1) from the perspective of the writer of a put option written on 62,500. if the strike price
is $1.55/, and the option premium is $1,875, at what exchange rate do you start to lose
money?
a.$1.52/
b.$1.55/
c.$1.58/
d.none of the above
2) a bank may establish a multinational operation for the reason of transaction costs. the
underlying rationale being that
a.banks follow their multinational customers abroad to prevent the erosion of their
clientele to foreign banks seeking to service the multinational’s foreign subsidiaries
b.multinational banking operations help a bank prevent the erosion of its traveler’s
check, tourist, and foreign business markets from foreign bank competition
c.by maintaining foreign branches and foreign currency balances, banks may reduce
transaction costs and foreign exchange risk on currency conversion if government
controls can be circumvented
d.multinational banks are often not subject to the same regulations as domestic banks.
there may be reduced need to publish adequate financial information, lack of required
deposit insurance and reserve requirements on foreign currency deposits, and the
absence of territorial restrictions
3) eurocredits feature rollover pricing.
a.rollover pricing was created on eurocredits so that eurobanks do not end up paying
more on eurocurrency time deposits than they earn from the loans
b.because of the rollover pricing feature, a eurocredit may be viewed as a series of
shorter-term loans, where at the end of each time period (generally three or six months),
the loan is rolled over and the base lending rate is repriced to current libor over the next
time interval of the loan
c.the lending rate on these eurocredits is stated as libor + x percent, where x is the
lending margin charged depending upon the creditworthiness of the borrower. libor is
reset according to a set schedule
d.all of the above are true
4) generally speaking, when both a firm’s costs and its price is sensitive to exchange
rate changes
a.the firm is not subject to high degrees of operating exposure
b.the firm is subject to high degrees of operating exposure
c.the firm should hedge
d.none of the above
5) a major that can be eliminated through a swap is exchange rate risk.
a.but only to the extent that a foreign counterparty will not default in a currency swap
b.but only if the bid-ask spreads are wide
c.but swaps can be less efficient in this than just trading at the expected spot exchange
rates each year
d.none of the above
6) a u.s. firm holds an asset in israel and faces the following scenario:
where,
p* = israeli shekel (is) price of the asset held by the u.s. firm
p = dollar price of the same asset
the expected value of the investment in u.s. dollars is:
a.$2,083.33
b.$762.50
c.$6,250.00
d.$6,562.50
7) the spot market
a.involves the almost-immediate purchase or sale of foreign exchange
b.involves the sale of futures, forwards, and options on foreign exchange
c.takes place only on the floor of a physical exchange
d.all of the above
8) a “registered bond” is one that
a.shows the owner’s name on the bond
b.the owner’s name is recorded by the issuer
c.the owner’s name is assigned to a bond serial number recorded by the issuer
d.all of the above
9) the majority of foreign vertical integration is
a.backward
b.forward
c.sideways
d.none of the above
10) your firm is an italian importer of bicycles. you have placed an order with a swiss
firm for sfr. 2,000,000 worth of bicycles. payment (in francs) is due in 12 months. detail
a strategy using futures contracts that will hedge your exchange rate risk. have an
estimate of how many contracts of what type and maturity.
a.go long 200 12-month swiss franc futures contracts; and long 125 12-month euro
futures contracts
b.go short 200 12-month swiss franc futures contracts; and short 125 12-month euro
futures contracts
c.go long 200 12-month swiss franc futures contracts; and short 125 12-month euro
futures contracts
d.go short 200 12-month swiss franc futures contracts; and long 125 12-month euro
futures contracts
e.none of the above
11) when using the current/noncurrent method,
a.most income statement items are translated at the average exchange rate for the
accounting period
b.revenue and expense items that are associated with noncurrent assets or liabilities are
translated at the historical rate that applies to the applicable balance sheet items
c.depreciation expense is translated at the historical rate that applies to the applicable
depreciable asset items
d.all of the above
12) 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)
13) as capital markets are becoming more integrated, the goal of shareholder wealth
maximization
a.has been altered to include other goals as well
b.has lost out to other goals, even in the u.s
c.has been given increasing importance by managers in europe
d.has been shown to be a deterrent to raising funds abroad
14) when using the current/noncurrent method, current assets are defined as
a.inventory that is currently salable
b.assets with a maturity of one year or less
c.assets with a maturity of 90 days or less
d.none of the above
15) which one of the following is a false statement when engaged in bilateral netting?
a.total interaffiliate receipts will always equal total interaffiliate disbursements
b.we can reduce the number of foreign exchange transactions among a mnc with n
affiliates to or less
c.each affiliate nets all its interaffiliate receipts against all its disbursements. it then
transfers or receives the balance, respectively, if it is a net receiver or payer respectively
d.all of the above
16) the “open interest” shown in currency futures quotations is
a.the total number of people indicating interest in buying the contracts in the near future
b.the total number of people indicating interest in selling the contracts in the near future
c.the total number of people indicating interest in buying or selling the contracts in the
near future
d.the total number of long or short contracts outstanding for the particular delivery
month
17) “yankee” bonds are
a.dollar-denominated foreign bonds originally sold to u.s. investors
b.yen-denominated foreign bonds originally sold in japan
c.pound sterling-denominated foreign bonds originally sold in the u.k
d.none of the above
18) “bulldog” bonds are
a.dollar-denominated foreign bonds originally sold to u.s. investors
b.yen-denominated foreign bonds originally sold in japan
c.pound sterling-denominated foreign bonds originally sold in the u.k
d.none of the above