3. Answer the following multiple choice question. (Choose the correct answer only ). 1 mark each question.

1. The realized dollar return for a U.S. resident investing in a foreign market

1 point

1. will depend only on the return in the foreign market
2. will depend not only on the return in the foreign market but also on the change in the exchange rate between the U.S. dollar and the foreign currency.
3. will be unaffected by exchange rate movements

2. A foreign project generates a negative cash flow in year 1 and positive cash flows in years 2 through 5. The NPV for this project will be higher if the foreign currency _________ in year 1 and _________ in years 2 though 5.

1 point

1. appreciates;appreciates
2. depreciates;appreciates
3. depreciates;depreciates
4. appreciates;depreciates

3. When a countrys inflation rate rises relative to that of another country, decreased ______ and increased _______depress the _______ countrys currency.

1 point

1. expense; revenue; low-inflation
2. exports; imports; high-inflation
3. exports; imports; low-inflation
4. imports; exports; high-inflation

4. In general, increased investment by the parent in the foreign subsidiary causes more exchange rate exposure to the parent over time because the cash flows remitted to the parent will be larger.

1 point

1. True
2. False