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Forecasts, yield curve, weighted average cost, WACC

1) Point-estimate exchange rate forecasts cannot adequately account for the potential impact of exchange rate fluctuations True or False

2) Country risk can be used:

I. to monitor countries where the MNC is presently doing business.
II. as a screening device to avoid conducting business in countries with excessive risk.
III. compare levels of success based on consumer attitudes toward one's product.
IV. to improve the analysis used in making long-term investment or financing decisions.

A) I, II, III and IV
B) I, II and IV only
C) II, III, and IV only
D) I and III only
E) I and IV only

3. Which of the following would not be a reason for differences in the cost of capital between an MNC and a purely domestic firm?

A) Capital structure being used.
B) Size of firm.
C) Exposure to Country risk.
D) Diversification of financing sources.

4) A yield curve where short term rates are lower than long-term rates is said to be:

A) An inverse yield curve.
B) A flat yield curve.
C) A positive yield curve.
D) A negative yield curve.

5) As additional debt is utilized in a firm's capital structure, the weighted average cost of capital (WACC) should:

A) Rise.
B) Fall.
C) Stay the same.
D) Fall, then rise past a certain point.

Solution Preview

1) Point-estimate exchange rate forecasts cannot adequately account for the potential impact of exchange rate fluctuations
Answer: True

2) Country risk can be used:

I. to monitor countries where the MNC is presently doing business.
II. as a screening device to avoid conducting business in countries ...

Solution Summary

This post has multiple questions addresses exchange rate forecasts, yield curve, weighted average cost of capital and country risk. It discusses about the reason for differences in the cost of capital between an MNC and a purely domestic firm.

$2.19