1) what is the difference between control rights and cash flow rights?
a.since all shareholders benefit only from pro-rata cash flows, control rights and cash
flow rights are the same thing
b.large investors may be able to derive private benefits from control, thus control rights
can exceed cash flow rights
c.cash flow rights are more important than control rights since the only reason to invest
in anything is to generate cash
d.none of the above
2) assume the time from acceptance to maturity on a $2,000,000 banker’s acceptance is
90 days. further assume that the importing bank’s acceptance commission is 1.25
percent and that the market rate for 90-day b/as is 6.0 percent. calculate the amount the
exporter will receive if he discounts the b/a with the importer’s bank.
a.$1,993,750
b.$1,999,375
c.$1,963,750
d.$1,009,375
3) in a forfaiting transaction, the forfait is usually
a.the importer
b.the exporter
c.the bank
d.the title to the goods, or the bill of lading
4) there are three production stages required before a bicycle produced by masi
bicicletia s.a. can be sold at retail for 3,500. the vat rate is 15%. find the total tax
liability due.
a.525
b.150
c.3,500
d.none of the above
5) opic is the
a.overseas pirate investment corporation
b.overseas private investment corporation
c.organization petroleum importing countries
d.none of the above
6) with regard to clearing procedures for bond transactions, when a transaction is
conducted, electronic book entries are made that transfer book ownership of the bond
certificates from the seller to the buyer and transfer funds from the purchaser’s cash
account to the seller’s. however,
a.physical transfer of the bonds seldom takes place
b.the physical transfer of the bonds takes place as much as 3 days later
c.the physical transfer of the bonds takes place as much as 6 weeks later
d.the physical transfer of bonds only occurs if the depository banks that physically store
bond certificates are different for the buyer and seller
7) fasb 8 is essentially the
a.current/noncurrent method
b.monetary/nonmonetary method
c.temporal method
d.current rate method
8) buying a currency option provides
a.a flexible hedge against exchange exposure
b.limits the downside risk while preserving the upside potential
c.a right, but not an obligation, to buy or sell a currency
d.all of the above
9) find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1.
a.
b.
c.3/5
d.
e.5/7
10) to avoid buying a stock at a price higher than you intend, you need to place
________ rather than a market order.
a.a stop-loss order
b.a day order
c.a good-til-cancelled order
d.a limit order
11) examples of operational risk include
a.the unexpected imposition of capital controls, inbound or outbound, and withholding
taxes on dividend and interest payments
b.unexpected changes in environmental policies, sourcing/local content requirements,
minimum wage law, and restriction on access to local credit facilities
c.restrictions imposed on the maximum ownership share by foreigners, mandatory
transfer of ownership to local firms over a certain period of time (fade-out
requirements), and the nationalization of local operations of mncs
d.none of the above
12) forward rate agreements can be used for speculative purposes. if one believes rates
will be less than the agreement rate,
a.take a short position in a forward rate agreement
b.the purchase of a fra is the suitable position
c.the sale of a fra is the suitable position
d.take a long position in the spot market
13) through its export credit insurance program, eximbank helps u.s. exporters develop
and expand their overseas sales by
a.protecting them against loss should a foreign buyer default
b.guaranteeing the loans made by private financial institutions to foreign importers
c.providing liquidity via the purchase of notes issued by eximbank to finance the loans
d.none of the above
14) as of today, the spot exchange rate is 1.00 = $1.25 and the rates of inflation
expected to prevail for the next year in the u.s. is 2% and 3% in the euro zone. what is
the one-year forward rate that should prevail?
a.1.00 = $1.2379
b.1.00 = $1.2623
c.1.00 = $0.9903
d.$1.00 = 1.2623
15) a global bond issue denominated in u.s. dollars and issued by u.s. corporations
a.trade as eurobonds overseas
b.trade as domestic bonds in the u.s. domestic market
c.both a and b
d.none of the above
16) in the london market, rolls-royce stock closed at £0.875 per share. on the same day,
the british pound sterling to the u.s. dollar spot exchange rate was £0.6366/$1.00. rolls
royce trades as an adr in the otc market in the united states. five underlying rolls-royce
shares are packaged into one adr. if the rolls royce adrs were trading at $5.75 when the
underlying shares were trading in london at £0.875, ignoring transaction costs, the
arbitrage trading profit would be:
a.$0.00
b.$1.12
c.$2.12
d.$3.12
17) compared with bond markets
a.the risk of investing in foreign stock markets is, to a lesser degree, attributable to
exchange rate uncertainty
b.the risk of investing in foreign stock markets is, to a much greater degree, attributable
to exchange rate uncertainty
c.exchange risk is lower than default risk and interest rate risk
d.all of the above
18) an investor believes that the price of a stock, say ibm’s shares, will increase in the
next 60 days. if the investor is correct, which combination of the following investment
strategies will show a profit in all the choices?
(i) – buy the stock and hold it for 60 days
(ii) – buy a put option
(iii) – sell (write) a call option
(iv) – buy a call option
(v) – sell (write) a put option
a.(i), (ii), and (iii)
b.(i), (ii), and (iv)
c.(i), (iv), and (v)
d.(ii) and (iii)
19) suppose the mcdonalds corporation imports canadian beef, paying for it by
transferring the funds to a new york bank account kept by the canadian beef producer.
a.payment by mcdonalds will be recorded as a debit
b.the deposit of the funds by the seller will be recorded as a debit
c.payment by mcdonalds will be recorded as a credit
d.the deposit of the funds by the buyer will be credit
20) since the sdr is a “portfolio” of currencies
a.its value tends to be more stable than the value of any of the individual currencies
included in the sdr
b.its value tends to be less stable than the value of any of the individual currencies
included in the sdr
c.its value tends to be as stable as the average of the individual currencies included in
the sdr
d.none of the above