVIEW
Question 1: A put option has a strike price of $35. The spot rate at the maturity date is $42. The put is:

a. out of the money

b. in the money
c. at the money
d. None of the answers are correct

Question 2: What is the ASK cross-exchange rate for Swiss Francs priced in euro? Given the exchange
rate: Switzerland (Franc) CHF = 0.7658 – 0.7662 USD and Euro € = 1.4000 – 1.4200 USD.

a. €0.5386/CHF
b. €0.5389/CHF
c. €0.5463/CHF
d. €0.5473/CHF

Question 3: Consider an exporter willing to send goods to the importer without a guaranteed payment
by the bank. The bank provides a loan to the exporter that is backed by the value of the exported goods.
What is the name of this trade finance method?

a. factoring.
b. a letter of credit
c. forfaiting.
d. accounts receivable financing.

Question 4: Assume that the U.S. risk-free rate is currently 2.0%. The expected U.S. market return is
11%. ABC Inc is considering a project that has a beta of 1.1. What is the cost of dollar-denominated
equity?

a. 11.90%
b. 10%
c. 11.85%
d. None of the answers are correct

Question 5: ABC Corporation has a target capital structure that consists of 35% debt and 65% equity.
ABC can borrow at 11% and its cost of equity is 15%. The tax rate is 35%. What is its weighted average
cost of capital?

a. 12.25%
b. 12.14%
c. 10.8%
d. 9.20%

Question 6: What is the BID cross-exchange rate for Swiss Francs priced in euro? Given the exchange
rate: Switzerland (Franc) CHF = 0.7658 – 0.7662 USD and Euro € = 1.4000 – 1.4200 USD.
 a. €0.5463/CHF
b. €0.5389/CHF
c. €0.5393/CHF
d. €0.5466/CHF

Question 7: You sell a put option on Swiss francs for a premium of $.02, with an exercise price of $.61.
The option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date
is $.58, your net profit (loss) per unit is:

a. -$.01
b. -$.02
c. $.02
d. $.01

Question 8: Bank A quotes a bid rate of $0.300 and an ask rate of $0.305 for the Malaysian ringgit
(MYR). Bank B quotes a bid rate of $0.306 and an ask rate of $0.310 for the ringgit. What will be the
profit for an investor that has $500,000 available to conduct locational arbitrage?

a. $1,639
b. $9,804
c. None of the answers are correct
d. $2,041,667

Question 9: Assume a U.S. firm initiates direct foreign investment in the U.K. If the British pound is
expected to appreciate against the dollar, the dollar value of earnings remitted to the parent should
____. The parent may request that the subsidiary ____ in order to benefit from the expectation about
the pound/

a. decrease; postpone remitting earnings until the pound strengthens

b. increase; postpone remitting earnings until the pound strengthens
c. decrease; remit earnings immediately before the pound strengthens
d. increase; remit earnings immediately before the pound strengthens

Question 10: Which statement is NOT true?

a. In prepayment method, there is no risk to exporter but lots of risk to importer.

b. In L/C, there is completely no risk to exporters because they are guaranteed by the issuing
bank..
c. In prepayment method, the exporter will receive payment before shipment and the importer
will have goods available to buyers after payment.
d. In L/C payment method, the risk of exporter depends on credit terms and the risk of importer
varies on the accordance of the goods shipped with the ones described in documents.

Question 11: An increase in U.S. interest rates relative to German interest rates would likely ____ the
U.S. demand for euros and ____ the supply of euros for sale.
 a. increase; reduce
b. reduce; reduce
c. increase; increase
d. reduce; increase

Question 12: Assume that the U.S. interest rate is 10%, while the British interest rate is 15%. If interest
rate parity exists, then:

a. British investors who invest in the United Kingdom will achieve the same return as U.S. investors
who invest in the U.S.
b. U.S. investors will earn a higher rate of return when using covered interest arbitrage than what
they would earn in the U.S.
c. U.S. investors will earn 10% whether they use covered interest arbitrage or invest in the U.S.
d. U.S. investors will earn 15% whether they use covered interest arbitrage or invest in the U.S.

