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1) to pave the way for the european monetary union, the member countries of the
european monetary system agreed to achieve a convergence of their economies. which
of the following is not a condition of convergence:
a.keep the ratio of government budget deficits to gdp below 3 percent
b.keep gross public debts below 60 percent of gdp
c.achieve a high degree of price stability
d.maintain its currency at a fixed exchange rate to the erm
2) factor income
a.consists largely of interest, dividends, and other income on foreign investments
b.is a theoretical construct of the factors of production, land, labor, capital, and
entrepreneurial ability
c.is generally a very minor part of national income accounting, smaller than the
statistical discrepancy
d.none of the above
3) if the central banks of the world chose to diversify their foreign-exchange reserves
away from the dollar and into the euro,
a.this would have the result of a strengthening of the value of the dollar
b.this have the result of a weakening in the value of the dollar
c.this would not have much impact, as the information would be lost in the day-to-day
volatility of exchange rates
4) a 1-year, 4 percent euro denominated bond sells at par. a comparable risk 1-year, 5.5
percent euro/dollar dual-currency bond pays $1,500 at maturity per 1,000 of face value.
it sells for 1,250. what is the implied $/ exchange rate at maturity?
a.0.8300/$1.00
b.$1.2048/1.00
c.$1.25/1.00
d.$1.50/1.00
5) once capital markets are integrated, it is difficult for a country to maintain a fixed
exchange rate. why?
a.the market forces may be stronger than the exchange rate intervention that the
government can muster
b.portfolio managers will not invest in countries with fixed exchange rates
c.because of the tobin tax
d.none of the above
6) major distinguishing features between domestic banks and international banks are
a.the types of deposits they accept
b.the types of loans and investments they make
c.membership in loan syndicates
d.all of the above
7) government controlled investment funds, known as sovereign wealth funds,
a.are playing a less-important role in international finance following the end of the
fixed exchange rate era
b.are mostly domiciled in asian and middle eastern countries
c.are usually are responsible for converting trade surpluses and oil revenues into foreign
exchange reserves
d.none of the above
8) tobin's q is
a.the ratio of the market value of company assets to the replacement costs of the assets
b.a means to find overvalued stocks: if q is high it means that the cost to replace a firm's
assets is greater than the value of its stock
c.the same as the price-to-book ratio
d.both a and b are correct
9) by far the most important international finance centers are
a.new york and london
b.new york, london, and tokyo
c.new york, london, tokyo, paris, and zurich
d.new york, london, tokyo, paris, zurich, and frankfurt
10) self-interested managers may be tempted to
a.indulge in expensive perquisites at company expense
b.adopt anti-takeover measures for their company to ensure their personal job security
c.waste company funds by undertaking unprofitable projects that benefit themselves but
not shareholders
d.all of the above are potential abuses that self-interested managers may be tempted to
visit upon shareholders
11) xyz corporation, located in the united states, has an accounts payable obligation of
¥750 million payable in one year to a bank in tokyo. the current spot rate is ¥116/$1.00
and the one year forward rate is ¥109/$1.00. the annual interest rate is 3 percent in
japan and 6 percent in the united states. xyz can also buy a one-year call option on yen
at the strike price of $0.0086 per yen for a premium of 0.012 cent per yen. the future
dollar cost of meeting this obligation using the forward hedge is
a.$6,450,000
b.$6,545,400
c.$6,653,833
d.$6,880,734
