AIMA Solved Assignments for FM04
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Subject Code: FM04
Subject Name: INTERNATIONAL FINANCIAL MANAGEMENT
Component name: ASSIGNMENT 1
Assignment Start Date: 15/11/2022
Assignment End Date: 15/01/2023
Question 1:- A multi-National company (MNC) is:
a) An organization with multi-country affiliates, each of which formulates its own business strategy based on perceived market differences.
b) An organization that attempts to standardize and integrate operations worldwide in all functional areas.
c) The same as a global company.
d) An organization that standardizes and integrates operations on a domestic basis.
Question 2:- Which is the most commonly classified as a direct foreign investment-
a) Licensing agreements
b) Exporting transactions
c) Foreign acquisitions
d) Purchases of international stocks
Question 3:- Which of the following are international financial considerations faced by both small and large MNCs?
a) Currency systems.
b) Interest rates.
c) Tax systems.
d) All of the above.
Question 4:- An agreement to trade currencies based on the exchange rate today for settlement within two business days is called a(n) _____ trade.
a) swap
b) option
c) futures
d) spot
Question 5:- One argument for returning to the gold standard, thus making gold the reserve asset of nations, is based on the premise that:
a) gold is very portable.
b) the current situation in which the US dollar was the reserve asset is unsustainable.
c) gold has been deemed consistently valuable throughout the ages.
d) the price of gold has remained stable over time.
Question 6:- The commonly accepted goal of the MNC is to:
a) maximize short-term earnings.
b) maximize shareholder wealth.
c) minimize risk
d) maximize international sales.
Question 7:- Those participants in foreign exchange market that seek to earn risk-less profits by taking advantage of differences in exchange rates among countries are called-
a) Hedgers
b) Speculators
c) Arbitrageurs
d) Traders
Question 8:- The rate at which a currency can be bought or sold for immediate delivery is called:
a) Forward exchange rate
b) Cross rate
c) Spot exchange rate
d) None of the other
Question 9:- The foreign exchange market is where:
a) international businesses finalize import/export relationships with one another.
b) one country`s bonds are exchanged for another`s.
c) international banks make loans to one another.
d) one country`s currency is traded for another`s.
Question 10:- Assume that the Euro is selling in the spot market for $1.10. Simultaneously, in the 3-month forward market the Euro is selling for $1.12. Which one of the following statements correctly describes this situation?
a) The spot market is out of equilibrium.
b) The forward market is out of equilibrium.
c) The dollar is selling at a premium relative to the euro.
d) The Euro is selling at a premium relative to the dollar.
Question 11:- The cross rate is the:
a) exchange rate between the U.S. dollar and another currency.
b) exchange rate between two currencies, neither of which is generally the U.S. dollar.
c) rate converting the direct rate into the indirect rate.
d) None of these.
Question 12:- The Bretton Woods Conference in 1944 established:
a) the World Bank.
b) the International Monetary Fund
c) the gold exchange standard.
d) The United Nations
Question 13:- Which of the following organizations was established by industrialized nations to loan money to underdeveloped and developing countries?
a) OPEC
b) The World Bank
c) The IMF
d) The United Nations
Question 14:- A nation can avoid losing markets and regain competitiveness in world markets through:
a) currency devaluation
b) exchange controls
c) trade negotiations
d) import/export regulation
Question 15:- The balance of payments account includes which of the following?
a) foreign investments
b) foreign aid
c) tourist expenditures
d) all of the above
Question 16:- An increase in the current account deficit will place _______ pressure on the home currency value, other things equal.
a) upward
b) downward
c) it will create no pressure
d) upward or downward (depending on the size of the deficit)
Question 17:- An increase in India’s interest rates relative to US interest rates is likely to ________ the India’s demand for US$ and _________ the supply of US$ for sale.
a) reduce; increase
b) reduce; reduce
c) increase; reduce
d) increase; increase
Question 18:- High current inflation rates in domestic market will:
a) make capital expenditure planning easier to manage.
b) encourage foreign borrowing because the loan will be repaid with cheaper money.
c) encourage lending because of rising interest rates.
d) cause prices of goods and services to fall.
Question 19:- The view that the exchange rate between the currencies of two countries equals the ratio between the prices of goods in these countries is stated by-
a) International fisher effect
b) Purchasing power parity
c) Interest rate parity
d) Forward rates and future spot rates parity
Question 20:- Select the incorrect statement-
a) Under a forward contract, the buyer has a right to decide whether or not she would exercise the contract.
b) Forward contracts are different from cash transactions.
c) Forward contracts are flexible.
d) None of the above.
