1) the maastricht treaty
a.irrevocably fixed exchange rates among the member currencies
b.commits the members of the european union to political union as well as monetary
union
c.was signed and subsequently ratified by the 12 member states
d.all of the above
2) compute the domestic country beta of stansfield bicycles as well as its world beta.
a.1.00 and 0.80 respectively
b.0.80 and 0.00 respectively
c.4.50 and 4.00 respectively
d.none of the above
3) which factors are related to the collapse of the argentine currency board system and
ensuing economic crisis?
a.the lack of fiscal discipline on the part of the argentine government
b.labor market inflexibility
c.contagion from the financial crises in russia and brazil
d.all of the above
4) value a 1-year call option written on £10,000 with an exercise price of $2.00 = £1.00.
the spot exchange rate is $2.00 = £1.00; the u.s. risk-free rate is 5% and the u.k.
risk-free rate is also 5%. in the next year, the pound will either double in dollar terms or
fall by half (i.e. u = 2 and d = ). hint: h = .
a.$6,349.21
b.
c.
d.none of the above
5) find the debt-to-value ratio for a firm with a debt-to-equity ratio of 5.
a.3/4
b.7/9
c.4/5
d.9/11
e.5/6
6) the ‘sharpe performance measure” (shp) is
a.a “risk-adjusted” performance measure
b.the excess return (above and beyond the risk-free interest rate) per standard deviation
risk
c.the sensitivity level of a national market to world market movements
d.both a and b
7) assume the time from acceptance to maturity on a $1,000,000 banker’s acceptance is
180 days. further assume that the importing bank’s acceptance commission is 1.25
percent and that the market rate for 180-day b/as is 5.0 percent. calculate the amount the
exporter will receive if he holds it to maturity.
a.$906,250
b.$909,375
c.$968,750
d.$993,750
8) economic exposure refers to
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
9) the most widely used futures contract for hedging short-term u.s. dollar interest rate
risk is
a.the eurodollar contract
b.the euroyen contract
c.the euribor contract
d.none of the above
10) which factors appear to be fueling the sale of yankee stocks?
a.the push for privatization by many latin american and eastern european
government-owned companies
b.the rapid growth in the economies of the developing countries
c.the large demand for new capital by mexican companies following approval of the
north american free trade agreement
d.all of the above
11) the term “capital-import neutrality” refers to
a.the criterion that an ideal tax should be effective in raising revenue for the
government and not have any negative effects on the economic decision-making
process of the taxpayer
b.the fact that taxable income is taxed in the same manner by the taxpayer’s national tax
authority regardless of where in the world it is earned
c.the criterion that the tax burden a host country imposes on the foreign subsidiary of a
mnc should be the same regardless in which country the mnc is incorporated and the
same as that placed on domestic firms
d.underlying principle that all similarly situated taxpayers should participate in the cost
of operating the government according to the same rules
12) the u.s. irs allows transfer prices to be set using comparable uncontrolled price
method. this method is difficult to apply in practice because many factors enter into the
pricing of goods and services. examples include
a.differences in the terms of sale
b.differences in quantity and or quality sold
c.differences in location or date of sale
d.all of the above
13) which of the following are true statements?
a.since translation exposure does not have an immediate direct effect on operating cash
flows, its control is relatively unimportant in comparison to transaction exposure, which
involves potential real cash flow losses
b.since it is generally not possible to eliminate both translation exposure and transaction
exposure, it is more logical to effectively manage transaction exposure
c.two ways to control translation risk are: a balance sheet hedge and a derivatives
“hedge.”
d.all of the above are true statements
14) your firm’s interaffiliate cash receipts and disbursements matrix is shown below
($000):
fill out the following figure with the initial situation shown in the table.
15) consider the situation of firm a and firm b. the current exchange rate is $1.50/. firm
a is a u.s. mnc and wants to borrow 40 million for 2 years. firm b is a french mnc and
wants to borrow $60 million for 2 years. their borrowing opportunities are as shown;
both firms have aaa credit ratings.
explain how this opportunity affects which swap firm a will be willing to participate in.
16) your firm’s interaffiliate cash receipts and disbursements matrix is shown below
($000):
using your results to the last question, use bilateral netting to simplify.
17) assume that you are a retail customer (i.e. you buy as the ask and sell at the bid).
please note that your answers are worth zero points if they do not include currency
symbols ($, )
please note that your answers are worth zero points if they do not include currency
symbols ($, )
if you borrowed 1,000,000 for one year, how much money would you owe at maturity?
18) assume that you are a retail customer.
please note that your answers are worth zero points if they do not include currency
symbols ($, )
if you had 1,000,000 and traded it for usd at the spot rate, how many usd will you get?