Multiple Choice: Pearson

Question 1

If we are using foreign currency for the NPV decision, all we have to do is restate all the ___ in terms of present value and use the current exchange rate.

Options:
A. Domestic Incremental Cash Flow
B. Salvage Value
C. Foreign Incremental Cash Flow
D. None of these

Answer 1

C. Foreign Incremental Cash Flow

Question 2

When accounts receivable involves a foreign operation, you face the problem of changing:

Options:
A. exchange rates
B. cash flows
C. interest rates
D. forward rates

Answer 2

A. exchange rates

Question 3

Which of the statements is false?

Options:
A. One way that a multi-nation firm can minimize the potential of nationalization of assets by a foreign government is to share key elements of operations with the government.
B. Political risk involves changes in a foreign government. At one extreme is the case in which a local government takes over the assets of the company and nationalizes it.
C. Political risk involves change in a foreign government. An extreme example is the case in which a government encourages foreign investment and gives breaks to companies willing to move operations locally.
D. There are three basic defensive mechanisms that can guard against the extreme case of nationalized assets. These include keeping critical operations private, financing operations assets with local money, receiving primary inputs outside the local economy.

Answer 3

C. Political risk involves change in a foreign government. An extreme example is the case in which a government encourages foreign investment and gives breaks to companies willing to move operations locally.

Question 4

The ____ reflects the rates of amount of U.S. dollars required to purchase one unit of a foreign currency.

Options:
A. Indirect rate
B. European rate
C. Equivalent rate
D. Direct rate

Answer 4

D. Direct rate

Question 5

As we go from home operations to international operations, we can potentially receive a ____, but we can also see our _____ increase.

Options:
A. Diversification Benefit, Total Risk
B. Diversification Benefit, Systematic Risk
C. Diversification Disadvantaged, Total Risk
D. Diversification Disadvantaged, Systematic Risk

Answer 5

A. Diversification Benefit, Total Risk

Question 6

The ___ refers to the price of one country’s currency in units of another country’s currency.

Options:
A. exchange rate
B. exchange price
C. currency rate
D. forgery

Answer 6

A. exchange rate

Question 11

Anticipated cash inflows may fall in value if unexpected movements in the exchange rate hurt your ability to convert to foreign currency and domestic currency. This reduction in the conversion of future payments is called:

Options:
A. Conversion Exposure
B. Operating Exposure
C. Translation Exposure
D. Transaction Exposure

Answer 11

D. Transaction Exposure

Question 12

___ deals with possible negative effects of converting financial statements from foreign operations into domestic currency for consolidated reporting in the home country.

Options:
A. Operating exposure
B. Conversion exposure
C. Transaction exposure
D. Translation exposure

Answer 12

D. Translation exposure

Question 13

___ arise from differences in custom, social norms, attitudes, and assumptions and expectations of the local society and the host country.

Options:
A. Political risks
B. Cultural risks
C. Similarities in business beliefs
D. Social fads

Answer 13

B. Cultural risks

Question 14

Which of the following statements below is true?

Options:
A. When cross rates are out of line, there can be an abridged rate opportunity.
B. All domestic rates can be computed using a setup with American rates and European rates with the U.S. dollar as the home currency.
C. The opportunity to make a profit without risk by exchanging three currencies is known as triple abridged rate.
D. The foreign rate is derived by pricing two currencies against a third.

Answer 14

D. The foreign rate is derived by pricing two currencies against a third.

Question 15

___ means that the price of similar goods is the same regardless of which currency one used to buy the goods.

Options:
A. Purchasing Power Parity
B. Interest Rate Parity
C. Expectation Parity
D. Currency Parity

Answer 15

A. Purchasing Power Parity

Question 16

Which of the statements below is TRUE of the payback period​ method?

A.
It is biased against projects with early term payouts.
B.
It ignores the cash flow after the initial outflow has been recovered.
C.
It focuses on cash flows after the initial outflow has been recovered.
D.
It incorporates time value of money principles.

Answer 16

B.
It ignores the cash flow after the initial outflow has been recovered.

Question 17

The primary benefit of diversification​ is:

A.
a reduction in risk.
B.
an equal reduction in risk and return.
C.
an increase in expected return.
D.
Diversification has no real​ benefit; it is a shell game promoted by investment advisors who are the only real winners.

Answer 17

a reduction in risk.

Question 18

The Internal Rate of Return​ (IRR) Model suffers from three problems. Which of the below is NOT one of these​ problems?