Question 13: The value of the Australian dollar (A$) today is $0.79. Yesterday, the value of the Australian
dollar was $0.73. The Australian dollar ____ by ____.

a. depreciated; 7.59
b. appreciated; 8.22
c. appreciated; 5.80
d. depreciated; 5.80

Question 14: Suppose you wish to speculate on a rise in the value of the euro. If you are correct and the
value of the Euro does indeed rise in the future, you would profit with

a. a short position in a forward contract on the euro

b. none of the answers are correct.
c. a long position in a futures contract on the euro
d. a short position in a futures contract on the euro

Question 15: Assume that the income levels in U.K. start to decrease, while U.S. income levels remain
unchanged/ This will place ____ pressure on the value of British pound/ Also, assume that U.S. interest
rates decrease, while the British pound remains unchanged/ This will place ____ pressure on the value
of British pound

a. upward; upward
b. downward; upward
c. downward; downward
d. upward; downward

Question 16: ABC Company, a U.S firm, has a plan to open up a new factory in Australia. The project is
expected to generate 2 million and 3 million Australian dollars (A$) in the first and second year. The
required initial investment is 2.5 million U.S dollars. The spot rate of the Australian dollar increases to
$0.61 and $0.68 for the first and second year respectively. The cost of capital for similar projects is 13%.
Choose the best answer.

a. NPV will increase to $ 1,129,101.73

b. NPV will decrease to $89,082
c. NPV will be $177,265.25
d. NPV will decrease to $81,188

Question 17: The 180-day forward rate for the SGD is $0.7 while the current spot rate of the SGD is $0.6.
What is the annualized forward premium or discount of the SGD?

a. 0.33 percent premium

b. 0.16 percent premium
c. 0.14 percent discount
d. None of the answers are correct.

Question 18: Which transaction will be recorded on financial account of the US?

a. A U.S firm put 1 million USD into a subsidiary in Thailand

b. A U.S firm pay dividends to foreign investors.
c. A U.S firm pay salary to a foreign employee.
d. None of the answers are correct.

Question 19: A reduction in the current account deficit will place ____ pressure on the home currency
value, other things equal.

a. downward
b. no
c. upward
d. upward or downward (depending on the size of the deficit)

Question 20: The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€.
You enter into a short position on €1,000. At maturity, the spot exchange rate is $1.70/€. How much
have you made or lost?

a. Lost $200
b. Made $150
c. Lost $50
d. Made €100

Question 21: Which statement is true?

a. An MNC project’s NPV is negatively related to the size of the initial investment and positively
related to the project’s required rate of return.
 b. An MNC project’s NPV is positively related to consumer demand and the project’s salvage
value
c. None of the answers are correct.
d. Income taxes imposed by host government can cause the parent’s after-tax cash flows to differ
from the subsidiary’s after-tax cash flows.

Question 22: ABC Company, a U.S firm, has a plan to open up a new factory in Australia. The project is
expected to generate 3 million and 4 million Australian dollars (A$) in the first and second year. The
required initial investment is 2.5 million U.S dollars. The spot rate of the Australian dollar increases to
$0.61 and $0.68 for the first and second year respectively. The cost of capital for similar projects is 13%.
Choose the best answer.

a. NPV will be $ 89,082.94

b. NPV will decrease to $80,905
c. NPV will decrease to $81,188
d. NPV will increase to $ 1,249,628.01

Question 23: Suppose a bank customer with €1,000,000 wishes buy Japanese yen. The dollar-euro
exchange rate is quoted as $1.40 = €1.00, and the dollar-yen exchange rate is quoted at $1.00 = ¥110.
How many yen will the customer get?

a. ¥154,000,000
b. ¥5,208.33
c. ¥75,000,000
d. ¥5,208,333

Question 24: A put option on British pounds has a strike (exercise) price of $1.25. The present exchange
rate is $1.32. This put option can be referred to as:

a. at the money
b. out of the money
c. at a discount
d. in the money

Question 25: If your firm expects peso to considerably appreciate, it could speculate by …….peso call
options or…….euros forward in the forward exchange market

a. purchasing; purchasing
b. selling; purchasing
c. selling; selling
d. purchasing; selling

Question 26: A firm wants to use an option to hedge 14 million in receivables from New Zealand firms.
The premium is $.026. The exercise price is $.52. If the option is exercised, what is the total amount of
dollars received (after accounting for the premium paid)?
 a. $6,916,000
b. $6,250,000
c. $6,875,000
d. $6,000,000

Question 27: Which of the following would cause a decrease in the value of the U.S. dollar as compared
to the Pound?

a. A tax on the British for buying U.S. stocks.

b. A decrease in UK income levels relative to U.S. income levels.
c. An increase in UK inflation relative to U.S. inflation.
d. An increase in UK income levels relative to U.S. income levels.

Question 28: You purchase a call option on pounds for a premium of $.03 per unit, with an exercise price
of $1.64; the option will not be exercised until the expiration date, if at all. If the spot rate on the
expiration date is $1.65, your net profit per unit is

a. -$0.01
b. -$0.03.
c. +$0.02
d. None of the answers are correct

Question 29: Hoà Phát Group is a Vietnam-based (home country) MNC that frequently imports raw
materials from China. Hoà Phát is typically invoiced for these goods in Chinese Yuan CNY (¥) and is
concerned that the Chinese Yuan will appreciate in the near future. Which of the following is NOT an
appropriate hedging technique under these circumstances?

a. purchase Chinese Yuan CNY (¥) call options.

b. purchase Chinese Yuan CNY (¥) contracts.
c. purchase Chinese Yuan CNY (¥) forward.
d. purchase Chinese Yuan CNY (¥) put options.

