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This map Business Every ca s or to get m and use t h PART I F O Chapter 1 the Multi n Creating t Organiza t George A Product # Length: 2 5 Teaching Economi c Compara t (HBS […]

Teaching Note: 899N2 1 ( especially th e e United Stat e e s), and con c c ern about a m m ore diversif i i ed i n n vestor base had led Hut c c hison to […]

CHAPTER 1 GLOBALIZATION AND THE MULTINATIONAL FIRM ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Why is it important to study international financial management? Answer: We are now living in a world where all the major economic functions, […]

CHAPTER 10 MANAGEMENT OF TRANSLATION EXPOSURE SUGGESTED ANSWERS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Explain the difference in the translation process between the monetary/nonmonetary method and the temporal method. Answer: Under the monetary/nonmonetary method, all monetary balance sheet accounts […]

Suggested Solution to Sundance Sporting Goods, Inc. Note to Instructor: It is not necessary to assign the entire case problem. Parts a. and b.i. can a. Below is the consolidated balance sheet for the MNC prepared according to the current […]

CHAPTER 11 INTERNATIONAL BANKING AND MONEY MARKET ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Briefly discuss some of the services that international banks provide their customers and the market place. Answer: International banks can be characterized by […]

PROBLEMS 1. Grecian Tile Manufacturing of Athens, Georgia, borrows $1,500,000 at LIBOR plus a lending margin of 1.25 percent per annum on a six-month rollover basis from a London bank. If six- month LIBOR is 4 ½ percent over the […]

CHAPTER 12 INTERNATIONAL BOND MARKETS ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Describe the differences between foreign bonds and Eurobonds. Also discuss why Eurobonds make up the lion’s share of the international bond market. Answer: The two […]

CHAPTER 13 INTERNATIONAL EQUITY MARKETS ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Exhibit 13.11 presents a listing of major national stock market indexes as displayed daily in the print edition of the Financial Times. At www.ft.com you […]

CHAPTER 14 INTEREST RATE AND CURRENCY SWAPS ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Describe the difference between a swap broker and a swap dealer. Answer: A swap broker arranges a swap between two counterparties for a […]

CFA Guideline Answer a. The Swap Value and its Effect on Ferris’ Portfolio Because Karla Ferris believes interest rates will rise, she will want to swap her $1,000,000 fixed-rate corporate bond interest to receive six-month U.S. dollar LIBOR. She will […]

CHAPTER 15 INTERNATIONAL PORTFOLIO INVESTMENT ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. What factors are responsible for the recent surge in international portfolio investment (IPI)? Answer: The recent surge in international portfolio investments reflects the globalization of […]

8. The HFS Trustees have solicited input from three consultants concerning the risks and rewards of an allocation to international equities. Two of them strongly favor such action, while the third consultant commented as follows: “The risk reduction benefits of […]

CHAPTER 16 FOREIGN DIRECT INVESTMENT AND CROSS-BORDER ACQUISITIONS ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Recently, many foreign firms from both developed and developing countries acquired high- tech U.S. firms. What might have motivated these firms to […]

CHAPTER 17 INTERNATIONAL CAPITAL STRUCTURE AND THE COST OF CAPITAL ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Suppose that your firm is operating in a segmented capital market. What actions would you recommend to mitigate the negative […]

CHAPTER 18 INTERNATIONAL CAPITAL BUDGETING ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Why is capital budgeting analysis so important to the firm? Answer: The fundamental goal of the financial manager is to maximize shareholder wealth. Capital investments […]

MINI CASE: DORCHESTER, LTD. Dorchester Ltd., is an old-line confectioner specializing in high-quality chocolates. Through its facilities in the United Kingdom, Dorchester manufactures candies that it sells throughout Western Europe and North America (United States and Canada). With its current […]

CHAPTER 19 MULTINATIONAL CASH MANAGEMENT ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Describe the key factors contributing to effective cash management within a firm. Why is the cash management process more difficult in a MNC? Answer: An […]

CHAPTER 2 INTERNATIONAL MONETARY SYSTEM ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Explain Gresham’s Law. Answer: Gresham’s law refers to the phenomenon that bad (abundant) money drives good (scarce) money out of circulation. This kind of phenomenon […]

CHAPTER 20 INTERNATIONAL TRADE FINANCE ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Discuss some of the reasons why international trade is more difficult and risky from the exporter’s perspective than is domestic trade. Answer: International trade is […]

CHAPTER 21 INTERNATIONAL TAX ENVIRONMENT AND TRANSFER PRICING ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Discuss the twin objectives of taxation. Be sure to define the key words. Answer: There are two basic objectives of taxation that […]

CHAPTER 3 BALANCE OF PAYMENTS ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Define balance of payments. Answer: The balance of payments (BOP) can be defined as the statistical record of a country’s 2. Why would it be […]

CHAPTER 4 CORPORATE GOVERNANCE AROUND THE WORLD SUGGESTED ANSWERS TO END-OF-CHAPTERQUESTIONS AND PROBLEMS Questions 1. The majority of major corporations are franchised as public corporations. Discuss the key strength and weakness of the ‘public corporation’. When do you think the […]

