1) tax neutrality is determined by three criteria: which of the following doesn’t belong?
a.capital-export neutrality
b.capital-import neutrality
c.national neutrality
d.income neutrality
2) the underlying principle of the current rate method is
a.assets and liabilities should be translated based on their maturity
b.monetary accounts have a similarity because their value represents a sum of money
whose currency equivalent after translation changes each time the exchange rate
changes
c.monetary accounts are translated at the current exchange rate; other accounts are
translated at the current exchange rate if they are carried on the books at current value;
items carried at historical cost are translated at historic exchange rates
d.all balance sheet accounts are translated at the current exchange rate, except for
stockholders’ equity. a “plug” equity account named cumulative translation adjustment
(cta) is used to make the balance sheet balance, since translation gains or losses do not
go through the income statement according to this method
3) conducting international trade transactions is difficult in comparison to domestic
trades. which of the following are false statements regarding this reality?
a.commercial and political risks enter into the equation, which are not factors in
domestic trade
b.it is important for a country to be competitively strong in international trade in order
for its citizens to have the goods and services they need and demand
c.it is generally the case that the costs of international trade outweigh the benefits
d.all of the above are true statements
4) the majority of publicly traded swiss corporations have up to three classes of
common stock:
1) registered stock
2) voting bearer stock
3) nonvoting bearer stock
until recently, foreigners were not allowed to buy registered stocks: in the case of nestl
this had the effect of
a.distorting the prices of registered stock downward
b.distorting the prices of registered stock upward
c.this had no effect on prices
d.none of the above
5) according to the monetary approach, what matters in exchange rate determination are
a.the relative money supplies
b.the relative velocities of monies
c.the relative national outputs
d.all of the above
6) you are a u.s. mnc with a 40 percent u.s. tax rate. you have an irish subsidiary. the
corporate income tax there is 12%. for every $10,000,000 of income the subsidiary
reports, you will owe taxes to the u.s. treasury in the amount of
a.$4,000,000
b.$1,250,000
c.$2,750,000
d.none of the above
7) an uncontrolled foreign corporation is
a.an extension of the parent and is not an independently incorporated firm separate from
the parent
b.an affiliate organization of the mnc that is independently incorporated in the foreign
country, and one in which the u.s. mnc owns at least 51 percent of the voting equity
stock
c.an affiliate organization of the mnc that is independently incorporated in the foreign
country, and one in which the u.s. mnc owns at least 10 percent but less than 50 percent
of the voting equity stock
d.b and c
8) consider a bank dealer who faces the following spot rates and interest rates. what
should he set his 1-year forward ask price at?
a.$1.4324/
b.$1.4358/
c.$1.4662/
d.$1.4676/
9) in the frankfurt market, aldi stock closed at 5 per share. on the same day, the euro u.s.
dollar spot exchange rate was .625/$1.00. aldi trades as an adr in the otc market in the
united states. five underlying aldi shares are packaged into one adr. the no-arbitrage u.s.
price of one adr is
a.25.00
b.$15.625
c.$40
d.none of the above
10) a depreciation will begin to improve the trade balance immediately if
a.imports and exports are responsive to the exchange rate changes
b.imports and exports are inelastic to the exchange rate changes
c.consumers exhibit brand loyalty and price inelasticity
d.b and c
11) a switch trade
a.is the purchase by a third party of one country’s a clearing agreement balance for hard
currency
b.is a form of barter
c.involves two parties agreeing to buy a specified amount of goods or services from one
another
d.all of the above
12) countries may welcome greenfield investments,
a.as they are viewed as representing new investment and employment opportunities
b.as they are viewed as substitutes for foreign firms’ bids to acquire domestic firms
c.but they are also often resisted and sometimes even resented by the local firms
d.none of the above
13) nondollar currency transactions
a.are priced by looking at the price that must exist to eliminate arbitrage
b.allow for triangular arbitrage opportunities to keep the currency dealers employed
c.are only for poor people who don’t have dollars
d.none of the above
14) academic studies tend to discredit the validity of technical analysis. which of the
following is true?
a.this can be viewed as support technical analysis
b.it can be rational for individual traders to use technical analysisif enough traders use
technical analysis the predictions based on it can become self-fulfilling to some extent,
at least in the short-run
c.that can be explained by the difficulty professors may have in differentiating between
technical analysis and fundamental analysis
d.none of the above