International Financial Management MCQs and Notes

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📊 International Financial Management
Q. Magent ltd. is a UK company that has exposure to the Swiss franc (SF) and Danish kroner (DK). It has net inflows of SF 200 million and net outflows of DK 500 million. The present exchange rate of the SF is about £0.22 while the present exchange rate of the DK is £0.05. Magent ltd. has not hedged these positions. The SF and DK are highly correlated in their movements against the pound. If the pound weakens, then Magent ltd. will:
  • (A) benefit, because the pound value of its SF position exceeds the pound value of its DK position.
  • (B) benefit, because the pound value of its DK position exceeds the pound value of its SF position.
  • (C) be adversely affected, because the pound value of its SF position exceeds the pound value of its DK position.
  • (D) be adversely affected, because the pound value of its DK position exceeds the pound value of its SF position.
💬 Discuss
✅ Correct Answer: (A) benefit, because the pound value of its SF position exceeds the pound value of its DK position.
📊 International Financial Management
Q. Which of the following operations benefits from depreciation of the firm's local currency?
  • (A) borrowing in a foreign country and converting the funds to the local currency prior to the depreciation.
  • (B) purchasing foreign supplies.
  • (C) investing in foreign bank accounts denominated in foreign currencies prior to depreciation of the local currency.
  • (D) A and B
💬 Discuss
✅ Correct Answer: (C) investing in foreign bank accounts denominated in foreign currencies prior to depreciation of the local currency.
📊 International Financial Management
Q. Translation exposure reflects:
  • (A) the exposure of a firm's ongoing international transactions to exchange rate fluctuations.
  • (B) the exposure of a firm's local currency value to transactions between foreign exchange traders.
  • (C) the exposure of a firm's financial statements to exchange rate fluctuations.
  • (D) the exposure of a firm's cash flows to exchange rate fluctuations.
💬 Discuss
✅ Correct Answer: (C) the exposure of a firm's financial statements to exchange rate fluctuations.
📊 International Financial Management
Q. The spot rate for the Singapore dollar is £0.320. The 30-day forward rate is £0.325. The forward rate contains an annualized __________ of ___________%.
  • (A) discount; -18.75
  • (B) premium; 18.75
  • (C) discount; -18.46
  • (D) premium; 18.46
💬 Discuss
✅ Correct Answer: (B) premium; 18.75
📊 International Financial Management
Q. The purchase of a currency put option would be appropriate for which of the following?
  • (A) Investors who expect to buy a foreign bond in one month.
  • (B) Corporations who expect to buy foreign currency to finance foreign subsidiaries.
  • (C) Corporations who expect to collect on a foreign account receivable in one month.
  • (D) All of the above
💬 Discuss
✅ Correct Answer: (B) Corporations who expect to buy foreign currency to finance foreign subsidiaries.
📊 International Financial Management
Q. Which of the following is true of options?
  • (A) The writer decides whether the option will be exercised.
  • (B) The writer pays the buyer the option premium.
  • (C) ---
  • (D) ---
💬 Discuss
✅ Correct Answer: (The buyer )
📊 International Financial Management
Q. The premium of a currency put option will increase if:
  • (A) the volatility of the underlying asset goes up.
  • (B) the time to maturity goes up.
  • (C) the spot rate declines.
  • (D) none of the above
💬 Discuss
✅ Correct Answer: (D) none of the above
📊 International Financial Management
Q. Which of the following are true regarding the options markets?
  • (A) Hedgers and speculators both attempt to lower risk.
  • (B) Hedgers attempt to lower risk, while speculators attempt to make riskless profits.
  • (C) ---
  • (D) ---
💬 Discuss
✅ Correct Answer: (Hedgers an)
📊 International Financial Management
Q. Conditional currency options are:
  • (A) options that do not require premiums.
  • (B) options where the premiums are canceled if a trigger level is reached.
  • (C) options that allow the buyer to decide what currency the option will be settled in.
  • (D) none of the above
💬 Discuss
✅ Correct Answer: (B) options where the premiums are canceled if a trigger level is reached.
📊 International Financial Management
Q. A UK corporation has purchased currency call options to hedge a 70,000 dollar payable. The premium is £0.015 and the exercise price of the option is £0.54. If the spot rate at the time of maturity is £0.59, what is the total amount paid by the corporation if it acts rationally?
  • (A) £36,750
  • (B) £1,050
  • (C) £37,800
  • (D) £38,850
💬 Discuss
✅ Correct Answer: (D) £38,850

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