CHAPTER 5 THE MARKET FOR FOREIGN EXCHANGE ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Give a full definition of the market for foreign exchange. Answer: Broadly defined, the foreign exchange (FX) market encompasses the conversion of purchasing […]

9. Given the following information, what are the NZD/SGD currency against currency bid-ask quotations? American Terms European Terms Bank Quotations Bid Ask Bid Ask Solution: Equation 5.12 from the text implies Sb(NZD/SGD) = Sb($/SGD) x Sb(NZD/$) = .6135 x 1.3751 […]

CHAPTER 6 INTERNATIONAL PARITY RELATIONSHIPS AND FORECASTING FOREIGN EXCHANGE RATES ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Give a full definition of arbitrage. Answer: Arbitrage can be defined as the act of simultaneously buying and selling the […]

9. Due to the integrated nature of their capital markets, investors in both the U.S. and U.K. require the same real interest rate, 2.5%, on their lending. There is a consensus in capital markets that the annual inflation rate is […]

CHAPTER 7 FUTURES AND OPTIONS ON FOREIGN EXCHANGE ANSWERS & SOLUTIONS TO END–OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Explain the basic differences between the operation of a currency forward market and a futures market. Answer: The forward market is an […]

CHAPTER 8 MANAGEMENT OF TRANSACTION EXPOSURE ANSWERS & SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. How would you define transaction exposure? How is it different from economic exposure? Answer: Transaction exposure is the sensitivity of realized domestic currency values […]

8. Suppose that you are a U.S.-based importer of goods from the United Kingdom. You expect the value of the pound to increase against the U.S. dollar over the next 30 days. You will be making payment on a shipment […]

CHAPTER 9 MANAGEMENT OF ECONOMIC EXPOSURE ANSWERS & SOLUTIONS TO END OF CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. How would you define economic exposure to exchange risk? Answer: Economic exposure can be defined as the possibility that the firm’s cash […]

1) a netting center necessarily implies that the mnc has a central cash manager. 2) many of the skills necessary for effective cash management are the same regardless of whether the firm has only domestic operations or if it operates […]

1) in which type of market can liquidity “dry up”? a.a bull market b.a bear market c.a speculative bubble d.a financial panic 2) the role of an underwriter is to a.help negotiate terms with the borrower b.ascertain market conditions c.manage […]

1) a type of noncontinuous exchange trading system is crowd trading. a.unlike a call market in which there is a common price for all trades, several bilateral trades may take place at different prices in crowd trading b.unlike a continuous […]

1) consider a fixed for fixed currency swap. the dow corporation is a u.s.-based multinational. the jones corporation is a u.k.-based multinational. dow wants to finance a £2 million expansion in great britain. jones wants to finance a $4 million […]

1) the firm may not be able to pass through changes in the exchange rate a.in markets with low product differentiation b.in markets with high price elasticities c.both a and b d.none of the above 2) the most important international […]

1) the vast majority of new international bond offerings a.are straight fixed-rate notes b.are callable and convertible c.are convertible adjustable rate d.are adjustable rate, with interest rate caps and collars 2) following the adoption of the cadbury code of best […]

1) more important than he absolute size of a country’s balance-of-payments disequilibrium a.is the nature and cause of the disequilibrium b.is whether it is a trade surplus or deficit c.is whether the local government is mercantilist or not d.nothing is […]

1) the term “countertrade” refers to a.many different types of transactions in which the seller provides a buyer with goods or services and promises in return to purchase goods or services from the buyer b.barter, clearing arrangement, and switch trading […]

1) national neutrality a.is the criterion that an ideal tax should be effective in raising revenue of the government and not have any negative effects on the economic decision-making process of the taxpayer b.requires that taxable income is taxed in […]

1) under a gold standard, if britain exported more to france than france exported to great britain, a.such international imbalances of payment will be corrected automatically b.this type of imbalance will not be able to persist indefinitely c.net export from […]

1) a u.s. parent firm, as result of its business activities in germany, has a net exposure of 1,000,000. the consolidated reports were prepared at the year-end for the last two successive years. if the exchange rates on these reporting […]

1) value-added tax (vat) is a.a direct national tax levied on the value added in the production of a good (or service) as it moves through various stages of production b.an indirect national tax levied on the value added in […]

1) many of the small foreign equity markets (e.g. chile, sri lanka) a.have poor liquidity at present b.are very liquid stock markets, since the poor people living there are eager to sell their securities c.have fairly high turnover ratios indicating […]

1) consider the following international investment opportunity. it involves a gold mine that can be opened at a cost, then produces a positive cash flow, but then requires environmental clean-up: the current exchange rate is $1.60 = 1.00. the inflation […]

1) a foreign branch bank operates like a local bank, but legally a.it is a part of the parent bank b.a branch bank is subject to both the banking regulations of its home country and the country in which it […]

