Q. Recently, the UK experienced an annual balance of trade representing a __________.
✅ Correct Answer: (D)
deficit
International Financial Management MCQs and Notes
Q. Foghat Co. has 1,000,000 euros as receivables due in 30 days, and is certain that the euro will depreciate substantially over time. Assuming that the firm is correct, the ideal strategy is to:
✅ Correct Answer: (A)
sell euros forward.
Q. The real cost of hedging payables with a forward contract equals:
✅ Correct Answer: (A)
the nominal cost of hedging minus the nominal cost of not hedging.
Q. An example of cross-hedging is:
✅ Correct Answer: (A)
find two currencies that are highly positively correlated; match the payables of the one currency to the receivables of the other currency.
Q. Consider an MNC that is exposed to the Taiwan dollar (TWD) and the Egyptian pound (EGP). 25% of the MNC's funds are Taiwan dollars and 75% are pounds. The standard deviation of exchange movements is 7% for Taiwan dollars and 5% forpounds. The correlation coefficient between movements in the value of the Taiwan dollar and the pound is .7. Based on this information, the standard deviation of this two-currency portfolio is approximately:
✅ Correct Answer: (A)
5.13%.
Q. The __________ the percentage of an MNC's business conducted by its foreign subsidiaries, the _________ the percentage of a given financial statement item that is susceptible to translation exposure.
✅ Correct Answer: (C)
greater; greater
Q. Volusia, plc is a UK-based exporting firm that expects to receive payments denominated in both euros and Canadian dollars in one month. Based on today's spot rates, the pound value of the funds to be received is estimated at £500,000 for the euros and £300,000 for the Canadian dollars. Based on data for the last fifty months, Volusia estimates the standard deviation of monthly percentage changes to be 8 percent for the euro and 3 percent for the Canadian dollar. The correlation coefficient between the euro and the Canadian dollar is 0.30. What is the portfolio standard deviation?
✅ Correct Answer: (B)
5.44%.
Q. The maximum one-day loss computed for the value-at-risk (VAR) method, does not depend on:
✅ Correct Answer: (C)
the current level of interest rates.
Q. 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 ___________.
✅ Correct Answer: (B)
negatively; low
Q. Subsidiary A of Mega plc has net inflows in Australian dollars of A$1,000,000, while Subsidiary B has net outflows in Australian dollars of A$1,500,000. The expected exchange rate of the Australian dollar is £0.30. What is the net inflow or outflow as measured in pounds?
✅ Correct Answer: (A)
£150,000 outflow