Global trade increases dependence on one economy, increasing the economic risk for multinational firms (a) True () b) False
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- Which of the following choices is the least likely impact associated with a stronger currency for a country? O Decreased foreign investment and slower economic growth Lower costs of imports and improved consumer purchasing power Higher inflation and reduced investor confidenceHow can the Greater Liberalizations and removal of barrier to trade can stimulate FDI that can incentivise firms to invest overseasWhich of the following is not a reason for U.S. firms operating in foreign markets? A.Better economic and political environment (in the U.S.) B.Less expensive labor C.Tax incentives D. To achieve international diversification
- If a U.S.-based MNC focused completely on exporting, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time. Group of answer choices True FalseOne major risk of engaging in global trade is that as national economies continue to integrate, an economic meltdown in one part of the world can have far-reaching impact. True FalseA key issue facing financial executives of multinational firms is exposure to exchange rate changes.a. Define exposure, differentiating between accounting and economic exposure. What role does inflation play?b. Describe at least three circumstances under which economic exposure is likely to exist? c. Of what relevance are the international Fisher effect and purchasing power parity to your answers to parts a and b? d. What is exchange risk, as distinct from exposure
- 4. Interest rate parity The rise of globalization is due to the many companies that have become multinational corporations for various reasons-for example, to access better technology, to enter new markets, to obtain more raw materials, to find funding resources, to minimize production costs, or to diversify business risk. This multimarket presence exposes companies to different kinds of risk as well-for example, political risk and exchange rate risk. The relationship between interest rates and exchange rates can be represented through the concept of interest rate parity. Consider the following: An American investor is considering investing $1,000 in default-free 90-day Japanese bonds that promise a 4% annual nominal return. • The spot exchange rate is ¥101.12 per dollar. • The 90-day forward exchange rate is 100.25 per dollar. The investor's annualized return on these bonds-if he or she can lock in the dollar return by selling the foreign currency in the forward market-will be…Investors and MNCs exporting or importing goods and services or making foreign investments throughout the global economy are faced with an exchange rate risk,which can have severe financial consequences on firms profitability,cash flows,and their market value,if not managed appropriately. MNC's use a number of external techniques of risk(exposure)management and resort to contractual relationships outside thier companies in order to reduce (or redistribute)the risk of foreign exchange losses.What are the determinants of hedging currency risk or foreign exchange exposures which pose risks to MNC's cashflows,competitiveness,marker value and financial reporting.Internationalization theory suggests that Select one: a. FDI is more likely to take place when the costs of negotiating, monitoring, and enforcing a contract with a second firm is higher. Ob. FDI is more likely to occur when prices are high, competition is intense and lower trade barriers as well as exchange rates are strong. O c. FDI occurs in developing countries only in order to boost their economies and improve the country position. d. None of the options are applicable. Next page
- 6 - Which is not from the benefits of foreign trade?A) Increase in foreign currency revenuesB) Expansion of market shareC) Opening to foreign competitionD) Gaining the brand imageE) Saving resourcesA U.S. firm will be ________ by dollar _______ if its expenses are more susceptible to exchange rate movements than its revenue. A. unaffected; weakens B. benefited; strengthens C. benefited; weakens D. unaffected; strengthensHow foreign currency risk can affect the value of a multinational company?