Question

1. (2pts)Which of the following is not mentioned in the lecture note as an additional risk factor resulting from international business?

1. exchange rate fluctuations
2. political risk
3. interest rate risk
4. None of the above

2. (2pts) Factor income from international investment is a component of financial account in the balance of payments

1. True                                   b) False

3. (2pts) Bid-Ask spread on currency quotation will be wider if the currency exhibits more volatility than others because of the country’s uncertain economic conditions

1. True                                   b) False

4. (2pts) The forward rate is the exchange rate used for immediate exchange of currencies

1. True                                   b) False

5. (2pts) Licensing is an international business method in which involves taking the ownership of foreign operation.

1. True                                   b) False

6. (2pts) Non-U.S. firms may issue _________, which are certificates representing bundles of stock when they sell their stocks in the U.S. stock market.

1. Banker’s Acceptance
2. ADRs
3. BWs
4. Euro bonds

7. (2pts) A higher home inflation rate relative to other countries would _______ the home country’s current account balance, as import _______ and exports _________.

1. increase; increase; decrease
2. decrease; increase; decrease
3. increase; decrease; increase
4. decrease; decrease; increase

8. (2pts) Firms typically prefer to invest in countries where the local currency is expected to strengthen against their own.

1. True                                   b) False

9. (2pts) Under direct quotation of foreign exchange rate if the value of euro is changed from $1.26/euro to $1.09/euro, the euro has been appreciated.

1. True                                   b) False

10. (2pts) A decrease in US$ value against major currencies would _______ the current account balance of U.S. as import _______ and exports _________.
    1. increase; increase; decrease
    2. decrease; increase; decrease
    3. increase; decrease; increase
    4. decrease; decrease; increase

11. (2 pts) Assume that the interest rates become much higher in the U.K relative to the U.S. This will place ________ pressure on the value of British pound in a short term.

1. Upward
2. Downward

12. (2pts) The FX rate has changed from $1.20/euro to $1.10/euro. Calculate the percentage change of FX rate and define how the value of euro has changed?

1. 9.09%
2. -9.09%
3. 8.33%
4. -8.33%

13. (2pts) Calculate the value of euro in Japanese Yen (Cross FX rate) based on the following information.

• $1.18/euro and $0.0091/yen.

1. Yen 0.0071/euro
2. Yen 129.67/euro
3. Yen 0.0081/euro
4. Yen 130.80/euro

14. (2pts) A U.S. manufacturing company recently built a new factory in Mexico because of lower labor costs in Mexico. Which theory can explain this company’s investment in Mexico?

1. Comparative advantage theory
2. Imperfect market theory
3. Product life cycle theory
4. None of the above

Short answers / Calculation questions (Type Answers in the Answer Sheet)

• Type your answers briefly and for the calculation type your work to get a partial credit in the Answer sheet.

15. (2pts) Briefly explain about Yankee bond and Euro dollar bond (Be specific).

16. (2pts) What is the main role of the IMF (International Monetary Fund) & WTO?

      

17. (3pts) What is the price of ADR if the conversion ratio is 1:2, local stock price is Euro 30, and the FX rate is $1.20/euro?

18. (3pts) Citi bank quotes the price of Euro in US$.

Bid rate: $1.34/Euro

Ask rate: $1.37/Euro

• Your company (U.S. firm) exported its product and received Euro 200,000 for the payments. Your company would like to exchange Euro to US$. How much US$ your company can get if your company decides to make a transaction with Citi Bank?

19. (4pts) Briefly explain why euro dollar market (in the international money market) had been so developed in 1960s and 1970s.

• 1960s (2pts): & 1970s (2pts):

20. (5pts) Bank of America (USA) believes that New Zealand dollar will appreciate over the next 90 days from US$0.48/NZ$ to US$0.50/NZ$. The following annual interest rates can be applied:

Currency                                        Lending rate (Annual)   Borrowing rate (Annual)

US dollar                                                    7.10%                           7.50%

New Zealand dollar                                     6.80%                           7.25%

Bank of American has the capacity to borrow $5million from Chase bank. If Bank of America’s forecast is correct, what will be its US dollar profit of Bank of America from this foreign exchange speculation over the 90 days period?

Answer 1

Answers-

Q)

The correct choice is c. Interest rate risk.

The Options a and b, exchange rate fluctuations and political risk are risk factors relatted to international business. The curency may appreciate or depreciate and may adversely effect the business and the change in the pilitical leadership and changein policies may effect th business.

Q )

The statement is False.
The Factor income from international investment is a component of Current account in the balance of payments. It is not a component of financial accout.

Q)

The statement is True.
The Bid-Ask spread widens in the currency quotaion when there is higher volatility and during uncertain or unstable economic conditions.

Q)

The statement is False.
The spot exchange rate is used for immediate exchange of currencies. It is not the forward rate that is used for immediate exchange of currencies.

Note- Kindly put other questions in separate posts.