True/False Quiz

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Chapter 24:   International Financial Management

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1. When the dollar rises in value relative to a foreign currency, the current assets and current liabilities of a U.S. foreign subsidiary increase in dollar value.

2. A strong third-party guarantee is vital to the process of forfaiting.

3. Since there is a time value to money, the spot exchange rate of a currency is always lower than the forward exchange rate.

4. A firm's total portfolio risk may be reduced by investing in more than one country.

5. The spot rate is simply the exchange rate between two currencies as determined by the respective governments.

6. The international-trade draft is a document of title used in shipping goods from the exporter to the importer.

7. A bill of lading is an agreement by a bank to honor a draft drawn on the importer.

8. If a company believed that a nation was preparing to devalue its currency, the company should reduce monetary assets and borrow extensively in that particular currency.

9. A foreign currency swap is simply an agreement between two parties to exchange one currency for another at a yet-to-be-determined future date but at a specified exchange ratio.

10. Purchasing-power parity implies that a standardized good should sell for the same price internationally after adjusting for exchange rates.

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