International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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What risk is due to changes in the level of interest rate in the economy and may affect industries at the same time?
a.systematic risk
b. inflation rate risk
c.foreign exchange rate risk
d.interest rate risk
How effective is the Yield Curve as a tool for assessing the coming of a recession?
Determine if a fixed or a floating debt rate should be used during a recession.
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- Suppose interest rates in the economy increase. How would such a change affect the costs of both debt and common equity based on the CAPM?arrow_forwardWhat is the Relationship between Changes in Interest Rates, Investor Returns, and “Going-In”Cap Ratesarrow_forwardThe concept that market forces in the macroeconomy can remedy a recession is referred to as: Keynesianism: the use of expansive fiscal and monetary policies to resolve a recession. The self-correcting mechanism The consumption function The paradox of thriftarrow_forward
- If short - term rate - sensitivity asset - liability GAP is negative : a)Decrease in Interest Rate will result in increase in Net Interest Income b)Decrease in Interest Rate will result in decrease in Net Interest Income c)Profit will increase notwithstanding the movement in interest rate d)Profit will increase notwithstanding the movement in interest ratearrow_forwardWhen estimating cost of debt, the firm should not simply use current short-term rates because these rates do not reflect expectations regarding Group of answer choices long-term inflation expansionary monetary policy contractionary monetary policy short-term inflationarrow_forwardWhy is it important to have a financial benchmark for short-term interest rates?arrow_forward
- The static GAP focuses on monitoring net interest income in the long term. Select one: True Falsearrow_forwardSome characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: Characteristic Component Symbol This is the premium that reflects the risk associated with changes in interest rates for a long-term security. It changes over time, depending on the expected rate of return on productive assets exchanged among market participants and people’s time preferences for consumption. This premium is added when a security lacks marketability, because it cannot be bought and sold quickly without losing value. It is calculated by adding the inflation premium to r*. Over the past several years, Germany, Japan, and Switzerland have had lower interest rates than the United States due to lower values of this premium. It is based on the bond’s rating; the higher the rating, the lower the premium added, thus lowering…arrow_forwardA country’s current account position moves from a surplus to a deficit. What will be the result? Pick a,b,c, or d A) an increase in real GDP B) a decrease in unemployment C) an increase in the exchange rate D) a decrease in the money supplyarrow_forward
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