A4. Answer the following multimple choice question No explanation is needed. Only choose the correct answer. 1 mark each. Total Mark 3

1. A firm that can reduce its cost of capital will increase the profitable capital expenditures that the firm can take on and increase the wealth of the shareholders.

1 point

1. True
2. False

2. A U.S. resident just sold shares in a British firm that had a 20% return (in pounds) during a period when the pound depreciated 5%, his dollar return is :

1 point

1. 26%
2. 20%
3. 14%
4. 15%

3. TNK ltd. is a UK-based MNC with net cash inflows of euros and net cash inflows of Swiss francs. These two currencies are highly (positively) correlated in their movements against the British pound. YSN ltd. is a UK-based MNC that has the same level of net cash flows in these currencies as TNK ltd. except that its euros represent net cash outflows. Which firm has a higher exposure to exchange rate risk?

1 point

1. YSN ltd.
2. TNK ltd.
3. the firms have about the same level of exposure
4. neither firm has any exposure