1) suppose that the current exchange rate is 1.00 = $1.60. the indirect quote, from the u.s. perspective is a.1.00 = $1.60 b.0.6250 = $1.00 c.1.60 = $1.00 d.none of the above 2) a banker’s acceptance is created when a.is […]

1) for a recent month, the following payments matrix of interaffiliate cash flows was forecasted: the spot exchange rates are $1.20 = 1.00 and $2.00 = £1.00; affiliates get paid in home currency. use multilateral netting to find the net […]

1) the international fisher effect suggests that a.any forward premium or discount is equal to the expected change in the exchange rate b.any forward premium or discount is equal to the actual change in the exchange rate c.the nominal interest […]

1) the table below shows the bushels of wheat and the bottles of beer that north and south dakota can produce per day of labor under two different hypothetical situations (cases i and ii). which state has a comparative advantage […]

1) shareholders of u.s. bidders (acquiring firms in m&a) experience significant positive abnormal returns when firms expand into new industries and geographic markets. 2) a dealer in british pounds who thinks that the pound is about to appreciate a.may want […]

1) company x wants to borrow $10,000,000 floating for 5 years; company y wants to borrow $10,000,000 fixed for 5 years. their external borrowing opportunities are shown below: a swap bank proposes the following interest only swap: x will pay […]

1) a bank agrees to buy from a customer a “three against six” fra at the market rate for such instruments. how can the bank hedge this obligation? a.go long a 6-month eurodollar deposit in the amount of the fra […]

1) the single european currency, the euro, was adopted by 11 member nations on january 1 of what year? a.1984 b.1991 c.1999 d.2001 2) according to a recent survey by ernst and young, the most important tax issue that multinational […]

1) what is the difference between control rights and cash flow rights? a.since all shareholders benefit only from pro-rata cash flows, control rights and cash flow rights are the same thing b.large investors may be able to derive private benefits […]

1) find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of 4/5. a.1 b.2 c.3 d.4 e.5 2) an exporter can shift exchange rate risk to their customers by a.invoicing in their home currency b.invoicing in their customer’s […]

1) the triffin paradox a.was first proposed by professor robert triffin b.warned that the gold-exchange system of the bretton woods agreement was programmed to collapse in the long run c.was indeed responsible for the eventual collapse of the dollar-based gold-exchange […]

1) the market capitalization of the developing world a.is about 80 percent of the market capitalization of the entire world b.is about 60 percent of the market capitalization of the entire world c.is about 40 percent of the market capitalization […]

1) the firm’s tax rate is 34%. the firm’s pre-tax cost of debt is 8%; the firm’s debt-to-equity ratio is 3; the risk-free rate is 3%; the beta of the firm’s common stock is 1.5; the market risk premium is […]

1) when a currency trades at a premium in the forward market a.the exchange rate is more than one dollar (e.g. 1.00 = $1.28) b.the exchange rate is less than one dollar c.the forward rate is less than the spot […]

1) suppose that the one-year interest rate is 5.0 percent in the united states and 3.5 percent in germany, and the one-year forward exchange rate is $1.16/. what must the spot exchange rate be? a.$1.1768/ b.$1.1434/ c.$1.12/ d.none of the […]

1) suppose that you are the treasurer of ibm with an extra u.s. $1,000,000 to invest for six months. you are considering the purchase of u.s. t-bills that yield 1.810% (that’s a six month rate, not an annual rate by […]

1) tax neutrality is determined by three criteria: which of the following doesn’t belong? a.capital-export neutrality b.capital-import neutrality c.national neutrality d.income neutrality 2) the underlying principle of the current rate method is a.assets and liabilities should be translated based on […]

1) merchant banks are different from traditional commercial banks in what way(s)? a.merchant banks can engage in investment banking activities b.merchant banks can arrange for foreign exchange transactions c.merchant banks can assist their clients in hedging exchange rate risk d.all […]

1) the ford motor company recently acquired mazda, a japanese auto maker, and jaguar, a british auto maker. a.this is an example of cross-border m&a b.this was a greenfield investment c.both a and b d.none of the above 2) assume […]

1) from the perspective of the writer of a put option written on 62,500. if the strike price is $1.55/, and the option premium is $1,875, at what exchange rate do you start to lose money? a.$1.52/ b.$1.55/ c.$1.58/ d.none […]

1) the link between the home currency value of a firm’s assets and liabilities and exchange rate fluctuations is a.asset exposure b.operating exposure c.both a and b d.none of the above 2) on september 10, 1990 the published prices (cents […]

1) a bank may establish a multinational operation for the reason of prestige. the underlying rationale being that a.local firms may be able to obtain from a foreign subsidiary bank operating in their country more complete trade and financial market […]

1) xyz corporation enters into a 6-year interest rate swap with a swap bank in which it agrees to pay the swap bank a fixed-rate of 9 percent annually on a notional amount of sfr10,000,000 and receive libor – percent. […]

1) the fisher effect states that a.any forward premium or discount is equal to the expected change in the exchange rate b.any forward premium or discount is equal to the actual change in the exchange rate c.the nominal interest rate […]

