Question

Which one of the following statements is correct about investing abroad?

		Hot money can leave a country at the first sign of economic or political trouble.
		An FDI is a purchase of less than 10% of controlling interest in a foreign company.
		A portfolio investment is a purchase of more than 10% of shares in a foreign company
		Foreign direct investment can leave a country at the first sign of economic trouble.
		An FDI is a purchase of more than 10% of bonds in a foreign company

Which of the following situations does NOT involve transaction exposure for a U.S. firm?

		Selling computers to a Swiss customer for USD 22,000,000 on 30-day credit
		Investing in euro-denominated bonds maturing in 3 months
		Buying automobiles from England for GBP 20,000,000 payable in one month.
		Investing in yen-denominated stocks in Japan for 4 months
		Selling tractors to a Chinese customer for CNY 913,000,000 on 90-day credit

Westside Hotels plans to sell $4,000,000 of euro-commercial paper with a 60-day maturity and discounted to yield 4.60% per annum. What will be the immediate proceeds to Westside Hotels?

		$2,074,265
		$3,969,567
		$1,984,783
		$3,954,523
		$1,977,261

Answer 1

1	Hot money can leave a country at the first sign of economic or political trouble.
2	Selling computers to a Swiss customer for USD 22,000,000 on 30-day credit
	Explanation: Selling goods in same country currency does NOT involve transaction exposure for a U.S. firm
3	$3,969,567
	Face value	$4,000,000
	Discount rate (1 + ((days/360) x (ytm)))	1.0076667
	Proceeds equal (Face value / Discount rate)	$3,969,567