Chapter 16 International Business Finance

18) Suppose a U.S. importer purchases an Italian product today but will not pay for it for 90 days. The cost of the product today is 85,000 euros. The spot exchange rate today is .7559 euros per dollar. How much is the cost today in dollars?

A) $58,062

B) $56,153

C) $65,683

D) $64,252

19) Suppose a U.S. importer purchases an Italian product today but will not pay for it for 90 days. The cost of the product today is 30,000 euros. The spot exchange rate today is .6233 euros per dollar. If the U.S. importer does not hedge the position, which of the following spot exchange rates in 90 days will yield the highest returns?

A) 0.6833 euros per dollar

B) 0.6499 euros per dollar

C) $1.4844 per euro

D) $1.5387 per euro

20) Suppose a U.S. importer purchases an Italian product today but will not pay for it for 90 days. The cost of the product today is 35,000 euros. The spot exchange rate today is .6233 euros per dollar. The importer creates a forward-market hedge. The 90-day forward rate is .6100 euros per dollar. The amount the U.S. importer will pay in 90 days is

A) $56,153.

B) $57,377.

C) $55,683.

D) $56,667.

21) In addition to those risks faced by domestic corporations, multinational corporations face

A) political risk.

B) exchange risk.

C) Both A and B are correct.

D) All domestic and multinational corporations face similar risk profiles.

22) Strategies to counter exchange rate risk include all of the following EXCEPT

A) futures contracts.

B) spot-market hedges.

C) forward-market hedges.

D) money-market hedges.

23) Which of the following is a reason for international investment?

A) to reduce portfolio risk

B) to increase P/E ratio

C) to gain an advantage in a foreign country

D) to gain access to foreign currency

24) An important (additional) consideration for a direct foreign investment is

A) political risk.

B) maximizing the firm's profits.

C) attaining a high international P/E ratio.

D) maintaining the domestic cost of capital.

25) All of the following are examples of political risk for a U.S. company investing in a foreign country EXCEPT

A) expropriation of plant and equipment.

B) the problem of blocked funds.

C) substantial changes in foreign country tax laws.

D) government requirements that ownership must be limited to U.S. citizens.

26) What is direct foreign investment? What are the additional risks that a multinational corporation must consider before undertaking direct investment in a foreign country?