1) according to the research in the accuracy of paid exchange rate forecasters, a.you can make more money selling forecasts than you can following forecasts b.the average forecaster is better than average at forecasting c.the forecasters do a better job […]

1) implementing capital import neutrality means that a.a sovereign government follows the taxation policies of foreign tax authorities on the foreign-source income of its resident mncs b.the tax burden a host country imposes on the foreign subsidiary of a mnc […]

1) xyz corporation, located in the united states, has an accounts payable obligation of ¥750 million payable in one year to a bank in tokyo. which of the following is not part of a money market hedge? a.buy the ¥750 […]

1) emerald energy is an oil exploration and production company that trades on the london stock market. over the past year, the stock has gone from £50 per share to £55, but over the same period, the dollar has depreciated […]

1) fdi vertical integration is backward a.when fdi involves an industry abroad that produces inputs for mncs b.when fdi involves an industry abroad that sells the mnc’s outputs c.none of the above 2) in terms of the types of instruments […]

1) consider a project of the cornell haul moving company, the timing and size of the incremental after-tax cash flows (for an all-equity firm) are shown below in millions: the firm’s tax rate is 34%; the firm’s bonds trade with […]

1) to pave the way for the european monetary union, the member countries of the european monetary system agreed to achieve a convergence of their economies. which of the following is not a condition of convergence: a.keep the ratio of […]

1) with regard to cash management systems in practice, studies suggest that the benefits of a multilateral netting system include a.the decrease in the expense associated with funds transfer, which in some cases can be over $1,000 for a large […]

1) your firm’s interaffiliate cash receipts and disbursements matrix is shown below ($000): find the net cash flow in (out of) the german affiliate. a.$5,000 in b.$5,000 out c.$30,000 out d.$30,000 in e.none of the above 2) using the table […]

1) for the u.s. affiliate shown below, net all its inter-affiliate receipts against all its disbursements. use the following exchange rates. the net inter-affiliate cash flow for the u.s. affiliate is a.$0 b.-$135 c.$135 d.$405 e.$90 2) in reference to […]

1) consider the following spot and forward rate quotations for the swiss franc: which of the following is true: a.the swiss franc is definitely going to be worth more dollars in six months b.the swiss franc is probably going to […]

1) a u.s. firm has sold an italian firm 1,000,000 worth of product. in one year the u.s. firm gets paid. to hedge, the u.s. firm bought put options on the euro with a strike price of $1.65. they paid […]

1) tiger towers, inc. is considering an expansion of their existing business, student apartments. the new project will be built on some vacant land that the firm has just contracted to buy. the land cost $1,000,000 and the payment is […]

1) in many countries hostile takeovers are relatively rare. this is so partly because of a.the language barrier b.concentrated ownership in these countries c.cultural values and political environments disapproving hostile corporate takeovers d.both b and c 2) a foreign branch […]

1) a “greenfield” investment a.involves soybeans in the spring, corn in the summer b.are generally less politically sensitive than the acquisition of an existing foreign firm c.are generally more politically sensitive than the acquisition of an existing foreign firm d.none […]

1) national neutrality a.is the criterion that an ideal tax should be effective in raising revenue of the government and not have any negative effects on the economic decision-making process of the taxpayer b.requires that taxable income is taxed in […]

1) the table below shows the bushels of wheat and the bottles of beer that north and south dakota can produce per day of labor under two different hypothetical situations (cases i and ii). for case ii, in what range […]

1) with regard to the capital account a.the capital account balance measures the difference between u.s. sales of assets to foreigners and u.s. purchases of foreign assets b.u.s. sales (or exports) of assets are recorded as credits, as they result […]

1) the maastricht treaty a.irrevocably fixed exchange rates among the member currencies b.commits the members of the european union to political union as well as monetary union c.was signed and subsequently ratified by the 12 member states d.all of the […]

1) the formula for beta is: a. b. c. d. 2) suppose the face amount of a promissory note is $1,000,000 and the importer’s bank charges an acceptance commission of 1.5 percent. the note is for 60 days. calculate the […]

1) countries with strong shareholder protection tend to have more valuable stock markets and more companies listed on stock exchanges per capita than countries with weak protection. 2) public traders do not trade directly with one another in a dealer […]

1) u.s. banks that establish subsidiary and affiliate banks a.are allowed to underwrite securities b.must provide fdic insurance on their foreign-currency denominated demand deposits c.can underwrite securities, but not accept dollar-denominated deposits d.both a and b 2) consider a u.s.-based […]

1) a centralized cash management system with a cash pool can reduce the investment the mnc has in precautionary cash balances, saving the firm money. 2) in the early 1980s, honda, the japanese automobile company, built an assembly plant in […]

1) you are a u.s.-based treasurer with $1,000,000 to invest. the dollar-euro exchange rate is quoted as $1.60 = 1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. if a bank quotes you a cross rate of […]

1) the asian crisis a.followed a period of economic recession in the region coupled with record private capital outflows b.followed a period of economic expansion in the region financed by record private capital inflows c.began in the fall of 2001 […]

