FIN REVIEW

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CH 1 Quiz

1. Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate is $1.23= 1.00 Euros. One year later the exchange rate is the same, but the Italian government has expropriated your firm’s assets paying only 80,000 Euros in compensation. This is an example of
a. Political risk
2. Country A can produce 10 yards of textiles or 6 pounds of food per unit of input. Compute the opportunity cost of adding one additional unit of food instead of textiles.
a. 1 yard of textiles per 6 pounds of food
3. In countries like France or Germany
a. Managers have often viewed shareholders as one of the “Stakeholders” of the firm, others being employees, customers, suppliers, banks, and so forth.
4. The common
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If the U.S., currency depreciates against the currencies of our trading partners.
ANSWER: your competitive position is likely improved.
20. Production of goods and services has become globalized to a large extent as a result of _______.
ANSWER: Multinational corporations’ efforts to source inputs and locate production anywhere where costs are lower and profits are higher.
21. Country A can produce 10 yards of textiles or 6 pounds of food per unit of input. Compute the opportunity cost of producing one additional unit of food instead of textiles.
ANSWER: 1 Yard of textile per .6 pounds of food
22. Which is growing at a faster rate, foreign direct investment by MNCs or international trade?
ANSWER: FDI by MNCs
23. Suppose that Great Britain is a major export market for your firm, a U.S. based MNC. If the British pound depreciates against the U.S. dollar,
ANSWER: both b and c are correct
24. When corporate governance breaks down
ANSWER: All the above
25. MNCs can use their global presence to
ANSWER: all the above
26. Suppose you start with $100 and buy stock for 50 Pounds when the exchange rate is 1 pound = $2. One year later, the stock rises to 60 pounds. You are happy with your 20% return on the stock but when you sell the stock and exchange your 60 pounds for dollars, you only get $45 since the pound has fallen to 1 pound=$.75. This loss of value is an example of _______
ANSWER: Political risk
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