International Financial Management MCQs and Notes

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📊 International Financial Management
Q. European currency options can be exercised _______; American currency options can be exercised _______.
  • (A) any time up to the expiration date; any time up to the expiration date
  • (B) any time up to the expiration date; only on the expiration date
  • (C) only on the expiration date; only on the expiration date
  • (D) only on the expiration date; any time up to the expiration date
💬 Discuss
✅ Correct Answer: (D) only on the expiration date; any time up to the expiration date
📊 International Financial Management
Q. Which of the following is true?
  • (A) Most forward contracts between firms and banks are for speculative purposes.
  • (B) Most future contracts represent a conservative approach by firms to hedge foreign trade.
  • (C) The forward contracts offered by banks have maturities for only four possible dates in the future.
  • (D) none of the above
💬 Discuss
✅ Correct Answer: (D) none of the above
📊 International Financial Management
Q. Which of the following is the most likely strategy for a UK firm that will be receiving Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)?
  • (A) purchase a call option on francs.
  • (B) sell a futures contract on francs.
  • (C) ---
  • (D) ---
💬 Discuss
✅ Correct Answer: (obtain a f)
📊 International Financial Management
Q. Kalons ltd. is a UK-based MNC that frequently imports raw materials from Canada. Kalons is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future. Which of the following is not an appropriate hedging technique under these circumstances?
  • (A) purchase Canadian dollars forward.
  • (B) purchase Canadian dollar futures contracts.
  • (C) purchase Canadian dollar put options.
  • (D) purchase Canadian dollar call options.
💬 Discuss
✅ Correct Answer: (C) purchase Canadian dollar put options.
📊 International Financial Management
Q. The international Fisher effect suggests that should pound interest rates exceed US dollar interest rates:
  • (A) the pound’s value will remain constant;
  • (B) the pound will be at a discount on the dollar;
  • (C) UK inflation rate will decrease.
  • (D) the pound will depreciate against the dollar;
💬 Discuss
✅ Correct Answer: (D) the pound will depreciate against the dollar;
📊 International Financial Management
Q. If purchasing power parity were to hold even in the short run, then:
  • (A) quoted nominal exchange rates should be stable over time.
  • (B) real exchange rates should tend to increase over time;
  • (C) real exchange rates should tend to decrease over time;
  • (D) real exchange rates should be stable over time;
💬 Discuss
✅ Correct Answer: (D) real exchange rates should be stable over time;
📊 International Financial Management
Q. Given a home country and a foreign country, purchasing power parity suggests that:
  • (A) the home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate;
  • (B) the home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.
  • (C) the home currency will depreciate if the current home interest rate exceeds the current foreign interest rate;
  • (D) the home currency will depreciate if the current home inflation rate exceeds the current foreign interest rate;
💬 Discuss
✅ Correct Answer: (B) the home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.
📊 International Financial Management
Q. Under a fixed exchange rate system:
  • (A) central bank intervention in the foreign exchange market is often necessary;
  • (B) central bank intervention in the foreign exchange market is not necessary since rates do not move;
  • (C) ---
  • (D) ---
💬 Discuss
✅ Correct Answer: (central ba)
📊 International Financial Management
Q. If U.S. inflation suddenly increased while European inflation stayed the same, there would be:
  • (A) an increased U.S. demand for Euros and an increased supply of Euros for sale.
  • (B) a decreased U.S. demand for Euros and an increased supply of Euros for sale.
  • (C) a decreased U.S. demand for Euros and a decreased supply of Euros for sale.
  • (D) an increased U.S. demand for Euros and a decreased supply of Euros for sale.
💬 Discuss
✅ Correct Answer: (D) an increased U.S. demand for Euros and a decreased supply of Euros for sale.
📊 International Financial Management
Q. By definition, currency appreciation occurs when
  • (A) the value of all currencies fall relative to gold.
  • (B) the value of all currencies rise relative to gold.
  • (C) the value of one currency rises relative to another currency.
  • (D) the value of one currency falls relative to another currency.
💬 Discuss
✅ Correct Answer: (C) the value of one currency rises relative to another currency.

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