Final Exam: Essay questions
Instructions: Choose five questions from the list of the questions below and give it
a thoughtful answer. Please formulate your answers in your own words and give
references when needed. You may look up in textbooks in the library or check
relevant websites to answer. Each question is to be answered fully but concisely,
each answer should not be exceeding 200 words per question.
The deadline to hand in the essay is January 7th, 2016
1. Describe the characteristics of a Multinational Corporation, any
advantages/drawbacks, and give examples. What reasons does the author of
your text give for becoming a multinational corporation?
2. Discuss the Exchange Rate, Market, and Legal/Political risks that foreign
3. Explain the theory of Comparative ...view middle of the document...
5. What are the advantages to being in the EU and adopting the Euro (two
separate issues)? What are the chief drawbacks (EU and Euro, economic
and political)? Why hasn’t England, Norway, Sweden, or Switzerland adopted
the Euro? Which are EU members, and why did the others not join the EU?
6. Imagine that you are a trader working for a New York bank. The spot
exchange rate against the Canadian $ is US $0.9968 and the one-month and
one-year forward rates are respectively US $0.9985 and US $1.0166. Twelvemonth interest rates in the USA and Canada may be taken as 6.45% and
What is the forward premium as an annual percentage?
Which currency is at a premium? Why?
7. Explain what PPP is, what it assumes, why these assumptions means it may
not hold in the real world, and when it tends to hold and why. Discuss crucial
reasons it will tend to break down. Give evidence that it tends to work (see
8. Explain what the Real Exchange Rate is, and how it is different from PPP.
What is the implication for the Real Exchange Rate if PPP holds? Explain
9. Explain the difference between transaction, translation, and economic risk
(asset exposure and operating exposure). Which is easiest to hedge and
10. As Treasurer of a major company you are approached by the Finance
Director of one of your UK-based subsidiaries which is in the business of
supplying a service to customers worldwide. The subsidiary is about to submit
a quote for a major contract to be awarded in three months’ time. The
customer is a Saudi company and the major competitors are based in
Germany and the US. The subsidiary is anxious to secure the business, but
needs to ensure some, if minimal, level of profit.
Make recommendations outlining the currency considerations in pricing and
risk evaluation and the methods of mitigating the risk.