Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce
of gold cost $20.67 in U.S. dollars and £4.2474 in British pounds. Therefore, the
exchange rate of pounds per dollar under this fixed exchange regime was:
A) £4.8665/$.
B) £0.2055/$.
C) always changing because the price of gold was always changing.
D) unknown because there is not enough information to answer this question.
A country experiencing a serious BOT ________ is more likely to ________ exports
than otherwise.
A) surplus; contract
B) surplus; expand
C) deficit; expand
D) none of the above
A German firm is attempting to determine the euro/pound exchange rate and has the
following exchange rate information: USD/pound = $1.5509/£ and the USD/euro rate =
$1.2194/€. Therefore, the euro/pound rate must be:
A) £1.2719/€.
B) €1.2719/£.
C) €0.7316/£.
D) €0.7863/£.
The ________ of an option is the value if the option were to be exercised immediately.
It is the option’s ________ value.
A) intrinsic value; maximum
B) intrinsic value; minimum
C) time value; maximum
D) time value; minimum
Volatility is viewed the following ways EXCEPT:
A) historic.
B) forward-looking.
C) implied.
D) spot.
Greenfield investments are typically ________ and ________ than cross-border
acquisition.
A) slower; more uncertain
B) faster; of greater certainty
C) slower; of greater certainty
D) faster; more uncertain
The single largest interest rate risk of a firm is:
A) interest sensitive securities.
B) debt service.
C) dividend payments.
D) accounts payable.
The O in OLI refers to an advantage in a firm’s home market that is:
A) operator independent.
B) owner-specific.
C) open-market.
D) official designation.
TABLE 5.1
Use the table to answer following question(s).
Refer to Table 5.1. The ask price for the two-year swap for a British pound is:
A) $1.4250/£.
B) $1.4257/£.
C) -$230.
D) -$238.
Which of the following was NOT an international currency crisis in the 1990s and early
2000s?
A) the Asian Crisis
B) the Canadian Crisis
C) the Argentine Crisis
D) All of the above were currency crises in the 1990s and 2000s.
Theoretically, most MNEs should be in a position to support higher ________ than their
domestic counterparts because their cash flows are diversified internationally.
A) equity ratios
B) debt ratios
C) temperatures
D) none of the above
Which of the following is NOT typically associated with the public ownership of
business organizations?
A) the state
B) the government
C) families
D) civil society
________ exposure is the potential for an increase or decrease in the parent company’s
net worth and reported net income caused by a change in exchange rates since the last
transaction.
A) Transaction
B) Operating
C) Currency
D) Translation
Which of the following is NOT a market imperfection or genuine comparative
advantage that attracts FDI to particular locations:
A) low cost and productive labor force.
B) unique sources of raw materials.
C) defensive investments.
D) an expansive monetary policy.
A currency board is:
A) a structure, rather than a mere commitment, to limiting the growth of the money
supply in the economy.
B) a recipe for conservative and prudent financial management.
C) designed to eliminate the power of politicians to exercise judgment by relying on an
automatic and unbendable rule.
D) all of the above
The predictability of the project’s revenue stream is essential in securing project
financing. Which of the following is NOT a typical contract provisions that are intended
to assure adequate cash flow?
A) quantity and quality of the project’s output
B) a pricing formula
C) circumstances that permit changes in the contract
D) fronting loan
Another name for operating exposure is ________ exposure.
A) economic
B) competitive
C) strategic
D) all of the above
Assume the implied PPP rate of exchange of Mexican Pesos per U.S. dollar is 8.50
according to the Big Mac Index. Further, assume the current exchange rate is Peso
10.80/$1. Thus, according to PPP and the Law of One Price, at the current exchange
rate the peso is:
A) overvalued.
B) undervalued.
C) correctly valued.
D) There is not enough information to answer this question.
________ states that differential rates of inflation between two countries tend to be
offset over time by an equal but opposite change in the spot exchange rate.
