1) xyz corporation enters into a 6-year interest rate swap with a swap bank in which it
agrees to pay the swap bank a fixed-rate of 9 percent annually on a notional amount of
sfr10,000,000 and receive libor – percent. as of the third reset date (i.e. mid-way
through the 6 year agreement), calculate the price of the swap, assuming that the
fixed-rate at which xyz can borrow has increased to 10%.
a.sfr248,685
b.sfr900,000
c.sfr2,700,000
d.sfr7,300,000
2) the rate charged by banks with excess funds is referred to as the interbank offered
rate; they will accept interbank deposits at the interbank bid rate.
a.the spread is generally 1/8 of 1 percent for most major eurocurrencies
b.the spread is generally referred to as “the ted spread”
c.the spread is generally referred to as the bid-ask commission
d.none of the above
3) find the price of a 30-year zero coupon bond with a 1,000 par value that has a yield
to maturity of i = 5 percent.
a.231.38
b.432.20
c.4,321.94
d.none of the above
4) the difference between accounting exposure and translation exposure
a.translation is about going from one language to another, accounting is just about the
numbers
b.accounting exposure and translation exposure are the same thing
c.hedging one always involves increasing the other
d.hedging one might involve increasing the other
5) countertrade transactions are
a.becoming obsolete as a means of conducting international trade transactions
b.gaining renewed prominence as a means of conducting international trade transactions
c.strictly a form of barter
d.none of the above
6) studies show that international stock markets tend to move more closely together
when the volatility is higher. this finding suggests that
a.investors should liquidate their portfolio holdings during turbulent periods
b.since investors need risk diversification most precisely when markets are turbulent,
there may be less benefit to international diversification for investors who liquidate
their portfolio holdings during turbulent periods
c.this kind of correlation is why international portfolio diversification is smart for
today’s investor
d.none of the above
7) in a given year, the u.s. irs places an overall limitation applied to foreign tax credits.
a.the maximum tax credit is figured on world-wide foreign-source income; losses in one
country can offset profits in another
b.value-added taxes paid cannot be included in determining the amount of the foreign
tax credit
c.the overall limitation is limited to the amount of tax that would be due on the
foreign-source income if it had been earned in the united states
d.all of the above
8) using the temporal method, monetary accounts such as cash
a.are not translated
b.are translated at the average exchange rate prevailing over the reporting period
c.are translated at the current forward exchange rate
d.are translated at the current spot exchange rate
9) correspondent bank services include
a.prepaid postage and packing materials
b.letters of introduction
c.foreign exchange conversions
d.both b and c
10) which of the following are true?
a.some items that are a source of transaction exposure are also a source of translation
exposure
b.some items that are a source of transaction exposure are not also a source of
translation exposure
c.both a and b
d.none of the above
11) the underlying philosophy of the monetary/nonmonetary method is that
a.monetary accounts have a similarity because their value represents a sum of money
whose currency equivalent after translation is independent of exchange rate changes
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.assets and liabilities should be translated based on their maturity
d.most income statement items are translated at the average exchange rate for the
period. depreciation and cost of goods sold, however, are translated at historical rates if
the associated balance sheet accounts are carried at historical costs
12) in a hostile takeover attempt, the bidder typically
a.makes a tender offer to the target shareholders at a price substantially less than the
prevailing share price
b.makes a tender offer to the target shareholders at the prevailing share price
c.makes a tender offer to the target shareholders at a price substantially exceeding the
prevailing share price
d.seeks to merge with the target company with an exchange of shares
13) draw the tree for a put option on $20,000 with a strike price of £10,000. the current
exchange rate is £1.00 = $2.00 and in one period the dollar value of the pound will
either double or be cut in half. the current interest rates are i$ = 3% and are i£ = 2%.
a.
b.
c.none of the above
14) many lessons should be learned from the credit crunch.
a.one lesson is that credit rating agencies need to refine their models for evaluating
esoteric credit risk created in mbs and cdos
b.one lesson is that borrowers must be more wary of putting complete faith in credit
ratings
c.one lesson is that bankers seem not to scrutinize credit risk as closely when they serve
only as mortgage originators and then pass it on to mbs investors rather than hold the
paper themselves
d.all of the above
15) the management of translation exposure is best described as
a.selecting a mechanical means for handling the consolidation process for mncs that
logically deals with exchange rate changes
b.selecting a mechanical means for handling the consolidation process for mncs that
makes this quarter’s accounting numbers as attractive as possible
c.selecting a mechanical means for handling the consolidation process for mncs that
treats inventory valuation as lifo on the income statement and fifo on the balance sheet
d.selecting a mechanical means for handling the consolidation process for mncs that
treats inventory valuation as fifo on the income statement and lifo on the balance sheet