1) suppose that the one-year interest rate is 5.0 percent in the united states and 3.5
percent in germany, and the one-year forward exchange rate is $1.16/. what must the
spot exchange rate be?
a.$1.1768/
b.$1.1434/
c.$1.12/
d.none of the above
2) in evaluating the pros and cons of corporate risk management, one argument against
hedging is
a.if the corporate guys were good at forecasting exchange rates, they would make more
money on wall street, so only incompetent managers are left at corporations to hedge
b.shareholders who are diversified have already managed their exchange rate risk
c.the hedging costs go into someone else’s pocket
d.none of the above
3) a multinational firm can be defined as a firm that
a.invests short-term cash inflows in more than one currency
b.has sales affiliates in several countries
c.is incorporated in more than one country
d.incorporated in one country that has production and sales operations in several other
countries
4) solve for the weighted average cost of capital:
a.7.00%
b.6.89%
c.6.73%
d.6.67%
e.6.57%
5) companies domiciled in countries with weak investor protection can reduce agency
costs between shareholders and management
a.by moving to a better county
b.by listing their stocks in countries with strong investor protection
c.by voluntarily complying with the provisions of the u.s. sarbanes-oxley act
d.having a press conference and promising to be nice to their investors
6) solve for the weighted average cost of capital:
a.7.00%
b.6.89%
c.6.73%
d.6.67%
e.6.57%
7) which of the following is true?
a.the competitive effect is defined as the impact that a currency depreciation may have
on the operating cash flow in the foreign currency by altering the firm’s competitive
position in the marketplace
b.the conversion effect is defined as a given accounting cash value in a foreign currency
will be converted into a lower dollar amount after currency depreciation
c.the competitive effect is defined as a given operating cash flow in a foreign currency
will be converted into a lower dollar amount after a currency depreciation
d.none of the above
8) corporate governance structure
a.varies a great deal across countries
b.has become homogenized following the integration of capital markets
c.has become homogenized due to cross-listing of shares of many public corporations
d.none of the above
9) the balance of payments records
a.only international trade, (exports and imports)
b.only cross-border investments (fdi and portfolio investment)
c.not only international trade, (exports and imports) but also cross-border investments
d.none of the above
10) find the value of a one-year call option on 10,000 with a strike price of $15,000. in
one year the exchange rate (currently s0($/) = $1.50/) can increase by 60% or decrease
by 37.5% (i.e. u = 1.6 and d = 0.625). the current one-year interest rate in the u.s. is i$ =
4% and the current one-year interest rate in the euro zone is i = 4%.
a.1,525.52
b.$3,328.40
c.$4,992.60
d.2,218.94
e.none of the above