A) The Fisher Effect
B) The International Fisher Effect
C) Absolute Purchasing Power Parity
D) Relative Purchasing Power Parity
If the British subsidiary of a European firm has net exposed assets of £125,000, and the
pound increases in value from €1.40/£ to €1.44/£, the European firm has a translation:
A) loss of €5,000.
B) gain of €5,000.
C) gain of £5,000.
D) loss of £5,000.
The Rho of an option is defined as:
A) expected change in the option premium for a small change in time to expiration.
B) expected change in the option premium for a small change in volatility.
C) expected change in the option premium for a small change in the foreign interest
rate.
D) expected change in the option premium for a small change in the domestic interest
rate.
A/an ________ is a contract to lock in today interest rates over a given period of time.
A) forward rate agreement
B) interest rate future
C) interest rate swap
D) none of the above
Private equity funds (PEF) differ from traditional venture capital (VC) funds in that:
A) VC operates mainly in lesser-developed countries while PEF do not.
B) VC typically invests in family business whereas PEF do not.
C) VC is almost unavailable to emerging markets while PEF capital is available.
D) All of the above are true.
Beginning in 1991 Argentina conducted its monetary policy through a currency board.
In January 2002, Argentina abandoned the currency board and allowed its currency to
float against other currencies. The country took this step because:
A) the Argentine Peso had grown too strong against major trading powers thus the
currency board policies were hurting the domestic economy.
B) the United States required the action as a prerequisite to finalizing a free trade zone
with all of North, South, and Central America.
C) the Argentine government lost the ability to maintain the pegged relationship as in
fact investors and traders perceived a lack of equality between the Argentine Peso and
the U.S. dollar.
D) all of the above
A/An ________ would be an example of a location-specific advantage for an MNE.
A) patent
B) economy of scale
C) unique source of raw materials
D) possession of proprietary information
According to the authors, what is the single most important mandate of the European
Central Bank?
A) Promote international trade for countries within the European Union.
B) Price, in euros, all products for sale in the European Union.
C) Promote price stability within the European Union.
D) Establish an EMU trade surplus with the United States.
As an option moves further out-of-the-money, delta moves toward ______.
A) 1
B) 0
C) -1
D) large negative numbers
Which of the following is NOT part of the Financial Account of the BOP?
A) net foreign direct investment
B) net import/export of services
C) net portfolio investment
D) other Financial items
With covered interest arbitrage:
A) the market must be out of equilibrium.
B) a “riskless” arbitrage opportunity exists.
C) the arbitrageur trades in both the spot and future currency exchange markets.
D) all of the above
The initial issuance of shares by a company in an IPO typically represents no more
than:
A) 25%.
B) 35%.
C) 45%.
D) 55%.
The public pathway to raise equity capital outside of its home market includes the
following EXCEPT:
A) Euroequity issue.
B) Strategic Partner/Alliance.
C) shares sold to a specific market or exchange.
D) seasoned offering.
The basic advantage of the ________ method of foreign currency translation is that
foreign nonmonetary assets are carried at their original cost in the parent’s consolidated
statement while the most important advantage of the ________ method is that the gain
or loss from translation does not pass through the income statement.
A) monetary; current rate
B) temporal; current rate
C) temporal; monetary
D) current rate; temporal
An era of retrenchment, in which major economic powers returned to policies of
isolationism and protectionism, restricting trade and nearly eliminating capital mobility.
A) The Gold Standard, 1860-1914
B) The Interwar Years , 1914-1945
C) The Bretton Woods Era, 1945-1971
D) The Floating Era, 1971-1997
Which of the following would be considered an example of a currency swap?
A) exchanging a dollar interest obligation for a British pound obligation
B) exchanging a eurodollar interest obligation for a dollar obligation
C) exchanging a eurodollar interest obligation for a British pound obligation
D) All of the above are examples of a currency swap.