1) relative to the spot price the forward price will be a.usually less than the spot price b.usually more than the spot price c.usually equal to the spot price d.usually less than or more than the spot price more often […]

1) in contrast to many domestic bonds, which make _________ coupon payments, coupon interest on eurobonds is typically paid _________. a.semiannual; annually b.annual; semiannually c.quarterly; semiannually d.quarterly; annually 2) the current exchange rate is £1.00 = $2.00. compute the correct […]

1) which factors appear to be fueling the sale of yankee stocks? a.the push for privatization by many latin american and eastern european government-owned companies b.the rapid growth in the economies of the developing countries c.the large demand for new […]

1) which term correctly describes the following situation? when a country imposes exchange restrictions on its own currency, limiting conversion to other currencies, a mnc’s frustrated remittance of profits from a subsidiary would be a.blocked funds b.stopped funds c.constipated funds […]

1) find the value today of a 2-year dual currency bond with annual coupons (paid in u.s. dollars at a 5 percent coupon rate) that pays £500 per $1,000 par value at maturity. the cash flows of the bond are: […]

1) in the united states, managers are bound by the “duty of loyalty” to serve the shareholders. a.this is an ethical, not legal, obligation b.this is a legal obligation c.this is only a moral obligation; there are no penalties 2) […]

1) publicly traded yankee bonds must a.meet the same regulations as u.s. domestic bonds b.meet the same regulations as eurobonds if sold to europeans c.meet the same regulations as samurai bonds if sold to japanese d.none of the above 2) […]

1) studies examining the influence of industrial structure on foreign equity returns a.conclusively show a connection b.have been inconclusive c.show that industrialized economies outperform lesser developed economies d.none of the above 2) in which type of policy actions by the […]

1) with regard to translation exposure versus operating exposure a.upper management should be more concerned with translation exposure b.any discussion really involves speculation about foreign exchange rate changes c.upper management should be more concerned with operating exposure d.none of the […]

1) your firm has a british customer that is willing to place a $1 million order (with payment due in 6 months), but insists upon paying in pounds instead of dollars. a.the customer essentially wants you to discount your price […]

1) the 5-year project requires equipment that costs $100,000. if undertaken, the shareholders will contribute $25,000 cash and borrow $75,000 with an interest-only loan with a maturity of 5 years and annual interest payments. the equipment will be depreciated straight-line […]

1) consider the position of a treasurer of a mnc, who has $20,000,000 that his firm will not need for the next 90 days. a.he could borrow the $20,000,000 in the money market b.he could take a long position in […]

1) financial accounting standards board (fasb) statements 8 and 52 relate to the translation methods. the following outlines the objectives and descriptions of the two statements. (i) – measure in dollars an enterprise’s assets, liabilities, revenues, or expenses that are […]

1) in germany the corporate board is a.legally charged with representing the interests of shareholders exclusively b.legally charged with looking after the interests of stakeholders (e.g., workers, creditors, etc.) in general, not just shareholders c.legally charged as a supervisory board […]

1) according to the research in the accuracy of paid exchange rate forecasters, a.as a group, they do not do a better job of forecasting the exchange rate than the forward rate does b.the average forecaster is better than average […]

1) a firm’s operating exposure is a.defined as the extent to which the firm’s operating cash flows would be affected by the random changes in exchange rates b.determined by the structure of the markets in which the firm sources its […]

1) the price of a mcdonald’s big mac sandwich a.is about the same in the 120 countries that mcdonalds does business in b.varies considerably across the world in dollar terms c.supports ppp d.none of the above 2) consider the following […]

1) an income tax is a direct tax. 2) an edge act bank is typically located in a state different from that of its parent in order to get around the prohibition on interstate branch banking. Answer: true 3) a […]

1) for european currency options written on euro with a strike price in dollars, what of the effect of an increase in r$ relative to r? a.decrease the value of calls and puts ceteris paribus b.increase the value of calls […]

1) the size of the swap market is a.measured by notational principal b.over 7 trillion dollars c.both a and b d.none of the above 2) the first two columns give the maximum daily amounts of beer and whiskey that southern […]

1) which banks cannot accept foreign deposits? a.domestic banks located in the u.s b.edge act banks located in the u.s c.subsidiary banks located overseas d.foreign branches located overseas 2) assume the time from acceptance to maturity on a $2,000,000 banker’s […]

1) if japan exports more than it imports, then a.the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus b.one can infer that the yen would be likely to appreciate against other currencies […]

1) a foreign branch bank a.is a small service facility staffed by parent bank personnel that is designed to assist mnc clients of the parent bank in dealings with the bank’s correspondents b.operates like a local bank, but legally is […]

1) some of the factors (with selected explanations) used in calculating the basic “net present value” and the “incremental” cash flows of a capital project are: (i) – expected after-tax terminal value, including recapture of working capital (ii) – net […]

1) a domestic bank that follows a multinational client abroad to preserve that banking relationship a.is playing the role of the desperate housewife in this relationship b.is pursuing a wholesale defensive strategy c.is pursuing a retail defensive strategy d.none of […]

