1) the single european currency, the euro, was adopted by 11 member nations on
january 1 of what year?
a.1984
b.1991
c.1999
d.2001
2) according to a recent survey by ernst and young, the most important tax issue that
multinational enterprises now face is
a.transfer pricing
b.choice of accounting method to use in preparing consolidated income statements
when firms have subsidiaries in countries with different tax treatments of expense items
c.choice of accounting method to use in preparing consolidated income statements
when firms have subsidiaries in countries with different tax treatments of income
recognition
d.none of the above
3) if for a particular county an increase in the interest rate is more or less matched by an
expected depreciation in the local currency,
a.traders will probably be tempted to find another country to invest in
b.the interest rate increase per se will not be enough to spark capital flow into the
country
c.both a and b are true
d.capital will glow out of the country as the disgruntled citizens riot and go to war with
the neighbors
4) six-month u.s. dollar libor is currently 4.375%; your firm issued floating-rate notes
indexed to six-month u.s. dollar libor plus 50 basis points. what is the amount of the
next semi-annual coupon payment per u.s. $1,000 of face value?
a.$43.75
b.$48.75
c.$24.375
d.$46.875
5) contingent exposure can best be hedged with
a.options
b.money market hedging
c.futures
d.all of the above
6) international reserve assets include “foreign exchanges”. these are
a.special drawing rights (sdrs) at the imf
b.reserve positions in the international monetary fund (imf)
c.foreign currency held by a country’s central bank
d.none of the above
7) assume that xyz corporation is a levered company with the following information:
kl = cost of levered equity capital for xyz = 13%
i = before-tax borrowing cost = 8%
t = marginal corporate income tax rate = 30%
if xyz’s debt-to-total-market-value ratio is 40%, then its weighted average cost of
capital, k, is:
a.8%
b.9%
c.10%
d.12%
8) if the united states imports more than it exports, then
a.the supply of dollars is likely to exceed the demand in the foreign exchange market,
ceteris paribus
b.one can infer that the u.s. dollar would be under pressure to depreciate against other
currencies
c.a and b
d.none of the above
9) the ________ sends a purchase order to the ________.
the ________ applies to his bank for a letter of credit.
a.importer; exporter; exporter
b.exporter; importer; importer
c.importer; exporter; importer
d.exporter; importer; exporter
10) if you have a long position in a foreign currency, you can hedge with:
a.a short position in an exchange-traded futures option
b.a short position in a currency forward contract
c.a short position in foreign currency warrants
d.borrowing (not lending) in the domestic and foreign money markets
11) solve for the weighted average cost of capital:
a.8.67%
b.8.00%
c.7.60%
d.7.33%
e.7.14%
12) the large exchange markets in the united states are
a.agency markets
b.call markets
c.auction markets
d.agency/auction markets
13) 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.$0 in or out
b.$5,000 out
c.$30,000 in
d.$30,000 out
e.none of the above
14) since a corporation can hedge exchange rate exposure at low cost
a.there is no benefit to the shareholders in an efficient market
b.shareholders would benefit from the risk reduction that hedging offers
c.the corporation’s banker would benefit from the risk reduction that hedging offers
d.none of the above
15) the nestl episode shows
a.that political risk can exist in a country like switzerland, long considered a haven from
such risk
b.the pricing to market phenomenon exists
c.it is possible to expropriate wealth from one group of shareholders and transfer it to
another group
d.all of the above
16) what does it mean to have redenominated an asset in terms of the dollar?
a.you have undertaken a hedging strategy that gives the asset a constant dollar value
b.multiply the foreign currency value of the asset by the spot exchange rate
c.undertaken accounting changes to eliminate translation exposure
d.none of the above
17) 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 variance of the exchange rate is:
a.0.0200
b.0.10
c.0.002
d.none of the above