Question 30: To use foreign factors of production, an MNC should:

a. establish a subsidiary in a market that has relatively low costs of labor or land/
b. establish a subsidiary in a new market that can sell products produced elsewhere.
c. establish a subsidiary in a market where raw materials are cheap and accessible.
d. participate in a joint venture in order to learn about a production process or other operations
relative to the exercise price, the higher the value of currency put option, other things equal.

MORE

Question 1: Delton Co. wants to establish a new subsidiary in Mexico that will sell computers to Mexican
customers and remit earnings back to the U.S. parent. The value of this project will be favorably affected
if the value of the peso ____ while it establishes the new subsidiary and ____ when the subsidiary starts
operations.

a. depreciates; appreciates
b. depreciates; depreciates
c. appreciates; appreciates
d. appreciates; depreciates

Question 2: An MNC may be more exposed to agency problems if most of its shares are held by:

a. all of the above would prevent agency problems

b. a few mutual funds
c. a few pension funds
d. a widely dispersed set of individual investors

Question 3: Those countries who have a____ in current account should be offset by a ____capital and
financial account balance

a. deficit; positive.
b. surplus; positive.
c. deficit; negative
d. surplus; negative.

Question 4: How does an increase in the Vietnamese interest rate affect the exchange rate of dong for
dollar, other things being equal?

a. appreciate
b. It depends on other factors
c. unknown result
d. depreciate

Question 5: From the perspective of American government and US exporting firms, a…………. Chinese
yuan value gives China an unfair advantage in the global economy. Select one:

a. None of the answers are correct.

b. devalued
c. unchanged
d. appreciated

Question 6: In a highly global market, many companies seek to expand their markets to other foreign
countries when their domestic market becomes mature. Which of the following theories suggest this
fact?

a. imperfect markets theory.

b. product cycle theory.
 c. none of the above
d. theory of comparative advantage.

Question 7: Assume that a Vietnamese firm wants to join in international business with major
investment in the foreign country. Which method is least appropriate in this situation?

a. Direct foreign investment

b. Licensing
c. Franchising
d. International Trade

Question 8: Which transaction will NOT be shown on the current account? Select one:

a. A U.S firm pays dividend to Chinese foreign investors

b. A Vietnam citizen travels to the U.S and spend 5000 dollars.
c. US give a donation of 10 million dollars to Vietnam’s disabled children
d. US provides a loan of 10 million dollars to Vietnam

Question 9: Which of the following would likely have the least DIRECT influence on a country's current
account?

a. tariffs.
b. inflation.
c. exchange rates.
d. national income.

Question 10: Suppose that the overall balance of country A is deficit, in order to maintain the balance of
payment, the Central bank should …. foreign currency and…the domestic currency. As a result, the
foreign exchange reserves of the Central bank will become……

a. sell, buy, decreased

b. buy, buy, increased.
c. sell, sell, decreased
d. buy, sell, increased.

Question 11: ABC Co. has a subsidiary in Korea. The subsidiary reinvests 60% of its net cash flows into
operations and remits half to the parent. Livingston's expected cash flows from domestic business are
$100,000 and the Korean subsidiary is expected to generate 100 million Korean won at the end of the
year. The expected value of US dollars: 1 USD = 1100 Won. What are the expected dollar cash flows of
Livingston Co.?

a. $190,909
b. None of the answers are corect.
c. $200,000
d. $100,000
Question 12: The ____, an accord among 117 nations, called for lower tariffs around the world.

a. North American Free Trade Agreement (NAFTA)

b. Single European Act of 1987
c. General Agreement on Tariffs and Trade (GATT)
d. European Union Accord

Question 13: The International Financial Corporation was established to:

enhance economic development of the private sector through investment in stock of corporations.

enhance economic development through non-subsidized loans (at market interest rates).

enhance economic development through low-interest rate loans (below-market rates).

enhance development solely in Asia through grants.

Question 14: Which transaction will be shown on the capital account of the U.S? Select one:

a. Foreign investors buy U.S stocks.

b. Vietnamese people who have also lived as American citizen transfer money as a gift to their
relatives in their home country. This capital is used for the purpose of consumption.
c. A US firm pays salary to its foreign experts.
d. The U.S earn 10 million dollars by selling their patents to developing countries

Question 15: ABC Co. has a subsidiary in Canada. The expected cash flows in Canadian dollars to be
received in the future from this subsidiary have not changed since last month, but the valuation of ABC.
has declined since last month. What could've caused this decline in value?

a. A weaker Mexican economy

b. Depreciation of the Canadian dollars
c. Lower Mexican interest rates
d. Appreciation of the Mexican peso.