1) which will reduce the number of foreign exchange transaction the most for a mnc? a.multilateral netting b.bilateral netting c.fish netting d.none of the above 2) assume the time from acceptance to maturity on a $10,000,000 banker’s acceptance is 90 […]

1) a time draft can become a negotiable money market instrument called a.eurodollars b.a banker’s acceptance c.a letter of credit d.a bill of lading 2) global registered shares a.are created when a mnc issues shares globally b.purchased on one exchange […]

1) a centralized cash pool assists in reducing the problem of mislocated funds and in funds mobilization. 2) many of the skills necessary for effective cash management are the same regardless of whether the firm has only domestic operations or […]

1) with regard to creating money, a.only central banks such as the federal reserve can create money b.money is created when a bank customer invests in a time deposit c.commercial banks can create money when a bank lends out funds […]

1) suppose the quote for a five-year swap with semiannual payments is 8.508.60 percent. the means a.the swap bank will pay semiannual fixed-rate dollar payments of 8.60 percent against receiving six-month dollar libor b.the swap bank will receive semiannual fixed-rate […]

1) covered interest arbitrage (cia) activities will result in a.an unstable international financial markets b.restoring equilibrium prices quickly c.a disintermediation d.no effect on the market 2) the goal of shareholder wealth maximization a.is not appropriate for non-u.s. business firms b.means […]

1) translation exposure, a.is not entity specific, rather it is currency specific b.is not currency specific, rather it is entity specific c.involves restatement from italian to french d.none of the above 2) american depository receipt (adrs) represent foreign stocks a.denominated […]

1) as a rule, when the interest rate of the foreign currency is greater than the interest rate of the quoting currency, a.the outright forward rate is less than the spot exchange rate b.the outright forward rate is more than […]

1) the first full-fledged gold standard a.was not established until 1821 in great britain, when notes from the bank of england were made fully redeemable for gold b.was not established until 1780 in the united states, when notes from the […]

1) find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1. a. b. c.3/5 d. e.5/7 2) under the bretton woods system a.each country established a par value for its currency in relation to the dollar b.the […]

1) decompose the return an american would have if he had bought a german stock at 100 per share and sold it one year later at 120. the spot exchange rate one year ago was $1.50 = 1 and the […]

1) a controlled foreign corporation (cfc) is a.a foreign corporation established as an affiliate of a u.s. corporation for the purpose of “buying” from the u.s. corporation property for resale and use abroad b.a foreign subsidiary that has more than […]

1) capital export neutrality a.is a goal based on worldwide economic efficiency b.is an example of mercantilism c.is based on host country economic efficiency d.is based on mnc home country economic efficiency 2) the european stock exchange, comparable in volume […]

1) consider bank that has entered into a five-year swap on a notational balance of $10,000,000 with a corporate customer who has agreed to pay a fixed payment of 10 percent in exchange for libor. as of the fourth reset […]

1) on the basis of regression equation we can decompose the variability of the dollar value of the asset, var(p), into two separate components var(p) = b2 var(s) + var(e). the first term in the right-hand side of the equation, […]

1) act as a swap bank and quote bid and ask prices to a and b that are attractive to a and b and promise to make at least 20bp for your firm. 2) the economic theory of mercantilism holds […]

1) suppose you observe the following exchange rates: 1 = $1.50; ¥120 = $1.00. calculate the euro-pound exchange rate. a.¥133.33 = 1.00 b.1.00 = ¥180 c.¥80 = 1.00 d.1 = £2.50 2) the key factors that are important in a […]

1) there is an intimate relationship between a country’s bca and how the country finances its domestic investment and pays for government expenditures. given this, in order for a country to reduce a bca deficit, which of the following must […]

1) tax equity means that a.similarly situated taxpayers should participate in the cost of operating the government according to the same rules b.regardless of the country in which an affiliate of a mnc earns taxable income, the same tax rate […]

1) exercise of a currency futures option results in a.a long futures position for the call buyer or put writer b.a short futures position for the call buyer or put writer c.a long futures position for the put buyer or […]

1) since security returns tend to have low correlations among countries, a.investors can reduce risk more effectively if they diversify their portfolio holdings internationally rather than purely domestically b.investors who have a domestically diversified portfolio, with exposures across industry types […]

1) the first two columns give the maximum daily amounts of beer and whiskey that southern ireland and northern ireland can produce when they completely specialize in one or other product. the last two columns give each country’s consumption without […]

1) financial accounting standards board (fasb) statements 8 and 52 relate to the translation methods. the following outlines the objectives and descriptions of the two statements. (i) – measure in dollars an enterprise’s assets, liabilities, revenues, or expenses that are […]

1) when firms undertake fdi, a.they become mncs b.they reduce their tax rate since they can tell each country that they do business in that they paid their taxes in other countries c.the can exploit workers by paying them below-market […]

1) countries a and b currently consume 400 units of food and 400 units of textiles each and currently do not trade with one another. the citizens of country a have to give up one unit of food to gain […]

