Int Fin

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Sample Midterm #1 Questions
1. Which of the following does not constitute a form of direct foreign investment? a. Franchising
b. International trade
c. Joint ventures
d. Acquisitions of existing operations
e. Establishment of new foreign subsidiaries
2. Which of the following theories identifies specialization as a reason for international business? a. theory of comparative advantage.
b. imperfect markets theory.
c. product cycle theory.
d. none of the above
3. Agency costs faced by multinational corporations (MNCs) may be larger than those faced by purely domestic firms because
a. Monitoring of managers located in foreign countries is more difficult. b. Foreign subsidiary managers raised in different cultures may not follow uniform goals. c. MNCs are relatively large.
d. All of the above
e. A and B only
4. Which of the following industries would most likely take advantage of lower costs in some less developed foreign countries?
a. assembly line production.
b. specialized professional services.
c. nuclear missile planning.
d. planning for more sophisticated computer technology.

5. The North American Free Trade Agreement (NAFTA) increased restrictions on: a. trade between Canada and Mexico.
b. trade between Canada and the U.S.
c. direct foreign investment in Mexico by U.S. firms.
d. none of the above.

6. Which of the following is mentioned in the text as a possible means by which the government may attempt to improve its balance of trade position (increase its exports or reduce its imports). a. It could attempt to reduce its home currency's value.

b. The government could require firms to engage in outsourcing. c. The government could require that its local firms pursue outsourcing. d. All of the above are mentioned.
7. If a country's government imposes a tariff on imported goods, that country's current account balance will likely ____ (assuming no retaliation by other governments).
a. decrease

b. increase
c. remain unaffected
d. either A or C are possible
8. Assume that a bank's bid rate on Swiss francs is $.45 and its ask rate is $.47. Its bid-ask percentage spread is:
a. about 4.44%.
b. about 4.26%.
c. about 4.03%.
d. about 4.17%.

9. If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 100,000 in 90 days, it could:
a. obtain a 90-day forward purchase contract on euros.
b. obtain a 90-day forward sale contract on euros.
c. purchase euros 90 days from now at the spot rate.
d. sell euros 90 days from now at the spot rate.
10. LIBOR is:
a. the interest rate commonly charged for loans between banks. b. the average inflation rate in European countries.
c. the maximum loan rate ceiling on loans in the international money market. d. the maximum deposit rate ceiling on deposits in the international money market. e. the maximum interest rate offered on bonds that are issued in London. 11. Eurobonds:

a. can be issued only by European firms.
b. can be sold only to European investors.
c. A and B
d. none of the above
12. A Japanese yen is worth $.0080, and a Fijian dollar (F$) is worth $.5900. What is the value of the yen in Fijian dollars (i.e., how many Fijian dollars do you need to buy a yen)? a. 73.75.
b. 125.
c. 1.69.
d. 0.014.
e. none of the above
13.A quotation representing the value of a foreign currency in dollars is referred to as a(n) ____ quotation; a quotation representing the number of units of a foreign currency per dollar is referred to as a(n) ____ quotation.

a. direct; indirect
b. indirect; direct
c. direct; direct
d. indirect; indirect
e. cannot be answered without more information

14. The value of the Australian dollar (A$) today is $0.73. Yesterday, the value of the Australian dollar was $0.69. The Australian dollar ____ by ____%.
a. depreciated; 5.80
b. depreciated; 4.00
c. appreciated; 5.80
d. appreciated; 4.00
15. Baylor Bank believes the New Zealand dollar will appreciate over the next five days...
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