A.
Multiple IRRs
B.
Comparing mutually exclusive projects
C.
Incorporates the IRR as the reinvestment rate for the future cash flows
D.
Cumbersome computations not resolvable by the latest technology

Answer 18

Cumbersome computations not resolvable by the latest technology

Question 19

The IRR is the discount rate that produces a zero NPV or the specific discount rate at which the present value of the cost equals​ ________.

A.
the future value of the present cash outflows
B.
the present value of the cash outflow
C.
the investment
D.
the present value of the future benefits or cash inflows

Answer 19

the present value of the future benefits or cash inflows

Question 20

Which of the following assumptions about the Security Market Line is NOT​ true?

A.
There is an inconsistent trade-off between risk and reward at all levels of risk.
B.
The greater the​ risk, the greater the expected return.
C.
There is a basic reward for​ waiting: the risk-free rate.
D.
All of the above statements are true.

Answer 20

There is an inconsistent trade-off between risk and reward at all levels of risk.

Question 21

Beta is​ ________.

A.
the appropriate measure of risk for a well diversified portfolio
B.
a measure of non diversifiable risk
C.
a measure of systematic risk
D.
All of the above

Answer 21

All of the above

Question 22

​________ may be defined as a measure of uncertainty in a set of potential outcomes for an event in which there is a chance for some loss.

A.
Collaboration
B.
Risk
C.
Uncertainty
D.
Diversification

Answer 22

Risk

Question 23

The​ ________ model incorporates the timeminusvalue of money but still ignores cash flows after the cutoff date.

A.
Modified Internal Rate of Return
B.
Discounted Payback Period
C.
Payback Period
D.
IRR

Answer 23

Discounted Payback Period

Question 24

The​ ________ refers to the price of one​ country’s currency in units of another​ country’s currency.

A.
exchange rate
B.
currency rate
C.
forward rate
D.
exchange price

Answer 24

exchange rate

Question 25

In the NPV​ model, all cash flows are stated​ ________. A. in future value​ dollars, and the total inflow is​ "netted" against the outflow to see if the net amount is positive or negative B. in present value or current​ dollars, and the outflow is​ "netted" against the total inflow to see if the gross amount is positive or negative C. in future​ dollars, and the initial outflow is​ "netted" against the total inflow to see if the net amount is positive D. in present value or current​ dollars, and the total inflow is​ "netted" against the initial outflow to see if the net amount is positive or negative

Answer 25

in present value or current​ dollars, and the total inflow is​ "netted" against the initial outflow to see if the net amount is positive or negative

Question 26

In regard to the NPV​ method, which of the statements below is​ TRUE? A. In the NPV​ model, most future cash flows are stated in present value or current dollars and the inflow is​ "netted" against the outflow to see if the net amount is positive or negative. B. In the NPV​ model, the net present value of an investment is the present value of all benefits​ (cash inflow) minus the present value of all costs​ (cash outflow) of the project. C. In the NPV​ model, if two projects are being​ compared, the one with the highest IRR is selected. D. In the NPV​ model, the present cash flows are discounted at the rate​ r, the cost of capital.

Answer 26

In the NPV​ model, the net present value of an investment is the present value of all benefits​ (cash inflow) minus the present value of all costs​ (cash outflow) of the project.

Question 27

The terms​ ________ and​ ________ mean the same thing. A. diversifiable​ risk; unsystematic risk B. non diversifiable​ risk; unsystematic risk C. total​ risk; unique risk D. diversifiable​ risk; systematic risk

Answer 27

diversifiable​ risk; unsystematic risk

Question 28

A major aspect of operating a business in a host country is the business risk that must be assumed. Which of the following is NOT a business​ risk? A. A severe drought B. A shift in exchange rates C. The risk of the firm being nationalized by the host country. D. A rise in interest rates

Answer 28

The risk of the firm being nationalized by the host country.

Question 29

Which of the statements below is​ FALSE? A. The opportunity to make a profit without risk by exchanging three currencies is known as triple arbitrage. B. Exchange rates vary from one day to the next. C. When cross rates are out of​ line, there can be an arbitrage opportunity. D. Even if you could not do a direct exchange between pounds and​ yen, you could convert pounds to dollars and then dollars to yen and ultimately end up changing pounds into yen.

Answer 29

The opportunity to make a profit without risk by exchanging three currencies is known as triple arbitrage.