1) in evaluating political risk, experts focus their attention on a set of key factors such as a.the host country’s political/government system b.historical records of political parties and their relative strengths c.integration of the host country into the world political/economic […]

1) libor a.is the london interbank offered rate b.is the reference rate in london for eurodollar deposits c.one of several reference rates in london: there is a libor for eurodollars, euroyen, eurocanadian dollars, and even euro d.all of the above […]

1) consider a project of the cornell haul moving company, the timing and size of the incremental after-tax cash flows (for an all-equity firm) are shown below in millions: the firm’s tax rate is 34%; the firm’s bonds trade with […]

1) a five-year, 4 percent euro denominated bond sells at par. a comparable risk five-year, 5.5 percent euro/dollar dual-currency bond pays $1,500 at maturity per 1,000 of face value. it sells for 1,250. what is the implied $/ exchange rate […]

1) under fasb 52, when a net translation exposure exists, a.a derivatives hedge is necessary to bring balance to the consolidated balance sheet after an exchange rate change b.a money market hedge is necessary to bring balance to the consolidated […]

1) the euro-pound cross exchange rate can be computed as: a.s(/£) = s($/£) s(/$) b. c. d.all of the above 2) consider a u.s.-based mnc with a wholly-owned french subsidiary. following a depreciation of the dollar against the euro, which […]

1) a “tax haven” country is one that has a low, or zero percent, national tax rates. some of the countries that fall into this category are a.bahamas, bahrain, bermuda, and the cayman islands b.denmark, norway, switzerland, and sweden c.bulgaria, […]

1) if a foreign entity is only a shell company for carrying accounts that could be carried on the parent’s books, a.the functional currency would generally be the parent’s currency b.the functional currency would generally be the local currency c.there […]

1) during the period between world war i and world war ii, many central banks followed a policy of sterilization of gold a.by restricting the rate of growth in the supply of gold b.by matching inflows and outflows of gold […]

1) the agency problem tends a.to be more serious in firms with free cash flows b.to be more serious in firms with excessive amounts of excess cash c.to be less serious in firms with few numbers of shareholders d.all of […]

1) efficient cash management techniques can a.reduce the investment in cash balances and foreign exchange transaction expenses b.provide for maximum return from the investment of excess cash c.result in borrowing at lowest rate when a temporary cash shortage exists d.all […]

1) if the exchange rate follows a random walk a.the future exchange rate is unpredictable b.the future exchange rate is expected to be the same as the current exchange rate, st = e(st+ 1) c.the best predictor of future exchange […]

1) why would a u.s. bank open a foreign branch bank? a.because this form of bank organization can allow a u.s. bank to provide a fuller range of services for its mnc customers than it can through a representative office […]

1) as a rule, when the interest rate of the foreign currency is greater than the interest rate of the quoting currency, a.the outright forward rate is less than the spot exchange rate b.the outright forward rate is more than […]

1) continued u.s. trade deficits coupled with foreigners’ desire to diversify their currency holdings away from u.s. dollars a.could further diminish the position of the dollar as the dominant reserve currency b.could affect the value of u.s. dollar (e.g. through […]

1) find the hedge ratio for a put option on $15,000 with a strike price of 10,000. in one period the exchange rate (currently s($/) = $1.50/) can increase by 60% or decrease by 37.5% (i.e. u = 1.6 and […]

1) consider a project of the cornell haul moving company, the timing and size of the incremental after-tax cash flows (for an all-equity firm) are shown below in millions: the firm’s tax rate is 34%; the firm’s bonds trade with […]

1) eurocurrency a.is the euro, the common currency of europe b.is a time deposit of money in an international bank located in a county different from the country that issued the currency c.is a demand deposit of money in an […]

1) the territorial method of declaring a national tax jurisdiction a.is to tax national residents of the country on their worldwide income no matter in which country it is earned b.is to tax all income earned within the country by […]

1) for a parent that sells goods to a subsidiary, transfer pricing can have an effect on international capital expenditure analysis. a very low markup policy makes the apv of a subsidiary’s capital expenditure appear a.more attractive b.less attractive c.no […]

1) the asian currency crisis a.happened just prior to the mexican peso crisis b.turned out to be far more serious than the mexican peso crisis in terms of the extent of contagion c.was limited to asian currencies d.was almost over […]

1) currency risk a.is the same as currency exposure b.represents random changes in exchange rates c.measure “what the firm has at risk.” d.both a and b 2) your firm is an italian exporter of bicycles. you have sold an order […]

1) suppose mexico is a major export market for your u.s.-based company and the mexican peso appreciates drastically against the u.s. dollar. this means a.your company’s products can be priced out of the mexican market, as the peso price of […]

1) international markets for goods and services are often imperfect. which is the most common and most important? a.acts of governments b.natural barriers like distance c.cultural barriers d.lack of knowledge 2) suppose that you are the treasurer of ibm with […]

1) managing operating exposure a.is a short-term tactical issue b.is a long-term issue, like selecting a site for a factory c.is relatively unimportant, since most mncs have a built-in hedge d.none of the above 2) examples of transfer risk include […]

