1) find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of 4/5.
a.1
b.2
c.3
d.4
e.5
2) an exporter can shift exchange rate risk to their customers by
a.invoicing in their home currency
b.invoicing in their customer’s local currency
c.splitting the difference, and invoicing half of sales in local currency and half of sales
in home currency
d.invoicing sales in a currency basket such as the sdr as the invoice currency
3) a study of fortune 500 firms hedging practices shows that
a.over 90 percent of fortune 500 firms use forward contracts
b.over 90 percent of fortune 500 firms use options contracts
c.both a and b
d.none of the above
4) translation exposure measures
a.the effect that an anticipated change in exchange rates will have on the consolidated
financial reports of an mnc
b.economic exposure
c.the change in the value of a foreign subsidiaries assets and liabilities denominated in a
foreign currency, as a result of exchange rate change fluctuations, when viewed from
the perspective of the parent firm
d.all of the above
5) even though the compliance the cadbury code of best practice is voluntary,
a.the cadbury code has made a significant impact on the internal governance
mechanisms of u.k. companies
b.the job security of u.k. chief executives has become more sensitive to the company
performance, strengthening managerial accountability and weakening its entrenchment
c.joint ceo/cob (chief executive officer and chairman of the board) positions declined
d.all of the above
6) affiliate a sells a million units to affiliate b per year. the marginal income tax rate for
affiliate a is 20 percent and the marginal income tax rate for affiliate b is 50 percent. the
transfer price can be set at any level between $100 and $200. which transfer price
between a and b should the parent select?
a.$200
b.$100
c.$150
d.it does not matter
7) put the following in correct date order:
a.jamaica agreement, bretton woods agreement, smithsonian agreement
b.smithsonian agreement, bretton woods agreement, jamaica agreement
c.bretton woods agreement, smithsonian agreement, jamaica agreement
d.bretton woods agreement, jamaica agreement, smithsonian agreement
8) adrs
a.frequently represent a multiple of the underlying shares
b.can trade on the nyse
c.can trade on the nasdaq
d.all of the above
9) 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
10) for a recent month, the following payments matrix of interaffiliate cash flows was
forecasted:
use multilateral netting to find the net payment from the british affiliate to the u.s.
affiliate.
the spot exchange rates are $1.20 = 1.00 and $1.80 = £1.00; affiliates get paid in home
currency.
a.$60
b.$20
c.$0
d.none of the above
11) since security returns tend to have low correlations among countries,
a.investors can reduce risk more effectively if they diversify their portfolio holdings
internationally rather than purely domestically
b.investors who have a domestically diversified portfolio, with exposures across
industry types will not gain much from diversifying abroad
c.investors who diversify internationally will likely underperform investors who keep
all their investments in one country
d.none of the above
12) sponsored adrs
a.are created by a bank at the request of the foreign company that issued the underlying
security
b.can trade on the nasdaq
c.can trade on the nyse
d.all of the above
13) according to the “trilemma” a country can attain only two of the following three
conditions: 1) a fixed exchange rate, (2) free international flows of capital, (3) an
independent monetary policy. this difficulty is also known as
a.the incompatible trinity
b.the trilemma
c.the tobin tax
d.all three can be had at the same time
14) 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%. y will pay the swap bank interest payments on
$10,000,000 at a fixed rate of 10.30% and the swap bank will pay y annual payments on
$10,000,000 with the coupon rate of libor – 0.15%.
what is the value of this swap to the swap bank?
a.the swap bank will lose money on the deal
b.the swap bank will earn 40 basis points per year on $10,000,000 = $40,000 per year
c.the swap bank will break even
d.none of the above
15) the $/cd spot bid-ask rates are $0.7560-$0.7625. the 3-month forward points are
12-16. determine the $/cd 3-month forward bid-ask rates.
a.$0.7548-$0.7609
b.$0.7572-$0.7641
c.$0.7512-$0.7616
d.cannot be determined with the information given
16) consider a u.s. mnc with three subsidiaries and the following foreign exchange
transactions shown at left. use bilateral netting to reduce the number of foreign
exchange transactions by half.
a.
b.
c.
d.none of the above
17) the sale of previously issued common stock traded between investors occurs in
a.the primary market
b.the secondary market
c.the on-the-run market
d.the dealer market