Risks associated with international trade transaction

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Reference no: EM132021974

1. The current rate method is the most prevalent method today for the translation of financial statements.

True

False

2. Since in the U.S. the home currency is the dollar and the foreign currency is the euro, in New York USD 1.2174 = EUR 1.00 would be a direct quote on the euro and an indirect quote on the dollar.

True

False

3. From a financial management perspective, all of the following are primary risks associated with an international trade transaction EXCEPT:

a. default risk

b. interest rate risk

c. noncompletion risk

d. currency risk

4. ADRs cannot be exchanged for the underlying shares of the foreign stock, therefore, arbitrage cannot keep the prices in line with the foreign price of the stock.

True

False

5. For most firms, the cost of capital decreases to a low point as the firm ________ debt financing. At some point beyond this optimal level, the cost of capital increases as the amount of debt ________.

a. decreases; decreases

b. increases; decreases

c. increases; increases

d. decreases; increases

Reference no: EM132021974

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