1. In practice, when expanding into other countries, firms have been observed to follow a sequential search pattern as described in the behavioral theory of the firm.

True

False

2. Gains or losses caused by translation adjustments when using the current rate method are reported separately on the:

a. none of the other answers

b. consolidated balance sheet.

c. consolidated income statement.

d. consolidated statement of cash flow.

3. TropiKana Inc., a U.S firm, has just borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 5.50% per year and the Euro appreciates against the dollar from $1.40/€ at the time the loan was made to $1.45/€ at the end of the first year, how much interest will TropiKana pay at the end of the first year (rounded)?

a. $79,750

b. $37,931

c. $55,000

d. $77,000

4. Generally speaking, a firm wants to receive cash flows in a currency that is ________ relative to their own, and pay out in currencies that are ________ relative to their home currency.

a. appreciating; appreciating

b. appreciating; depreciating

c. depreciating; depreciating

d. depreciating; appreciating

5. A ________ is a direct reduction of taxes whereas a ________ reduces the taxable income before taxes.

a. none of the other answers

b. tax credit; tax deduction

c. foreign tax credit; domestic tax credit

d. tax deduction; tax credit