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 the same manner by the taxpayer’s national
tax authority regardless of where in the world it is earned
c.implies that the tax burden a host country imposes on the foreign subsidiary of the
mnc should be the same regardless of which country the mnc is incorporated and the
same as that placed on domestic firms
d.none of the above
2) purchasers of global bonds are
a.mainly institutional investors to date
b.desirous of the increased liquidity of the issues
c.have been willing to accept lower yields
d.all of the above
3) since fixed assets and inventory are usually carried at historical costs,
a.the temporal method and the monetary/nonmonetary methods will typically provide
the same translation
b.the current rate method and the monetary/nonmonetary methods will typically provide
the same translation
c.the temporal method and the current/noncurrent methods will typically provide the
same translation
d.none of the above
4) suppose that great britain is a major export market for your firm, a u.s.-based mnc. if
the british pound depreciates against the u.s. dollar,
a.your firm will be able to charge more in dollar terms while keeping pound prices
stable
b.your firm may be priced out of the u.k. market, to the extent that your dollar costs stay
constant and your pound prices will rise
c.to protect u.k. market share, your firm may have to cut the dollar price of your goods
to keep the pound price the same
d.both b and c are correct
5) company x wants to borrow $10,000,000 for 5 years; company y wants to borrow
£5,000,000 for 5 years. the exchange rate is $2 = £1 and is not expected to change over
the next 5 years. their external borrowing opportunities are shown below:
a swap bank proposes the following interest only swap:
x will pay the swap bank annual payments on $10,000,000 with the coupon rate of
9.80%; in exchange the swap bank will pay to company x interest payments on
£5,000,000 at a fixed rate of 10.5%. y will pay the swap bank interest payments on
£5,000,000 at a fixed rate of 12.80% and the swap bank will pay y annual payments on
$10,000,000 with the coupon rate of 12%.
what is the value of this swap to the swap bank?
a.the swap bank will earn 10 basis points per year; the only risk is default risk
b.the swap bank will earn 10 basis points per year but has exchange rate risk:
dollar-denominated income and pound-denominated costs and default risk
c.the swap bank will earn 10 basis points per year but has exchange rate risk:
pound-denominated income and dollar-denominated costs and default risk
d.the swap bank will earn 20 basis points per year in dollars but has exchange rate risk:
pound-denominated income and dollar-denominated costs and default risk.
6) 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 end of one year without
risk. the current exchange rate is 1.00 = $1.50. u.s. dollar-denominated government
bonds currently have a yield to maturity of 4%. suppose that the european central bank
is considering either tightening or loosening its monetary policy. it is widely believed
that in one year there are only two possibilities:
following revaluation, the exchange rate is expected to remain steady for at least
another year
find the expost irr in euro for the american firm if they buy the bond today and then the
exchange rate falls to s1($|) = $1.40 per .
7) the singapore dollaru.s. dollar (s$/$) spot exchange rate is s$1.60/$, the canadian
dollaru.s. dollar (cd/$) spot rate is cd1.33/$ and the s$/cd1.15. determine the triangular
arbitrage profit that is possible if you have $1,000,000.
a.$44,063 profit
b.$46,093 loss
c.no profit is possible
d.$46,093 profit
8) the major components of the sarbanes-oxley act include all of the following except
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.shareholder voting rights”one share one vote” is now the law of the land
d.executive responsibilityceos and cfos must sign off on the company’s financial
statements
9) in the notation of the book, k = (1 – )kl + (1 – )i
which of the following are correct?
a.the debt-to-equity ratio is
b.the cost of equity capital for a levered firm is kl
c.the after-tax cost of debt capital is i
d.all of the above
10) suppose mr. lee and his relatives hold 30% of shares outstanding of samsung life,
which in turn holds 20% of samsung electronics. what is the cash flow right of the lee
family in samsung electronics?
a.50 percent
b.10 percent
c.20 percent
d.6 percent
11) suppose that you are a swap bank and you notice that interest rates on zero coupon
bonds are as shown. develop the 3-year bid price of a dollar swap quoted against flat
usd libor.
in other words, what you be willing to pay in euro against receiving usd libor?
a.5%
b.4%
c.3%
d.2%
12) how many methods of foreign currency translation have been used in recent years?
(u.s. gaap.)
a.one
b.two
c.three
d.four
13) your firm is a swiss exporter of bicycles. you have sold an order to a british firm for
£1,000,000 worth of bicycles. payment from the british firm (in pounds sterling) is due
in 12 months. use a money market hedge to redenominate this one-year receivable into
a euro-denominated receivable with a one-year maturity.
the following were computed without rounding. select the answer closest to yours.
a.sfr. 2,000,000
b.sfr. 2,151,118.62
c.sfr. 2,068,383.28
d.sfr. 1,921,941.75
14) securities sold in the united states to public investors must be registered with the
sec, and a prospectus disclosing detailed financial information about the issuer must be
provided and made available to prospective investors. this encourages foreign
borrowers wishing to raise u.s. dollars to use
a.the eurobond market
b.their domestic market
c.bearer bonds
d.none of the above
15) using transfer prices “creativity” mncs can
a.try to move blocked funds (but the host country might be watching)
b.evade tax liabilities (but the host country might be watching)
c.both a and b
d.both a and b and there’s nothing that the host country government can do about it
16) approximately ___ of wholesale eurobank external liabilities come from fixed time
deposits, the remainder from negotiable certificates of deposit.
a.50%
b.75%
c.90%
d.none of the above
17) 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 an absolute advantage in producing beer in case i?
a.south dakota
b.north dakota
c.neither state
18) 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 end of one year without
risk. the current exchange rate is 1.00 = $1.50. u.s. dollar-denominated government
bonds currently have a yield to maturity of 4%. suppose that the european central bank
is considering either tightening or loosening its monetary policy. it is widely believed
that in one year there are only two possibilities:
following revaluation, the exchange rate is expected to remain steady for at least
another year
find the irr in dollars for the american firm if they wait one year to buy the bond after
the exchange rate falls to s1($|) = $1.40 per . assume that i doesn’t change.