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

1. A firm that can reduce its cost of capital will increase the profitable capital expenditures that the firm can take on and increase the wealth of the shareholders.

1 point

1. True
2. False

2. A U.S. resident just sold shares in a British firm that had a 20% return (in pounds) during a period when the pound depreciated 5%, his dollar return is :

1 point

1. 26%
2. 20%
3. 14%
4. 15%

3. TNK ltd. is a UK-based MNC with net cash inflows of euros and net cash inflows of Swiss francs. These two currencies are highly (positively) correlated in their movements against the British pound. YSN ltd. is a UK-based MNC that has the same level of net cash flows in these currencies as TNK ltd. except that its euros represent net cash outflows. Which firm has a higher exposure to exchange rate risk?

1 point

1. YSN ltd.
2. TNK ltd.
3. the firms have about the same level of exposure
4. neither firm has any exposure

4. A US-based MNC has a contract to import suppliets in which it agreed to pay in Malaysian ringgit. The US-based MNCs dollar cash flows are adversely affected if the

1 point

(a) Ringgit appreciates

(b) Ringgit depreciates

(c) Dollar appreciates

(d) both b & c