1) with regard to the capital account
a.the capital account balance measures the difference between u.s. sales of assets to
foreigners and u.s. purchases of foreign assets
b.u.s. sales (or exports) of assets are recorded as credits, as they result in capital inflow
c.u.s. purchases (imports) of foreign assets are recorded as debits, as they lead to capital
outflow
d.all of the above
2) suppose that you are a u.s. producer of a commodity good competing with foreign
producers. your inputs of production are priced in dollars and you sell your output in
dollars. if the u.s. currency depreciates against the currencies of our trading partners,
a.your competitive position is likely improved
b.your competitive position is likely worsened
c.your competitive position is unchanged
3) some countries allow interaffiliate transactions to be settled only on a gross basis.
that is,
a.all receipts for a settlement period must be grouped into a single large receipt and all
disbursements must be grouped into a single large payment
b.all receipts and disbursements for a settlement period must be handled individually
c.all receipts and disbursements for a settlement period must be netted against each
other and then a single large payment is made
d.each affiliate nets all its interaffiliate receipts against all its disbursements. it then
transfers or receives the balance, respectively, if it is a net payer or receiver
4) for european currency options written on euro with a strike price in dollars, what of
the effect of an increase in r$ relative to r?
a.decrease the value of calls and puts ceteris paribus
b.increase the value of calls and puts ceteris paribus
c.decrease the value of calls, increase the value of puts ceteris paribus
d.increase the value of calls, decrease the value of puts ceteris paribus
5) the sensitivity of the firm’s consolidated financial statements to unexpected changes
in the exchange rate is
a.transaction exposure
b.translation exposure
c.economic exposure
d.none of the above
6) exchange rate risk of a foreign currency payable is an example of
a.transaction exposure
b.translation exposure
c.economic exposure
d.none of the above
7) suppose mexico is a major export market for your u.s.-based company and the
mexican peso depreciates drastically against the u.s. dollar, as it did in december 1994.
this means that
a.your company’s products can be priced out of the mexican market, as the peso price of
american imports will rise following the peso’s fall
b.your firm will be able to charge more in dollar terms while keeping peso prices stable
c.your domestic competitors will enjoy a period of facing little price competition from
mexican imports
d.both b and c are correct
8) in the swap market, which position potentially carries greater risks, broker or dealer?
a.broker
b.dealer
c.they are the same swaps, therefore the same risks
9) financial development can contribute to economic growth in what way(s)?
a.financial development enhances savings
b.financial development channels savings toward real investments in productive
capacities
c.financial development enhances the efficiency of investment allocation through the
monitoring and signaling functions of capital markets
d.all of the above
10) the most popular way for a u.s. bank to expand overseas is
a.branch banks
b.representative offices
c.subsidiary banks
d.affiliate banks
11) under the current rate method,
a.income statement items are to be translated at the exchange rate at the dates the items
are recognized
b.since a is generally impractical, an appropriately weighted average exchange rate for
the period may be used for translation
c.all balance sheet accounts are translated at the current exchange rate, except
stockholder equity
d.all of the above
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 weighted average cost of capital methodology, what is the npv? i didn’t round
my intermediate steps. if you do, you’re not going to get the right answer.
a.-$1,406,301.25
b.$12,494,643.75
c.$36,580,767.55
d.$108,994.618.20
e.$59,459,301.03
13) solve for the weighted average cost of capital:
a.8.67%
b.8.00%
c.7.60%
d.7.33%
e.7.14%
14) the largest and most active financial market in the world is
a.the fleet street exchange in london
b.the nyse in new york
c.the fx market
d.none of the above
15) suppose that you are the treasurer of ibm with an extra u.s. $1,000,000 to invest for
six months. you are considering the purchase of u.s. t-bills that yield 1.810% (that’s a
six month rate, not an annual rate by the way) and have a maturity of 26 weeks. the spot
exchange rate is $1.00 = ¥100, and the six month forward rate is $1.00 = ¥110. what
must the interest rate in japan (on an investment of comparable risk) be before you are
willing to consider investing there for six months?
a.11.991%
b.1.12%
c.7.45%
d.-7.45%
16) your firm is an italian importer of british bicycles. you have placed an order with a
british firm for £1,000,000 worth of bicycles. payment (in pounds sterling) is due in 12
months. use a money market hedge to redenominate this one-year receivable into a
euro-denominated receivable with a one-year maturity.
the following were computed without rounding. select the answer closest to yours.
a.1,225,490.20
b.1,244,212.10
c.1,250,000
d.1,219,815.78
17) suppose that you are a swap bank and you notice that interest rates on zero coupon
bonds are as shown. develop the 3-year bid price of a euro swap quoted against flat usd
libor.
in other words, what you be willing to pay in euro against receiving usd libor?
a.5%
b.4%
c.3%
d.2%
18) the secondary equity markets of the world serve two major purposes. they provide
a.marketability and share valuation
b.liquidity and price support
c.price discovery and arbitrage
d.safety and stability
19) while debt can reduce agency costs between shareholders and management,
a.debt can create its own agency costs
b.this only happens at extreme levels of debt
c.this does not work for firms in mature industries with large cash reserves
d.none of the above is true