question 6

Peter Simpson thinks that the U.K. pound will cost $1.43/ in six months. A 6-month currency futures contract is available today at a rate of $1.44/. If Peter was to speculate in the currency futures market, and his expectations are correct, which of the following strategies would earn him a profit?

Select one:

a. Sell pounds today.

b. Sell a pound currency futures contract.

c. Sell pounds in six months.

d. Buy a pound currency futures contract.

Question 7

Another name for operating exposure is ________ exposure.

Select one:

a. economic

b. strategic

c. all of the other answers

d. competitive

Question 8

Consider these debt strategies being considered by a corporate borrower. Each is intended to provide $1,000,000 in financing for a three-year period. The current one-year rate is 5%. Which strategy (strategies) will eliminate credit risk? Strategy #1: Borrow $1,000,000 for three years at a fixed rate of interest of 7%. Strategy #2: Borrow $1,000,000 for three years at a floating rate of LIBOR + 2%, to be reset annually. The current LIBOR rate is 3.50% Strategy #3: Borrow $1,000,000 for one year at a fixed rate, and then renew the credit annually.

Select one:

a. Strategy #1

b. Strategies #1 and #2

c. Strategy #3

d. Strategy #2

Question 9

A/An ________ would be an example of an internalization advantage for an MNE.

Select one:

a. economy of scale

b. patent

c. possession of proprietary information

d. unique source of raw materials

Question 10

In theory, the MNE should support ________ debt ratios than a purely domestic firm because their cash flows are ________.

Select one:

a. lower; less stable due to international diversification

b. lower; more stable due to international diversification

c. higher; more stable due to international diversification

d. higher; less stable due to international diversification