1) company x wants to borrow $10,000,000 floating for 5 years; company y wants to
borrow $10,000,000 fixed for 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 libor – 0.15%; in exchange the swap
bank will pay to company x interest payments on $10,000,000 at a fixed rate of 9.90%.
what is the value of this swap to company x?
a.company x will lose money on the deal
b.company x will save 25 basis points per year on $10,000,000 = $25,000 per year
c.company x will only break even on the deal
d.company x will save 5 basis points per year on $10,000,000 = $5,000 per year
2) the first two columns give the maximum daily amounts of beer and whiskey that
southern ireland and northern ireland can produce when they completely specialize in
one or other product. the last two columns give each country’s consumption without
trade.
in which product does northern ireland have a comparative advantage?
a.beer
b.whiskey
c.neither
3) on a recent sale, boeing allowed british airways to pay either $18 million or £10
million.
a.at the due date, british airways will be indifferent between paying dollars or pounds
since they would of course have hedged their exposure either way
b.boeing has provided british airways with a free option to buy $18 million with an
exercise price of £10 million
c.boeing has provided british airways with a free option to sell up to £10 million with
an exercise price of $18 million
d.all of the above
4) a derivatives hedge that seeks to eliminate translation exposure
a.eliminate any mismatch of the rate of change in net assets and the rate of change in
net liabilities denominated in the same currency
b.really involves speculation about foreign exchange rate changes
c.by simultaneously going long and short in currency futures contracts
d.none of the above
5) your firm’s interaffiliate cash receipts and disbursements matrix is shown below
($000):
find the net cash flow in (out of) the german affiliate.
a.$55,000 in
b.$15,000 out
c.$0 in or out
d.$40,000 out
e.none of the above
6) a u.s. firm holds an asset in great britain and faces the following scenario:
where,
p* = pound sterling price of the asset held by the u.s. firm
p = dollar price of the same asset
the “exposure” (i.e. the regression coefficient beta) is:
a.7,500
b.2,5000
c.-2,500
d.none of the above
7) the spot exchange rate is ¥125 = $1. the u.s. discount rate is 10%; inflation over the
next three years is 3% per year in the u.s. and 2% per year in japan. calculate the dollar
npv of this project.
i did not round my intermediate steps, if you did, select the answer closest to yours.
a.$267,181.87
b.$14,176.67
c.$2,536.49
d.$2,137.46
e.none of the above
8) from the perspective of a corporate cfo, when hedging a payable versus a receivable
a.credit risk considerations are more germane for a payable
b.credit risk considerations are more germane for a receivable
c.none of the above
9) the models that the credit rating firms (e.g. moody’s, s&p, and fitch) used to evaluate
the risk of the various tranches of mbs debt and thereby assign a credit rating (e.g. aaa,
aa-bb, or unrated) were
a.right on target, but only in the aggregate
b.poorly specified
c.superfluous, since the cdos turned out to be backed by the full faith and credit of the
u.s. treasury
d.supermodels, and while as a group they were not so good at evaluating credit risk,
they made up for it with their good looks and impeccable fashion sense
10) the record of investing in u.s.-based stock mutual funds
a.shows that the movements of the u.s. stock market account for about 20 percent of the
fluctuations of the value of u.s.-based stock mutual funds
b.shows that the talent of individual portfolio managers accounts for about 90 percent
of the fluctuations of the value of u.s.-based stock mutual fundsluck the other ten
percent
c.shows that the movements of the u.s. stock market account for about 90 percent of the
fluctuations of the value of u.s.-based stock mutual funds
d.none of the above