1) the link between the home currency value of a firm’s assets and liabilities and
exchange rate fluctuations is
a.asset exposure
b.operating exposure
c.both a and b
d.none of the above
2) on september 10, 1990 the published prices (cents on the dollar) on latin american
bank debt was quoted as follows:
assume that the central banks of mexico, venezuela, and chile redeemed their debts at
50 percent, 85 percent, and 76 percent, respectively, of face value in a debt-for-equity
swap. if the three countries had equal political risk, based purely on financial
considerations, the cost of a $40,000,000 assembly plant investment in local currency
would be ranked (lowest to highest) in dollar cost as follows:
a.venezuela first, mexico second, chile third
b.venezuela first, chile second, mexico third
c.chile first, venezuela second, mexico third
d.mexico first, chile second, venezuela third
3) in highly inflationary economies, fasb 52 requires that the foreign entities financial
statement be remeasured from the local currency “as if the functional currency were the
reporting currency”. the purpose of this requirement is
a.to prevent large important balance sheet accounts, carried at historical values, from
having insignificant values once translated into the reporting currency at the current rate
b.to prevent games playing in the accounting books
c.to prevent having to restate the books at a later date
d.none of the above
4) the first two columns give the maximum daily amounts of beer and whiskey that
southern ireland and northern ireland can produce when they completely specialize in
one or other product. the last two columns give each country’s consumption without
trade.
what is the price of beer without trade in southern ireland?
a.2 bottles of whiskey = 3 kegs of beer
b.5 bottles of whiskey = 12 kegs of beer
c.1 bottle of whiskey = 1 kegs of beer
5) according to the theory of optimum currency areas,
a.the relevant criterion for identifying and designing a common currency zone is the
degree of factor (i.e. capital and labor) mobility within the zone
b.exchange rates should reflect the degree to which workers are willing to move to get a
better job
c.exchange rates are determined by portfolio managers seeking the highest return
d.none of the above
6) a 5-year swap contract can be viewed as a portfolio of 5 forward contracts with
maturities of 1, 2, 3, 4 and 5 years. one important exception is that
a.the forward price is the same for the swap contract but not for the forward contracts
b.the swap contract will have daily resettlement
c.the forward contracts will have resettlement risk
d.none of the above
7) when a currency trades at a discount in the forward market
a.the forward rate is less than the spot rate
b.the forward rate is more than the spot rate
c.the forward exchange rate is less than one dollar (e.g. 1.00 = $0.928)
d.the exchange rate is less than it was yesterday
8) while the corporate governance problem is not confined to the united states,
a.it can be a much more serious problem in many other parts of the world, where legal
protection of shareholders is weak or nonexistent
b.it has reached its high point in the united states
c.the u.s. legal system, with lawsuits used only as a last resort, ensured that any
conflicts of interest will soon be a thing of the past
d.none of the above
9) suppose that the one-year interest rate is 3.0 percent in the italy, the spot exchange
rate is $1.20/, and the one-year forward exchange rate is $1.18/. what must one-year
interest rate be in the united states?
a.1.2833%
b.1.0128%
c.4.75%
d.none of the above
10) the turnover ratio percentages for 27 equity markets of developed countries for the
five years beginning with 2002 were measured. most national equity markets had very
high turnover ratios, with the great majority in excess of
a.15 percent turnover per year
b.25 percent turnover per year
c.50 percent turnover per year
d.75 percent turnover per year
11) under the fixed exchange rate regime
a.the combined balance on the current and capital accounts will be equal in size, but
opposite in sign, to the change in the official reserves
b.the balance on the current and capital accounts will be equal in size, but opposite in
sign
c.a current account surplus or deficit must be matched by an official reserves deficit or
surplus
d.a capital account surplus or deficit must be matched by an official reserves deficit or
surplus
12) during the 1980s, cross-border equity investment was largely confined
a.to the equity markets of developed countries
b.to the emerging equity markets
c.to the equity markets of the former soviet union
d.none of the above
13) covered interest arbitrage (cia) activities will result in
a.an unstable international financial markets
b.restoring equilibrium prices quickly
c.a disintermediation
d.no effect on the market