1) suppose you observe the following exchange rates: 1 = $1.50; £1 = $2.00. calculate the euro-pound exchange rate. a.1.3333 = £1.00 b.£1.3333 = 1.00 c.3.00 = £1 d.1.25 = £1.00 2) suppose that the one-year interest rate is 4.0 […]

1) solve for the weighted average cost of capital: a.8.67% b.8.00% c.7.60% d.7.33% e.7.14% 2) true or false: floating rate notes behave differently in response to interest rate risk than straight fixed-rate bonds. a.true since frns experience only mild price […]

1) a foreign country could provide low cost production sites a.because the factors of production are underpriced b.because the currency is undervalued c.because the locals like to give away their land labor and capital to foreigners d.both a and b […]

1) the sarbanes-oxley act of 2002 a.has had the consequence that many foreign firms have de-listed in the u.s. exchanges and listed their shares on the london stock exchange and other european exchanges b.has increased the pace of foreign firms […]

1) consider a project of the cornell haul moving company, the timing and size of the incremental after-tax cash flows (for an all-equity firm) are shown below in millions: the firm’s tax rate is 34%; the firm’s bonds trade with […]

1) examples of control risk include a.the unexpected imposition of capital controls, inbound or outbound, and withholding taxes on dividend and interest payments b.unexpected changes in environmental policies, sourcing/local content requirements, minimum wage law, and restriction on access to local […]

1) “investment grade” ratings are in the following categories: a.moody’s: aaa to bbb – s&p’s: aaa to baa b.moody’s: aaa to baa – s&p’s: aaa to bbb c.moody’s: aaa to a – s&p’s: aaa to a d.moody’s: aaa to a […]

1) the main cost of european monetary union is a.the loss of national monetary and exchange rate policy independence b.increased exchange rate uncertainty c.lessened political integration d.none of the above 2) generally speaking, a country would be more prone to […]

1) operating exposure measures a.the extent to which the foreign currency value of the firm’s assets is affected by unanticipated changes in exchange rates b.the extent to which the firm’s operating cash flows will be affected by unexpected changes in […]

1) your firm’s interaffiliate cash receipts and disbursements matrix is shown below ($000): using your results to the last question, use bilateral netting to simplify. Answer: 2) if you could accurately and consistently forecast exchange rates a.this would be a […]

1) if cross-border acquisitions generate synergistic gains, a.then both the acquiring and target shareholders gain wealth at the same time b.then one can argue that cross-border acquisitions are mutually beneficial and thus should not be thwarted both from a national […]

1) generating exchange rate forecasts with the fundamental approach involves a.looking at charts of the exchange rate and extrapolating the patterns into the future b.estimation of a structural model c.substituting the estimated values of the independent variables into the estimated […]

1) investors in corporate bonds would still be interested in sovereign credit ratings a.because the sovereign credit rating usually represents a ceiling on corporate credit ratings within that country b.because they might play the ted spread c.because they are the […]

1) exposure to currency risk can be measured by the sensitivities of a.the future home currency values of the firm’s assets and liabilities b.the firm’s operating cash flows to random changes in exchange rates c.both a and b d.none of […]

1) the advantages of a market order include the fact that a.you are pretty much guaranteed that your order will be executed b.a market order typically has lower commissions than a limit order c.market orders increase your liquidity d.both a […]

1) a firm with a highly elastic demand for its products a.will be unable to pass increased costs following unfavorable changes in the exchange rate without significantly lowering the quantity sold b.will be able to raise prices following unfavorable changes […]

1) an american hedge fund is considering a one-year investment in an italian government bond with a one-year maturity and a euro-denominated rate of return of i = 5%. the bond costs 1,000 today and will return 1,050 at the […]

1) suppose you are a citizen of the united states with foreign-source income. in the foreign country the tax rate is 40 percent and your u.s. rate is 30%. for every $10,000 of foreign-source income you will a.receive a tax […]

1) with any hedge a.your losses on one side should about equal your gains on the other side b.you should try to make money on both sides of the transaction: that way you make money coming and going c.you should […]

1) among the reasons put forth for government assistance in exporting a.success in international trade is fundamentally important for a country b.success in exporting implies that there is demand for a country’s products, that its labor force is employed, and […]

1) to maximize the benefits of partial integration of capital markets a.a country should choose to internationally cross-list those assets that are least correlated with the domestic market portfolio b.a country should choose to internationally cross-list those assets that are […]

1) the first two columns give the maximum daily amounts of beer and whiskey that southern ireland and northern ireland can produce when they completely specialize in one or other product. the last two columns give each country’s consumption without […]

1) you are the debt manager for a u.s.-based multinational. you need to borrow 100,000,000 for five years. you can either borrow the 100,000,000 directly in germany or borrow dollars in the u.s. and enter into a combined interest rate […]

1) when a country is more remote, with an uncommon language a.domestic investors tend to invest more in country’s market and less abroad b.foreign investors tend to invest less in country’s market c.domestic investors tend to invest more in country’s […]