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 strong liquidity
d.none of the above
2) the choice between a forward market hedge and a money market hedge often comes
down to
a.interest rate parity
b.option pricing
c.flexibility and availability
d.none of the above
3) the mexican peso crisis was touched off by
a.an unsurprising announcement by the mexican government to devalue to peso against
the dollar by 14 percent
b.an unexpected announcement by the mexican government to devalue to peso against
the dollar by 14 percent
c.an announcement by the mexican government to enact a currency board arrangement
with the u.s. dollar
d.contagion from other latin american and asian financial markets
4) which of the following statements is false about “borrowing capacity”?
a.it is an especially important point in international capital budgeting analysis because
of the frequency of large concessionary loans
b.it creates tax shields for apv analysis regardless of how the project is actually financed
c.is synonymous to the “project debt”
d.is based on the firm’s optimal capital structure
5) most interbank trades are
a.speculative or arbitrage transactions
b.simple order processing for the retail client
c.overnight loans from one bank to another
d.brokered by dealers
6) the underlying principle of the monetary/nonmonetary method is
a.assets and liabilities should be translated based on their maturity
b.monetary balance sheet accounts should be translated at the spot rate; nonmonetary
accounts are translated at the historical rate in effect when the account was first
recorded
c.monetary accounts are translated at the current exchange rate; other accounts are
translated at the current exchange rate if they are carried on the books at current value;
items carried at historical cost are translated at historic exchange rates
d.all balance sheet accounts are translated at the current exchange rate, except
stockholder equity
7) the eurocurrency market
a.is only in europe
b.is an external banking system that runs parallel to the domestic banking system of the
country that issued the currency
c.has languished following monetary union in europe
d.none of the above
8) 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
using the notion of hedging, make a recommendation vis–vis how to undertake the
project today without “buying” the option.
9) solve for the weighted average cost of capital:
a.7.00%
b.6.89%
c.6.73%
d.6.67%
e.6.57%
10) the wall street journal publishes daily values of yields to maturity for japanese,
german, british, and canadian government bonds.
a.bond market participants can thereby compare the yield curve of the various countries
b.bond market participants can thereby compare the term structure of interest rates of
the various countries
c.both a and b
d.none of the above
11) if an incentive contract specifies certain accounting performance
a.that accounting number will likely be the focus of managers
b.managers will set aside the accounting goal if it conflicts with the goal of maximizing
shareholder wealth
c.managers will be unable to manipulate the gaap, so shareholders can be confident of
having their wealth maximized
12) there are three production stages required before a bicycle produced by masi
bicicletia s.a. can be sold at retail for 4,500. the vat rate is 15%. find the total tax
liability due.
a.525
b.675
c.3,500
d.none of the above
13) macroeconomic factors affecting international equity returns include
a.exchange rate changes
b.interest rate differentials
c.changes in inflationary expectations
d.all of the above
14) foreign direct investment (fdi) occurs
a.when an investor acquires a measure of control of a foreign business
b.when there is an acquisition, by a foreign entity in the u.s., of 10 percent or more of
the voting shares of a business
c.with sales and purchases of foreign stocks and bonds that do not involve a transfer of
control
d.both a and b
15) consider a u.s.-based mnc with a wholly-owned italian subsidiary. following a
depreciation of the dollar against the euro, which of the following conclusions are
correct?
a.the cash flow in euro could be altered due an alteration in the firm’s competitive
position in the marketplace
b.a given operating cash flow in euro will be converted to a higher u.s. dollar cash flow
c.both a and b
d.none of the above
16) the u.s. trade deficit
a.is a capital account surplus
b.is a current account deficit
c.is both a capital account surplus and a current account deficit
d.none of the above
17) if u.s. taxing authorities did not limit the amount of the foreign tax credit to the
equivalent amount of the u.s. tax
a.payers would arguably subsidize part of the tax liabilities of u.s. mnc’s foreign earned
income
b.national neutrality would suffer
c.mncs would all depart our shores
d.all of the above
18) which of the following statements is false?
a.most income statement items under the current/noncurrent method are translated at
the average exchange rate for the accounting period
b.under the current/noncurrent method, revenue and expense items that are associated
with current assets or liabilities, such as depreciation expense, are translated at the
historical rate that applies to the applicable balance sheet item
c.under the current/noncurrent method, revenue and expense items that are associated
with noncurrent assets or liabilities, such as depreciation expense, are translated at the
historical rate that applies to the applicable balance sheet item
d.depreciation expense is translated at the historical rate that applies to the applicable
depreciable asset items