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 rate in the u.s. is 6 percent and in
the euro zone 2 percent. the appropriate cost of capital to a u.s.-based firm for a
domestic project of this risk is 8 percent.
find the dollar cash flows to compute the dollar-denominated npv of this project.
please note that your answer is worth zero points if it does not contain currency
symbols.
2) assume the time from acceptance to maturity on a $1,000,000 banker’s acceptance is
180 days. further assume that the importing bank’s acceptance commission is 1.25
percent and that the market rate for 180-day b/as is 5.0 percent. calculate the amount the
exporter will receive if he discounts the b/a with the importer’s bank.
a.$906,250
b.$909,375
c.$968,750
d.$993,750
3) in a push to serve the north american market samsung, a korean firm, chose to locate
production facilities in mexico, mainly because
a.of lower labor costs in mexico
b.to circumvent trade barriers imposed by nafta
c.because of colder weather in canada
d.none of the above
4) suppose that you implement your hedge from the last question at f1($/£) = $2/£. your
cash flows in state 1, 2, and 3 respectively will be
a.$5,100, $5,000, $5,100
b.$5,100, $5,100, $5,100
c.$5,000, $5,000, $5,000
d.none of the above
5) the core of the bretton woods system was the
a.world bank
b.imf
c.united nations
d.interstate commerce commission
6) multinational cash management
a.is really no different for a mnc than for a purely domestic firm in a closed economy
b.concerns itself with the size of cash balances, their currency denominations, and
where these cash balances are located among the mnc’s affiliates
c.concerns itself with the size of cash balances and their currency denominations, but
not where these cash balances are located among the mnc’s affiliates, since
intra-affiliate default risk is not an issue
d.none of the above
7) in reference to the futures market, a ‘speculator”
a.attempts to profit from a change in the futures price
b.wants to avoid price variation by locking in a purchase price of the underlying asset
through a long position in the futures contract or a sales price through a short position
in the futures contract
c.stands ready to buy or sell contracts in unlimited quantity
d.both b and c
8) find the net exposure of the british subsidiary of the u.s. mnc with the following intra
affiliate transactions shown:
a.$40 out
b.$65 in
c.20 out
d.none of the above
9) edge act banks
a.are not prohibited from owning equity in business corporations
b.are prohibited from owning equity in business corporations
c.both a and b
d.none of the above
10) assume that a product has the following three stages of production:
if the value-added tax (vat) rate is 15%, what is the incremental vat at stage 2 of
production?
a.75
b.120
c.210
d.255
11) in highly inflationary economies, fasb 52 requires that the foreign entities financial
statement be remeasured from the local currency “as if the functional currency were the
reporting currency”. the purpose of this requirement is
a.to prevent large important balance sheet accounts, carried at historical values, from
having insignificant values once translated into the reporting currency at the current rate
b.to prevent games playing in the accounting books
c.to prevent having to restate the books at a later date
d.none of the above
12) the separation of the company’s ownership and control,
a.is especially prevalent in such countries as the united states and the united kingdom,
where corporate ownership is highly diffused
b.is especially prevalent in such countries as the italy and mexico, where corporate
ownership is highly concentrated
c.is a rational response to the agency problem
d.none of the above
13) with regard to the current exchange rate arrangement between the u.s. and the u.k.,
it is best characterized as
a.independent floating (market determined)
b.managed float
c.currency board
d.pegged exchange rate within a horizontal band
14) advantages of a fixed exchange rates include
a.reduction in exchange rate risk for businesses
b.reduction in transactions costs
c.reduction in trading frictions
d.all of the above
15) suppose that the british stock market is segmented from the rest of the world. using
the capm and a risk-free rate of 5%, estimate the equity cost of capital for stansfield.
a.14%
b.12%
c.9%
d.none of the above
16) firms that have intangible assets with a public good property tend to invest directly
in foreign countries. this is because
a.in order to use these assets on a larger scale
b.to avoid the misappropriation that may occur while transacting in foreign countries
through the market mechanism
c.all of the above