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 practice,
a.joint ceo/cob (chief executive officer and chairman of the board) positions declined
b.there has been a significant impact on the internal governance mechanisms of u.k.
companies
c.ceos have become more sensitive to company performance, strengthening managerial
accountability and weakening managerial entrenchment
d.all of the above
3) a currency dealer has good credit and can borrow either $1,000,000 or 800,000 for
one year. the one-year interest rate in the u.s. is i$ = 2% and in the euro zone the
one-year interest rate is i = 6%. the one-year forward exchange rate is $1.20 = 1.00;
what must the spot rate be to eliminate arbitrage opportunities?
a.$1.2471 = 1.00
b.$1.20 = 1.00
c.$1.1547 = 1.00
d.none of the above
4) an example of a political risk is
a.expropriation of assets
b.adverse change in tax rules
c.the opposition party being elected
d.both answers a and b are correct
5) the genius of public corporations stems from their capacity to allow efficient sharing
or spreading of risk among many investors, who can buy and sell their ownership shares
on liquid stock exchanges and let professional managers run the company on behalf of
shareholders. this risk sharing stems from
a.the liquidity of the shares
b.the limited liability of shareholders
c.the limited liability of bondholders
d.the limited ability of shareholders
6) simplify the following set of intra company cash flows for this swiss firm.
use the following exchange rates.
the fewest number of intra-affiliate cash flows is
a.zero
b.one
c.two
d.three
e.four
7) if a firm faces progressive tax rates,
a.they should spread income out across time and subsidiaries
b.they should focus on maximizing income in one division or subsidiary
c.they should manage their income recognition without regard to their taxes
d.none of the above
8) the major components of the sarbanes-oxley act are:
a.accounting regulationthe creation of a public accounting oversight board charged with
overseeing the auditing of public companies, and restricting the consulting services that
auditors can provide to clients
b.audit committeethe company should appoint independent “financial experts” to its
audit committee
c.internal control assessmentpublic companies and their auditors should assess the
effectiveness of internal control of financial record keeping and fraud prevention
d.executive responsibilitychief executive and finance officers (ceo and cfo) must sign
off on the company’s quarterly and annual financial statements. if fraud causes an
overstatement of earnings, these officers must return any bonuses
e.all of the above
9) suppose that the firm’s cost of capital can be reduced from kl under the local capital
structure to kg under an internationalized capital structure. the take-away lesson from
the graph is that
a.the firm can then increase its profitable investment outlay from il to ig, contributing to
the firm’s value
b.a reduced cost of capital increases the firm’s value not only through increased
investments in new projects but also through revaluation of the cash flows from existing
projects
c.kl and kg represent, respectively, the cost of capital under local and international
capital structures; irr represents the internal rate of return on investment projects; il and
ig represent the optimal investment outlays under the alternative capital structures
d.all of the above
10) in the currency trading section of the wall street journal, the following appeared
under the heading options:
which combination of the following statements are true?
(i) – the time values of the 68 may and 69 may put options are respectively .30 cents and
.50 cents.
(ii) – the 68 may put option has a lower time value (price) than the 69 may put option.
(iii) – if everything else is kept constant, the spot price and the put premium are
inversely related.
(iv) – the time values of the 68 may and 69 may put options are, respectively, 1.63 cents
and 0.83 cents.
(v) – if everything else is kept constant, the strike price and the put premium are
inversely related.
a.(i), (ii), and (iii)
b.(ii), (iii), and (iv)
c.(iii) and (iv)
d.(iv) and (v)
11) to hedge a foreign currency payable,
a.buy call options on the foreign currency
b.buy put options on the foreign currency
c.sell call options on the foreign currency
d.sell put options on the foreign currency
12) emerald energy is an oil exploration and production company that trades on the
london stock market. assume that when purchased by an international investor the
stock’s price and the exchange rate were £5 and £0.64/$1.00 respectively. at selling
time, one year after purchase, they were £6 and £0.60/$1.00. if the investor had sold £5,
the principal investment amount at the same time that the stock was purchased, forward
at the forward exchange rate of £0.60/$1.00. the dollar rate of return would be:
a.0.26%
b.26.00%
c.28.00%
d.30.00%