1) according to the research in the accuracy of paid exchange rate forecasters,
a.you can make more money selling forecasts than you can following forecasts
b.the average forecaster is better than average at forecasting
c.the forecasters do a better job of predicting the future exchange rates than the market
does
d.none of the above
2) in the united states, it is well documented that
a.boards dominated by their chief executives are prone to trouble
b.public scrutiny can help improve corporate governance
c.as public firms improve their corporate governance, the stock price goes up
d.all of the above
3) the less correlated the securities in a portfolio,
a.the lower the portfolio risk
b.the higher the portfolio risk
c.the lower the unsystematic risk
d.the higher the diversifiable risk
4) teltrex international can borrow $3,000,000 at libor plus a lending margin of .75
percent per annum on a three-month rollover basis from barclays in london. suppose
that three-month libor is currently 5 1732 percent. further suppose that over the second
three-month interval libor falls to 5 18 percent. how much will teltrex pay in interest to
barclays over the six-month period for the eurodollar loan?
a.$79,921.875
b.$91,171.88
c.$96,174.39
d.$364,687.52
5) a crowd of floor traders on the nyse
a.may arrive at a more favorable price for their clients “inside” the specialist’s bid and
ask quotes
b.are obliged to execute their trades through a specialist
c.are allowed to “front run” their own trades ahead of customer trades
d.all of the above
6) cross-border acquisition involves
a.building new production facilities in a foreign country
b.buying existing foreign business
c.both a and b
d.none of the above
7) there is an intimate relationship between a country’s bca and how the country
finances its domestic investment and pays for government expenditures. this
relationship is given by bca x – m (s – i) + (t – g). given this, which of the following is a
true statement?
a.if (s – i) < 0, it implies that a country’s domestic savings is insufficient to finance
domestic investment
b.if (t – g) < 0, it implies that a country’s tax revenue is insufficient to finance
government spending
c.when bca is negative, it implies that government budget deficits an/or part of domestic
investment are being finance with foreign-controlled capital
d.all of the above are true
8) suppose that the british stock market is integrated with the rest of the world and
stansfield company has made its shares tradable internationally via cross-listing on the
nyse. using the capm and a risk-free rate of 5%, estimate the equity cost of capital for
stansfield.
a.12%
b.10.60%
c.6.60%
d.none of the above
9) your firm is a u.k.-based exporter of british bicycles. you have sold an order to an
italian firm for 1,000,000 worth of bicycles. payment from the italian firm (in ) is due in
twelve months. your firm wants to hedge the receivable into pounds. not dollars.
interest rates are 3% in , 2% in $ and 4% in £.
detail a strategy using spot exchange rates and borrowing or lending that will hedge
your exchange rate risk.
a.borrow 970,873.79 in one year you owe 1m, which will be financed with the
receivable. convert 970,873.79 to dollars at spot, receive $1,165,048.54. convert dollars
to pounds at spot, receive £728,155.34
b.sell 1m forward using 16 contracts at $1.20 per 1. buy £750,000 forward using 12
contracts at $1.60 per £1
c.sell 1m forward using 16 contracts at the forward rate of $1.29 per 1. buy £750,000
forward using 12 contracts at the forward rate of $1.72 per £1
d.none of the above
10) the current spot exchange rate is $1.55 = 1.00; the three-month u.s. dollar interest
rate is 2%. consider a three-month american call option on 62,500 with a strike price of
$1.50 = 1.00. what is the least that this option should sell for?
a.$0.05 62,500 = $3,125
b.$3,125/1.02 = $3,063.73
c.$0.00
d.none of the above
11) the world’s largest debtor nation and creditor nation, respectively, are
a.japan and the u.s
b.the u.s. and japan
c.the u.s. and canada
d.great britain and mexico
12) you are a bank and your customer asks you to quote an agreed-upon rate for a 3 9
fra. you observe the following rates.
what rate should you quote?
a.5.96%
b.4.96%
c.1.94%
d.none of the above
13) empirical tests of the black-scholes option pricing formula
a.have faced difficulties due to nonsynchronous data
b.suggest that when using simultaneous price data and incorporating transaction costs
they conclude that the phlx american currency options are efficiently priced
c.suggest that the european option-pricing model works well for pricing american
currency options that are at- or out-of-the money, but does not do well in pricing
in-the-money calls and puts
d.all of the above
14) in general, standard & poor’s emerging markets data base classified a stock market
as “emerging” if
a.it is located in a low- or middle-income economy as defined by the world bank
b.its investable market capitalization is low relative to its most recent gni figures
c.either a or b
d.none of the above
15) the time from acceptance to maturity on a $500,000 banker’s acceptance is 270
days.
the importing bank’s acceptance commission is 0.75 percent and that the market rate for
270-day b/as is 4 percent.
determine the bond equivalent yield the importer’s bank will earn from discounting the
b/a with the exporter.
16) calculate the euro-based return an italian investor would have realized by investing
10,000 into a $50 american stock using 50% margin. one year after investment, the
stock pays a $1 dividend, and sells for $54 the exchange has changed from .625 per
dollar to .6875 per dollar. the interest on the margin loan is 1% per year. the margin loan
was denominated in dollars.
17) the time from acceptance to maturity on a $30,000,000 banker’s acceptance is 45
days.
the importing bank’s acceptance commission is 1.5 percent and that the market rate for
45-day b/as is 4 percent.
if the exporter’s opportunity cost of capital is 11 percent, should he discount the b/a or
hold it to maturity?
18) assume that you are a retail customer.
please note that your answers are worth zero points if they do not include currency
symbols ($, )
if you borrowed $1,000,000 for one year, how much money would you owe at
maturity?
19)
please note that your answers are worth zero points if they do not include currency
symbols ($, )
if you borrowed $1,000,000 for one year, how much money would you owe at
maturity?
20) consider the situation of firm a and firm b. the current exchange rate is $2.00/£ firm
a is a u.s. mnc and wants to borrow £30 million for 2 years. firm b is a british mnc and
wants to borrow $60 million for 2 years. their borrowing opportunities are as shown,
both firms have aaa credit ratings.
explain how this opportunity affects which swap firm b will be willing to participate in.
21) your firm’s interaffiliate cash receipts and disbursements matrix is shown below
($000):
using your results to the last question, use bilateral netting to simplify.
22) your firm’s interaffiliate cash receipts and disbursements matrix is shown below
($000):
fill out the following figure with the initial situation shown in the table.
23) what is the euro-denominated irr of this project?
consider the following international investment opportunity: