1) in many countries hostile takeovers are relatively rare. this is so partly because of
a.the language barrier
b.concentrated ownership in these countries
c.cultural values and political environments disapproving hostile corporate takeovers
d.both b and c
2) a foreign branch bank operates like a local bank, but legally
a.it is a part of the parent bank
b.a branch bank is subject to both the banking regulations of its home country and the
country in which it operates
c.a branch bank is subject to only the banking regulations of its home country and not
the country in which it operates
d.both a and b
3) a firm with concentrated ownership
a.may give rise to conflicts of interest between dominant shareholders and small outside
shareholders
b.may enjoy more accounting transparency than firms with diffuse ownership structures
c.is a partnership, never a corporation
d.tends to exist overseas but not in the u.s
4) a u.s. firm holds an asset in great britain and faces the following scenario:
where,
p* = pound sterling 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.$5,050
b.$3,700
c.$2,112.50
d.none of the above
5) which of the following is a true statement?
a.generally, exchange rate volatility is greater than bond market volatility
b.when investing in international bonds, it is essential to control exchange risk to
enhance the efficiency of international bond portfolios
c.the real-world evidence suggests that investing in swiss bonds largely amounts to
investing in swiss currency
d.all of the above
6) your firm is bidding on a large construction contract in a foreign country. this
contingent exposure could best be hedged
a.with put options on the foreign currency
b.with call options on the foreign currency
c.both a and b, depending upon the specifics (“the rest of the story”)
d.with futures contracts
7) which statement is false?
a.active income is defined as income that results from production by the firm or
individual or from services that have been provided
b.passive income includes dividends and interest income, and income from royalties,
patents, or copyrights paid to the taxpayer
c.a withholding tax is a tax levied on passive income earned by an individual or
corporation of one country within the tax jurisdiction of another country
d.the current marginal u.s. income tax rate is positioned towards the lower end of the
rates assessed by the majority of other countries
8) zero coupon bonds
a.have no interest income
b.are sold at a premium to par value
c.gave only capital gains income
d.both a and c
9)
what is the bid cross-exchange rate for canadian dollars priced in euro?
hint: find the price that a currency dealer will pay in euro to buy canadian dollars.
a.0.6094/cad
b.0.6104/cad
c.0.6181/cad
d.0.6191/cad
10) suppose that $2 = £1, $1.60 = 1, and the cross exchange rate is 1.25 = £1.00. if you
own a call option on £10,000 with a strike price of $1.50, you would exercise this
option at maturity if
a.the $/£ exchange rate is at least $1.60/£
b.the $/ exchange rate is at least $1.60/
c.the /£ exchange rate is at least 1.25/£
d.none of the above
11) an offset transaction
a.can be viewed as a counterpurchase trade agreement involving the aerospace/defense
industry
b.involves a technology transfer via the sale of a manufacturing plant: as part of the
terms, the seller of the plant agrees to purchase a certain portion of the plant output
c.is the purchase by a third party of one country’s a clearing agreement balance for hard
currency
d.none of the above
12) the exchange rate mechanism (erm) is
a.the procedure by which erm member countries collectively manage their exchange
rates
b.based on a “parity-grid” system, which is a system of par values among erm countries
c.a and b
d.none of the above
13) financial accounting standards board (fasb) statements 8 and 52 relate to the
translation methods. the following outlines the objectives and descriptions of the two
statements.
(i) – measure in dollars an enterprise’s assets, liabilities, revenues, or expenses that are
denominated in a foreign currency according to generally accepted accounting
principles
(ii) – is essentially the temporal method of translation (with some subtle differences)
(iii) – provide information that is generally compatible with the expected economic
effects of a rate change on an enterprise’s cash flows and equity
(iv) – reflect in consolidated statements the financial results and relationships of the
individual consolidated entities as measured in their functional currencies in conformity
with u.s. generally accepted accounting principles
when determining the functional currency,
a.if the sales prices for the foreign entity’s products are generally not responsive on a
short-term basis to exchange rate changes, but are determined more by local
competition and government regulation, the local currency should be the functional
currency
b.if there is an active local market for the foreign entity’s products the local currency
should be the functional currency
c.if factor of production costs for the foreign entity are primarily, and on a continuing
basis, costs for components obtained from the parent’s country the function currency
should be the home currency
d.all of the above
14) operational risk refers to the risk which arises from the uncertainty about
a.the host’s country’s policies affecting the local operations of an mnc
b.the host’s country’s policy regarding ownership and control of local operations
c.cross-border flows of capital, payment, know-how, and the like
d.none of the above