Question

question 41

If the goal were to decrease the value of a country's currency - to fight an appreciation of the domestic currency in exchange for foreign currency - the central bank would:

Select one:

a. buy its own currency in exchange for foreign currency.

b. sell its own currency in exchange for foreign currency.

c. follow a restrictive monetary policy.

d. drive real rates of interest up.

Question 42

The capital asset pricing model (CAPM) is an approach:

Select one:

a. to determine the price of equity capital.

b. used by marketers to determine the price of saleable product.

c. none of the other answers

d. that can be applied only to domestic markets.

Question 43

Which of the following is NOT an advantage to a joint venture?

Select one:

a. May be a realistic alternative when 100% foreign ownership is not allowed.

b. Possible loss of opportunity to enter the foreign market with FDI later.

c. The local partner can provide competent management at many levels.

d. The local partner understands the customs and mores of the foreign market.

Question 44

Given the following exchange rates, what arbitrage profit is available if you have $1 million? ¥125.00/$, €1.1325/$, ¥110.35/€

Select one:

a. $229.

b. $2,022

c. $566

d. There is no arbitrage profit available

Question 45

Brimmo Motorcycles Inc., a U.S.-based firm, manufactures and sells electric motorcycles both domestically and internationally. A sudden and unexpected appreciation of the U.S. dollar should cause sales to ________ at home and ________ abroad. (Assume other factors remain unchanged.)

Select one:

a. increase; increase

b. increase; decrease

c. decrease; decrease

d. decrease; increase

Answer 1

Ans 41 ->> b. sell its own currency in exchange for foreign currency.

Reason - >> When central bank sells its own currency, its supply increases in market. Now when supply increases and its available in plenty, its value decreases.

Ans 42 ->> a. to determine the price of equity capital.

Price of Equity Capital = Risk Free Rate + Beta of security(Expected Market Return – Risk Free Rate)

Ans 43 - >> b. Possible loss of opportunity to enter the foreign market with FDI later.

Ans 44 ->> Given rates are ¥125.00/$, €1.1325/$, ¥110.35/€

With these exchange rates there is an arbitrage opportunity as shown below in steps -

Step 1. Sell dollars for Yen: $1 million x 125 =   Yen 125000000.

Step 2. Sell Yen for Euros: 125000000 / 110.35 = Euros 1132759.40

Step 3. Sell Euros for dollars: £ 1132759.40 / 1.1325 = $1,000,229

Step 4. Subtract the initial investment from the final amount: $1,001,229 - $1,000,000 = $229.

From these transactions, you would receive a riskless arbitrage profit of $229.

Ans 45 ->> Decrease Decrease. At home ,motorcycles become more costly so sales decrease and due to dollar value going up, foreigners also find motorcycles more costly so decrease again.