1) a “greenfield” investment
a.involves soybeans in the spring, corn in the summer
b.are generally less politically sensitive than the acquisition of an existing foreign firm
c.are generally more politically sensitive than the acquisition of an existing foreign firm
d.none of the above
2)
using the table above, what is the ask price of pounds in terms of euro?
a.1.3371/£
b.1.3378/£
c.£0.7475/
d.£0.7479/
3) international banks are different from domestic banks in what way(s)?
a.international banks can arrange trade financing
b.international banks can arrange for foreign exchange transactions
c.international banks can assist their clients in hedging exchange rate risk
d.all of the above
4) 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, in order for a country to
reduce a bca deficit, which of the following must occur?
a.for a given level of s and i, the government budget deficit (t – g) must be reduced
b.for a given level of i and (t – g), s must be increased
c.for a given level of s and (t – g), i must fall
d.all of the above would work to reduce a bca deficit
5) special drawing rights (sdr) are
a.an artificial international reserve allotted to the members of the international monetary
fund (imf), who can then use it for transactions among themselves or with the imf
b.a “portfolio” of currencies, and its value tends to be more stable than the currencies
that it is comprised of
c.used in addition to gold and foreign exchanges, to make international payments
d.all of the above
6) the cost of equity capital is
a.the expected return on the firm’s stock that investors require
b.frequently estimated by using the capital asset pricing model (capm)
c.generally considered to be a linear function of the systematic risk inherent in the
security
d.all of the above
7) solve for the weighted average cost of capital:
a.7.00%
b.6.89%
c.6.73%
d.6.67%
e.6.57%
8) a u.s. firm holds an asset in israel and faces the following scenario:
where,
p* = israeli shekel (is) price of the asset held by the u.s. firm
p = dollar price of the same asset
which of the following conclusions are correct?
a.most of the volatility of the dollar value of the israeli asset can be removed by
hedging exchange risk because b2[var(s)] and var(e) are 236,717 ($)2 and 493,751 ($)2
respectively
b.most of the volatility of the dollar value of the israeli asset cannot be removed by
hedging exchange risk because b2[var(s)] and var(e) are 236,717 ($)2 and 493,751 ($)2
respectively
c.most of the volatility of the dollar value of the israeli asset cannot be removed by
hedging exchange risk because b2[var(s)] and var(e) are 8.22 ($)2 and 59,211 ($)2,
respectively
d.most of the volatility of the dollar value of the israeli asset can be removed by
hedging exchange risk because b2[var(s)] and var(e) are 8.22 ($)2 and 59,211 ($)2
respectively
9) current research suggests that
a.investors can get more diversification with shares of domestic, large-cap stocks
b.investors can get more diversification with shares of domestic, small-cap stocks
c.investors can get more diversification with shares of foreign, large-cap stocks
d.investors can get more diversification with shares of foreign, small-cap stocks
10) the impact of financing in determining the functional currency
a.financing does not impact the choice of functional currency due to the integrated
nature of capital markets
b.if the financing of the foreign entity is primarily denominated in the foreign currency
and the debt service obligations are normally handled by the foreign entity, the
functional currency is the foreign currency
c.if the financing of the foreign entity is primarily from the parent, with debt service
obligations are normally handled by the parent, the functional currency is the home
currency
d.both b and c
11) find the debt-to-value ratio for a firm with a debt-to-equity ratio of 2.
a.
b.
c.3/5
d.
e.5/7
12) consider a project of the cornell haul moving company, the timing and size of the
incremental after-tax cash flows (for an all-equity firm) are shown below in millions:
the firm’s tax rate is 34%; the firm’s bonds trade with a yield to maturity of 8%; the
current and target debt-equity ratio is 3; if the firm were financed entirely with equity,
the required return would be 10%
using the apv method, what is the value of the debt side effects?
a.$239,072,652.70
b.$66,891,713.66
c.$59,459,301.03
d.$660,000,000
e.none of the above
13) in the united states
a.boards of directors are legally responsible for representing the interests of the
shareholders
b.due to the diffused ownership structure of the public company, management often gets
to choose board members who are likely to be friendly to management
c.there is a correlation between underperforming firms and boards of directors who are
not fully independent
d.all of the above are true, in the united states
14) the advent of the euro marks the first time that sovereign countries have voluntarily
given up their
a.national borders to foster economic integration
b.monetary independence to foster economic integration
c.fiscal policy independence to foster economic integration
d.national debt to foster economic integration
15) which of the following can a company use to manage operating exposure?
a.selecting low-cost production sites, diversifying the market
b.low cost production sites, but not financial hedging
c.pursuing a flexible sourcing policy, product differentiation, r&d efforts
d.both a and c
16) your firm is based in southern ireland (and thereby operates in euro, not pounds)
and is considering an investment in the united states.
the project involves selling widgets: you project a sales volume of 50,000 widgets per
year, sales price of $20 per widget with a contribution margin of $15 per widget.
the project will last for 5 years, require an investment of $1,000,000 at time zero (which
will be depreciated straight-line to $10,000 over the 5 years). salvage value for the
equipment is projected to be $10,000. the project will operate in rented quarters:
$300,000 rent is due at the start of each year.
the corporate tax rate is 12% in ireland and 40% in the u.s.
for simplicity, assume that taxes are paid like sales taxes: immediately.
the spot exchange rate is $1.50 = 1.00. the cost of capital to the irish firm for a domestic
project of this risk is 8%. the u.s. risk-free rate is 3%; the irish risk-free rate is 2%.
what is cf1 in dollars?
17) suppose that the swap that you proposed in question 2 is now 4 years old (i.e. there
is exactly one year to go on the swap). the fourth payment has already been made. if the
spot exchange rate prevailing in year 4 is $1.8778 = 1 and the 1-year forward exchange
rate prevailing in year 4 is $1.95 = 1, what is the value of the swap to the party paying
dollars? if the swap were initiated today the correct rates would be as shown:
18) the time from acceptance to maturity on a $1,000,000 banker’s acceptance is 60
days.
the importing bank’s acceptance commission is 1.00 percent and that the market rate for
60-day b/as is 5 percent.
determine the amount the exporter will receive if he holds the b/a until maturity.
19) the time from acceptance to maturity on a $1,000,000 banker’s acceptance is 60
days.
the importing bank’s acceptance commission is 1.00 percent and that the market rate for
60-day b/as is 5 percent.
determine the bond equivalent yield the importer’s bank will earn from discounting the
b/a with the exporter.
20) using your results from parts a and b find the value of this put option (in ).
your answer is worth zero points if it does not include currency symbols ()!