Question 1

Capital markets in foreign countries

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Question 2

The interest rate in the U.S. is 4%, in Switzerland it is 3%. The spot rate is 1.0232 USD to the Swiss franc. A U.S. based hotel chain needs to project forward exchange rates for the next five years. Complete the table below.

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Question 3

Economic exposure refers to the overall impact of exchange rate changes on the value of the firm.

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Question 4

If the net present value of a direct foreign investment is negative, the multinational firm should

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Question 5

The spot exchange rate for the Thai bhat is 33.135 bhat to the dollar. The Host Hotel Company will be able to repatriate profits from its luxury resort hotel in Phuket in 5 years. It has estimated the 5 year forward rate at 38 bhat to the dollar. The risk-free rate in the U.S. is 4% and Host uses an 11 % risk premium for investments of this type. If the expected accumulated profits after 5 years are 100 million bhat, what is their present value in U.S. dollars.

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Question 6

Expropriation of plant and equipment without compensation is an example of financial risk from direct foreign investments.

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Question 7

Exchange rate risk

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Question 8

An important motive for direct foreign investment is to

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Question 9

Exchange rate risk

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Question 10

Millheim Electronics is an American firm operating in a country whose government refuses to allow Millheim to send its earnings out of the country. This is an example of repatriation of profits.

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Question 11

The spot exchange rate for the Thai bhat is 30.000 bhat to the dollar or .00333 dollar to the bhat. For capital budgeting purposes, Ramo Corp needs to estimate the exchange rate 5 years from now. The U.S. interest rate is 2%; the interest rate in Thailand is 6%. The estimated 5 year forward rate is

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Question 12

Because a large part of a subsidiary's equity funds comes from the parent, the subsidiary should use the same cost of equity as the parent.

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Question 13

The cost of debt used in the international investment decision is the lesser of the parent's or the subsidiary's cost of debt.

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Question 14

Multinational corporations can have lower cost of capital and more continuous access to external finance compared to a domestic firm.

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Question 15

The relevant sources of risk for direct foreign investment capital budgeting decisions are the same as those faced when making domestic capital budgeting decisions.

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Question 16

RAH Inc., a U.S. corporation is evaluating a proposal to construct and lease an office building in Kiev. RAH's weighted average cost of capital is 11%. The risk free rate in the U.S. is 3.75%. RAH believes that conditions in Kiev warrant a required rate of return that is 12% above the risk-free rate. Cash flows from the hotel project should be discounted at

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Question 17

Risks of foreign direct investment potentially include

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Question 18

The most serious type of political risk involves

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Question 19

When multinational companies evaluate capital investments in foreign countries, they discount

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Question 20

Some complexities of conducting international business include

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Quiz 19: International Business Finance

Capital markets in foreign countries

The interest rate in the U.S. is 4%, in Switzerland it is 3%. The spot rate is 1.0232 USD to the Swiss franc. A U.S. based hotel chain needs to project forward exchange rates for the next five years. Complete the table below.

Economic exposure refers to the overall impact of exchange rate changes on the value of the firm.

If the net present value of a direct foreign investment is negative, the multinational firm should

Expropriation of plant and equipment without compensation is an example of financial risk from direct foreign investments.

Exchange rate risk

An important motive for direct foreign investment is to

Exchange rate risk

Millheim Electronics is an American firm operating in a country whose government refuses to allow Millheim to send its earnings out of the country. This is an example of repatriation of profits.

The spot exchange rate for the Thai bhat is 30.000 bhat to the dollar or .00333 dollar to the bhat. For capital budgeting purposes, Ramo Corp needs to estimate the exchange rate 5 years from now. The U.S. interest rate is 2%; the interest rate in Thailand is 6%. The estimated 5 year forward rate is

Because a large part of a subsidiary's equity funds comes from the parent, the subsidiary should use the same cost of equity as the parent.

The cost of debt used in the international investment decision is the lesser of the parent's or the subsidiary's cost of debt.

Multinational corporations can have lower cost of capital and more continuous access to external finance compared to a domestic firm.

The relevant sources of risk for direct foreign investment capital budgeting decisions are the same as those faced when making domestic capital budgeting decisions.

Risks of foreign direct investment potentially include

The most serious type of political risk involves

When multinational companies evaluate capital investments in foreign countries, they discount

Some complexities of conducting international business include