Subject Code: FM04
Subject Name: INTERNATIONAL FINANCIAL MANAGEMENT
Component name: ASSIGNMENT 2
Assignment Start Date: 15/11/2022
Assignment End Date: 15/01/2023
Question 1:- _____ holds because of the possibility of covered interest
a) Uncovered interest parity
b) Interest rate parity
c) The international Fisher effect
d) Purchasing power parity
Question 2:- The condition stating that the current forward rate is an unbiased predictor of the future spot exchange rate is called:
a) the unbiased forward rates condition.
b) uncovered interest rate parity.
c) the international Fisher effect.
d) purchasing power parity.
Question 3:- The theory that real interest rates are equal across countries is called:
a) the unbiased forward rates condition.
b) uncovered interest rate parity.
c) the international Fisher effect.
d) interest rate parity.
Question 4:- A right to buy or sell an asset at a specified exercise price at a specified period of time is called –
a) Futures contract
b) Forward contract
c) Swap
d) Option
Question 5:- An agreement between two parties, to trade cash flows over a period of time is called-
a) Swap
b) Future contract
c) Forward contract Option
Question 6:- Select the incorrect statement-
a) Future contracts are standardized contracts.
b) Forward contracts are traded in organized future exchanges.
c) In case of forward contracts, there is no formal requirement of margin.
d) None of the above.
Question 7:- The idea that the exchange rate adjusts to keep buying power constant among currencies is called:
a) the unbiased forward rates condition.
b) uncovered interest rate parity.
c) the international Fisher effect.
d) purchasing power parity.
Question 8:- Trying to protect oneself against losses due to currency exchange rate fluctuations is known as:
a) Insurance.
b) Hedging.
c) Protection.
d) All of the above.
Question 9:- Derivatives are:
a) Only traded on Exchange
b) Only traded in the OTC market
c) financial instruments, the values of which are obtained to the price movements of underlying commodities.
d) None of the above.
Question 10:- Taking open positions in two currencies that are expected to balance each other is known as:
a) balance netting.
b) exposure netting.
c) dual netting.
d) open netting.
Question 11:- Translation exposure reflects:
a) the exposure of a firm`s ongoing international transactions to exchange rate fluctuations.
b) the exposure of a firm`s local currency value to transactions between foreign exchange traders.
c) the exposure of a firm`s financial statements to exchange rate fluctuations.
d) the exposure of a firm`s cash flows to exchange rate fluctuations.
Question 12:- The exchange gain or loss occurring from the difference in the exchange rates at the beginning and the end of the accounting period is-
a) Economic exposure
b) Operating exposure
c) Translation exposure
d) Transaction exposure
Question 13:- Select the option that is not an alternative available to companies to hedge against the foreign exchange exposure-
a) Forward contract
b) Foreign currency option
c) Money market operations
d) None of the above
Question 14:- Bonds that are sold outside the country in whose currency they are denominated are called-
a) Eurobonds
b) Foreign bonds
c) Yankee bonds
d) Samurai bonds
Question 15:- Select the option that is not an important source of international finance-
a) Forward contract
b) Eurocurrency loans
c) Eurobonds
d) Depository receipts
Question 16:- Select the incorrect statement-
a) Eurocurrency loans are made mostly on the basis of floating rates of interest.
b) Floating-rate notes are long-term bonds.
c) The minimum value of a convertible Eurobond will equal the value of a straight fixed-rate bond.
d) All of the above.
Question 17:- Select the incorrect statement-
a) The Indian firms cannot issue Global Depository Receipts.
b) The size of Eurobonds market is smaller than the Foreign bonds.
c) Yen-denominated foreign bonds issued in Japan are called Bulldog bonds.
d) All of the above.
Question 18:- The losses or gains that can result from restating the values of the assets and liabilities/payables and receivables arising from investments abroad from one currency to another is termed:
a) translation risk
b) transaction risk
c) hedging
d) None of the above.
Question 19:- An Indian Co. has 1,000,000 euros as receivables due in 30 days, and is certain that the euro will depreciate substantially over time. Assuming that the firm is correct, the ideal strategy is to:
a) purchase euros forward.
b) sell euros forward.
c) write euro currency put options.
d) remain unhedged.
Question 20:- Currency swaps:
a) should be avoided.
b) are rarely used.
c) enable a foreign borrower to get local currency at a lower interest rate.
d) are the same as exposure netting.