Question

1- An MNC has an incentive to invest short-term funds in a foreign currency if investments denominated in the foreign currency have a ___(higher OR lower)     interest rate than investments denominated in the home currency of the MNC.

True or False: If a currency’s LIBOR rate rises, the money market interest rates denominated in that currency also rise.

• True
• False

2- True or False: Short-term loans of six months or less, extended by banks to MNCs in Europe, are called eurocredit loans.

• True
• False

3- The United States Congress passed the Sarbanes-Oxley (SOX) Act in 2002. This act required all firms, including foreign firms, to provide more comprehensive financial information in order to list their stock on US stock exchanges.

True or False: The high cost of SOX compliance leads some non-US firms to withdraw from US exchanges.

True

False

Answer 1

1. HIGHER

An MNC has an incentive to invest short-term funds in a foreign currency if investments denominated in the foreign currency have a HIGHER   interest rate than investments denominated in the home currency of the MNC.

2.TRUE

when currency's LIBOR rises, money market rates denominated in that currency tend to rise too (just like US money market rates move with fed funds rate)

3.

FALSE

Eurocredit refers to a loan whose denominated currency is not the lending bank's national currency. The concept is closely linked to that of eurocurrency, which is any currency held or traded outside its country of issue. For example, a eurodollar is a dollar deposit held or traded outside the U.S., and conversely, a eurocredit loan made by a U.S. bank would be one that is not denominated in USD.

4.TRUE

The high cost of SOX compliance leads some non-US firms to withdraw from US exchanges.