1) the market capitalization of the developing world
a.is about 80 percent of the market capitalization of the entire world
b.is about 60 percent of the market capitalization of the entire world
c.is about 40 percent of the market capitalization of the entire world
d.is about 20 percent of the market capitalization of the entire world
2) 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
3) under a 1981 voluntary trade agreement japanese automobile manufacturers were not
allowed to increase their exports to the u.s. market. as a result
a.they exited the market
b.honda was motivated to circumvent the trade barriers
c.honda’s fdi may have been part of an overall corporate strategy designed to bolster
their competitive position vis–vis their domestic rivals such as toyota
d.both b and c
4) two studies found a link between exchange rates and the stock prices of u.s. firms,
a.this suggests that exchange rate changes can systematically affect the value of the firm
by influencing its operating cash flows
b.this suggests that exchange rate changes can systematically affect the value of the
firm by influencing the domestic currency values of its assets and liabilities
c.both a and b
d.none of the above
5) find the weighted average cost of capital for a firm that has a debt-to-equity ratio of
1, a tax rate of 34%, a levered cost of equity of 12% and a pre-tax cost of debt of 10%.
a.9.6%
b.7.968%
c.8.76%
d.none of the above
6) the choice between a forward market hedge and a money market hedge often comes
down to
a.interest rate parity
b.option pricing
c.flexibility and availability
d.none of the above
7) in the graph at right, for fortune 500 companies, x, y are
a.5% and 25%
b.15% and 50%
c.50% and 75%
d.none of the above
8) with regard to the oip,
a.the composition of the optimal international portfolio is identical for all investors,
regardless of home country
b.the composition of the optimal international portfolio are varies depending upon the
numeraire currency used to measure returns
c.the composition of the optimal international portfolio is identical for all investors,
regardless of home country, if they hedge their risk with currency futures contracts
d.both b and c
9) eurobonds are usually
a.bearer bonds
b.registered bonds
c.bulldog bonds
d.foreign currency bonds
10) one implication of the random walk hypothesis is
a.given the efficiency of foreign exchange markets, it is difficult to outperform the
market-based forecasts unless the forecaster has access to private information that is not
yet reflected in the current exchange rate
b.given the efficiency of foreign exchange markets, it is difficult to outperform the
market-based forecasts unless the forecaster has access to private information that is
already reflected in the current exchange rate
c.given the relative inefficiency of foreign exchange markets, it is difficult to
outperform the technical forecasts unless the forecaster has access to private
information that is not yet reflected in the current futures exchange rate
d.none of the above
11) before you can use the hedging strategies such as a forward market hedge, options
market hedge, and so on, you should consider running a regression of the form
. when reviewing the output, you should initially focus on
a.the intercept a
b.the slope coefficient b
c.mean square error, mse
d.r2
12) your firm is based in southern ireland (and thereby operates in euro, not pounds)
and is considering an investment in the united states.
the project involves selling widgets: you project a sales volume of 50,000 widgets per
year, sales price of $20 per widget with a contribution margin of $15 per widget.
the project will last for 5 years, require an investment of $1,000,000 at time zero (which
will be depreciated straight-line to $10,000 over the 5 years). salvage value for the
equipment is projected to be $10,000. the project will operate in rented quarters:
$300,000 rent is due at the start of each year.
the corporate tax rate is 12% in ireland and 40% in the u.s.
for simplicity, assume that taxes are paid like sales taxes: immediately.
the spot exchange rate is $1.50 = 1.00. the cost of capital to the irish firm for a domestic
project of this risk is 8%. the u.s. risk-free rate is 3%; the irish risk-free rate is 2%.
what is cf1 in dollars?
13) in countries with concentrated ownership
a. hostile takeovers are quite rare
b. hostile takeovers are quite common
14) calculate the euro-based return an italian investor would have realized by investing
10,000 into a £50 british stock. the stock pays a £0.30 quarterly dividend, and after one
year the investment sells for £54 the exchange rate has changed from 1.25 per pound to
1.30 per pound.
15) consider the situation of firm a and firm b. the current exchange rate is $1.50/. firm
a is a u.s. mnc and wants to borrow 40 million for 2 years. firm b is a french mnc and
wants to borrow $60 million for 2 years. their borrowing opportunities are as shown;
both firms have aaa credit ratings.
what would be the interest rate?
16) the time from acceptance to maturity on a $6,000,000 banker’s acceptance is 360
days.
the importing bank’s acceptance commission is 2 percent and that the market rate for
360-day b/as is 3 percent.
determine the amount the exporter will receive if he holds the b/a until maturity.