1) a foreign branch bank operates like a local bank, but legally
a.it is a part of the parent bank
b.a branch bank is subject to both the banking regulations of its home country and the
country in which it operates
c.a branch bank is subject to only the banking regulations of its home country and not
the country in which it operates
d.both a and b
2) the secondary stock markets
a.are the markets for “pre-owned” or “used” shares of stock
b.provide marketability to shares
c.provide price discovery or share valuation
d.all of the above
3) suppose that the exchange rate is 1.25 = £1.00.
options (calls and puts) are available on the london exchange in units of 10,000 with
strike prices of £0.80 = 1.00. options (calls and puts) are available on the frankfurt
exchange in units of £10,000 with strike prices of 1.25 = £1.00. for a french firm to
hedge a £100,000 receivable,
a.buy 10 call options on the pound with a strike in euro
b.buy 8 put options on the pound with a strike in euro
c.buy 10 put options on the pound with a strike in euro
d.buy 8 call options on the euro with a strike in pounds
e.both a and b
f.both c and d
4) your firm is a u.k.-based exporter of british bicycles. you have sold an order to an
italian firm for 1,000,000 worth of bicycles. payment from the italian firm (in ) is due in
twelve months. your firm wants to hedge the receivable into pounds. not dollars. use the
following table for exchange rate data.
detail a strategy using futures contracts that will hedge your exchange rate risk. have an
estimate of how many contracts of what type.
a.borrow 970,873.79 in one year you owe 1m, which will be financed with the
receivable. convert 970,873.79 to dollars at spot, receive $1.165.048,54. convert dollars
to pounds at spot, receive £728.155.34
b.sell 1m forward using 16 contracts at $1.20 per 1. buy £750,000 forward using 12
contracts at $1.60 per £1
c.sell 1m forward using 16 contracts at the forward rate of $1.29 per 1
d.sell 1m forward using 16 contracts at the forward rate of $1.29 per 1. buy £750,000
forward using 12 contracts at the forward rate of $1.72 per £1
5) since sr < ar, then
a.abc bank will pay xyz bank a cash settlement at the beginning of the 91-day fra period
b.xyz bank will pay abc bank a cash settlement at the beginning of the 91-day fra period
c.abc bank will pay xyz bank a cash settlement at the end of the 91-day fra period
d.xyz bank will pay abc bank a cash settlement at the end of the 91-day fra period
6) a time draft
a.is a document issued by the common carrier specifying that it has received the foods
for shipment; it can serve as title to the goods
b.later becomes a banker’s acceptance
c.written order instructing the importer or his agent that calls for payment the amount
specified on its face on a certain date
d.none of the above
7) which of the follow options strategies are consistent in their belief about the future
behavior of the underlying asset price?
a.selling calls and selling puts
b.buying calls and buying puts
c.buying calls and selling puts
d.none of the above
8) under a flexible exchange rate regime, governments can retain monetary policy
independence because the external balance will be achieved by
a.the exchange rate adjustments
b.the price-specie flow mechanism
c.the triffin paradox
d.none of the above
9) 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
10) the sale of new common stock by corporations to initial investors occurs in
a.the primary market
b.the secondary market
c.the otc market
d.the dealer market
11) when exchange rates change,
a.this can alter the operating cash flow of a domestic firm
b.this can alter the competitive position of a domestic firm
c.this can alter the home currency values of a multinational firm’s assets and liabilities
d.all of the above
12) at the wholesale level
a.most trading takes place otc between individuals on the floor of the exchange
b.most trading takes place over the phone
c.most trading flows over reuters and ebs platforms
d.most trading flows through specialized “broking” firms
13) generally speaking, liberalization of financial markets when combined with a weak,
underdeveloped domestic financial system tends to
a.strengthen the domestic financial system in the short run
b.create an environment susceptible to currency and financial crises
c.raise interest rates and lead to domestic recession
d.none of the above
14) the over-the-counter (otc) market is a dealer market. almost all otc stocks trade on
the national association of security dealers automated quotation system (nasdaq), which
is a computer-linked system that shows
a.the limit orders of all available counterparties
b.the last price at which a security was sold
c.the bid (buy) and ask (sell) prices of all dealers in a security
d.the bid (sell) and ask (buy) prices of all dealers in a security
15) a convertible bond pays interest annually at a coupon rate of 5% on a par value of
$1,000. the bond has 10 years maturity remaining and the discount rate on other-wise
identical non-convertible debt is 5%. the bond is convertible into shares of common
stock at a conversion price of $25 per share (i.e. the bond is exchangeable for 40
shares). today’s closing stock price was $31.25. what is the floor value of this bond?
a.$800.00
b.$1,000
c.$1,250
d.none of the above
16) many mncs involved in extractive/natural resources industries
a.tend to directly own oil fields, mine deposits, and forests
b.tend to lease their oil fields, mine deposits, and forests
c.tend to partner with local firms, leveraging their intangible assets
d.none of the above
17) the worldwide method of declaring a national tax jurisdiction
a.is to tax national residents of the country on their worldwide income no matter in
which country it is earned
b.is to tax all income earned within the country by any taxpayer, domestic or foreign
c.is to tax national residents of the country on their domestic income but not
foreign-earned income
d.none of the above
18) standard & poor’s has for years provided credit ratings on international bonds.
a.the ratings reflect the safety of principal for a u.s. investor
b.their ratings reflect the creditworthiness of the borrower and not exchange rate
uncertainty
c.their ratings reflect creditworthiness of the lender and predict the exchange rate
expected to prevail at maturity
d.the ratings are biased since 40 percent of eurobond issues are rated aaa and 30 percent
are aa
19) with regard to the oip,
a.the optimal international portfolio contains investments from every country
b.the oip has more return and less risk for all investors
c.the composition of the optimal international portfolio changes according to irp
d.none of the above