1) the table below shows the bushels of wheat and the bottles of beer that north and
south dakota can produce per day of labor under two different hypothetical situations
(cases i and ii).
for case ii, in what range must the “international” price of wheat fall? i.e. if north and
south dakota trade only with each other, what is the range of prices possible?
a.between 1 bushel of wheat = 4/3 bottles of beer and 1 bushel of wheat = 2 bottles of
beer
b.between 1 bushel of wheat = 3/4 bottles of beer and 1 bushel of wheat = 2 bottles of
beer
c.between 1 bushel of wheat = 3/4 bottles of beer and 1 bushel of wheat = bottles of
beer
d.none of the above
2) transaction exposure is defined as
a.the sensitivity of realized domestic currency values of the firm’s contractual cash
flows denominated in foreign currencies to unexpected exchange rate changes
b.the extent to which the value of the firm would be affected by unanticipated changes
in exchange rate
c.the potential that the firm’s consolidated financial statement can be affected by
changes in exchange rates
d.ex post and ex ante currency exposures
3) the current u.s. marginal tax rate for domestic nonfinancial corporations is 35
percent.
a.this is positioned pretty well in the middle of the rates assessed by the majority of
countries, as reported in the pricewaterhousecoopers annual corporate taxes: worldwide
summaries
b.is positioned toward the upper end of the rates assessed by the majority of countries
c.but this is reduced on a dollar-for-dollar basis for any and all taxes paid to foreign
governments, so this is an upper limit for the tax rate faced by u.s. mncs
d.all of the above
4) the bid price
a.is the price that the dealer has just paid for something, his historical cost of the most
recent trade
b.is the price that a dealer stands ready to pay
c.refers only to auctions like ebay, not over the counter transactions with dealers
d.is the price that a dealer stands ready to sell at
5) researchers have found that the fundamental approach to exchange rate forecasting
a.outperforms the efficient market approach
b.fails to more accurately forecast exchange rates than either the random walk model or
the forward rate model
c.fails to more accurately forecast exchange rates than the random walk model but is
better than the forward rate model
d.outperforms the random walk model, but fails to more accurately forecast exchange
rates than the forward rate model
6) what is the expected return on equity for firm in the 40% tax bracket with a 15%
expected return on assets that pays 12% on its debt, which totals 25% of assets?
a.24%
b.15.60%
c.16%
d.20%
e.15.75%
7) 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 2; if the firm were financed entirely with equity,
the required return would be 10%
what is the levered after-tax incremental cash flow for year 4?
a.$281,704,000
b.$465,152,000
c.-$194,848,000
d.$460,796,000
e.none of the above
8) a bank bought a “three against six” $5,000,000 fra for a three-month period
beginning three months from today and ending six months from today. the reason that
the bank bought the fra was to hedge: the bank accepted a 3-month deposit and made a
six-month loan. the agreement rate with the seller is 5.0%. assume that three months
from today the settlement rate is 5.25%. who pays whom? how much? when? the actual
number of days in the fra is 90.
a.the bank pays $3,0084.52 at the end of 3 months
b.the bank pays $3,0084.52 at the end of 6 months
c.the counterparty pays $3,0084.52 at the end of 3 months
d.the counterparty pays $3,0084.52 at the end of 6 months
9) examples of intangible assets include
a.technological, managerial, and marketing know-how
b.superior r&d capabilities
c.brand names
d.all of the above
10) your firm is a swiss exporter of bicycles. you have sold an order to a british firm for
£1,000,000 worth of bicycles. payment from the british firm (in pounds sterling) is due
in 12 months. detail a strategy using futures contracts that will hedge your exchange
rate risk. have an estimate of how many contracts of what type and maturity.
a.go short 100 12-month pound futures contracts; and long 200 12-month sfr. futures
contracts
b.go long 100 12-month pound futures contracts; and short 200 12-month sfr. futures
contracts
c.go short 100 12-month pound futures contracts; and short 200 12-month sfr. futures
contracts
d.go long 100 12-month pound futures contracts; and long 200 12-month sfr. futures
contracts
e.none of the above
11) consider a u.s. importer desiring to purchase merchandise from a dutch exporter
invoiced in euros, at a cost of 160,000. the u.s. importer will contact his u.s. bank
(where of course he has an account denominated in u.s. dollars) and inquire about the
exchange rate, which the bank quotes as 0.6250/$1.00. the importer accepts this price,
so his bank will proceed to ____________ the importer’s account in the amount of
____________.
a.debit; $256,000
b.credit; 512,100
c.credit; $500,000
d.debit; 100,000
12) in conversation, interbank foreign exchange traders use a shorthand abbreviation in
expressing spot currency quotations. consider a $/£ bid-ask quote of $1.9072-$1.9077.
the currency dealer would likely quote that as _____.
a.72-77
b.77-72
c.5 points
d.none of the above
13) the pricing-to-market phenomenon
a.describes the potential effect of foreign equity ownership restrictions
b.describes the premium or discount faced by foreign shareholders relative to domestic
investors in the price of a stock due to legal restrictions imposed on foreign equity
ownership
c.was evidenced in the relative prices of nestl shares prior to november 17, 1988
d.all of the above