1) the formula for beta is:
a.
b.
c.
d.
2) suppose the face amount of a promissory note is $1,000,000 and the importer’s bank
charges an acceptance commission of 1.5 percent. the note is for 60 days. calculate the
amount of the acceptance commission that the bank will charge.
a.$997,500
b.$15,000 = $1,000,000 (0.015)
c.$2,500
d.none of the above
3) when designing an incentive contract,
a.it is important for the board of directors to set up an independent compensation
committee that can carefully design the contract and diligently monitor manager’s
actions
b.senior executives can be trusted to not abuse incentive contracts by artificially
manipulating accounting numbers since the auditors should look in to that
c.the presence of any incentive is enough, whether it is accounting based or stock-price
based
d.the board of directors should always give the managers a “heads i win, tails you lose”
type of option
4) the first two columns give the maximum daily amounts of beer and whiskey that
southern ireland and northern ireland can produce when they completely specialize in
one or other product. the last two columns give each country’s consumption without
trade.
what is the increased amount of goods available in northern ireland after trade?
a.400 more bottles of whiskey and 200 more kegs of beer
b.1,000 more bottles of whiskey and 500 more kegs of beer
c.200 more bottles of whiskey and 400 more kegs of beer
5) considering the fact that many barriers to international portfolio investments have
been dismantled in recent years,
a.capital market imperfections as a motivating factor for fdi are likely to become more
important going forward
b.capital market imperfections as a motivating factor for fdi are likely to become less
relevant
c.labor market imperfections as a motivating factor for fdi are likely to become less
relevant
d.none of the above
6) the /$ spot exchange rate is $1.50/ and the 90-day forward premium is 10 percent.
find the 90-day forward price.
a.$1.65/
b.$1.5375/
c.$1.9125/
d.none of the above
7) the return and variance of return to a u.s. dollar investor from investing in individual
foreign security i are given by:
a.ri$ = (1 + ri)(1 + ei) – 1 and var(ri$) = var(ri)
b.ri$ = ri + ei and var(ri$) = var(ri) + var(ei)
c.ri$ = (1 + ri)(1 + ei) – 1 and var(ri$) = var(ri) + var(ei) + 2cov(ri,ei)
d.none of the above
8) under the terms of islamic finance (shari’ah law)
a.selling debt at a reduced value is strictly forbidden
b.charging interest is ok, but short selling stock is forbidden
c.buying low and selling high is forbidden
d.none of the above
9) suppose that the annual interest rate is 2.0 percent in the united states and 4 percent
in germany, and that the spot exchange rate is $1.60/ and the forward exchange rate,
with one-year maturity, is $1.58/. assume that an arbitrager can borrow up to
$1,000,000 or 625,000. if an astute trader finds an arbitrage, what is the net cash flow in
one year?
a.$238.65
b.$14,000
c.$46,207
d.$7,000
10) which factors fuel the sale of “yankee” stock offerings?
a.privatization by many latin american and eastern european government-owned
companies
b.the rapid growth in the economies of the developing world
c.the expected large demand for new capital by mexican companies now that nafta has
been approved
d.all of the above
11) suppose that the exchange rate is 1.25 = £1.00.
options (calls and puts) are available on the london exchange in units of 10,000 with
strike prices of £0.80 = 1.00. options (calls and puts) are available on the frankfurt
exchange in units of £10,000 with strike prices of 1.25 = £1.00. for a u.k. firm to hedge
a 100,000 receivable,
a.buy 10 call options on the euro with a strike in pounds sterling
b.buy 8 put options on the pound with a strike in euro
c.buy 10 put options on the euro with a strike in pounds sterling
d.buy 8 call options on the pound with a strike in euro
e.both a and b
f.both c and d
12) find the value of a call option written on 100 with a strike price of $1.00 = 1.00. in
one period there are two possibilities: the exchange rate will move up by 15% or down
by 15% (i.e. $1.15 = 1.00 or $0.85 = 1.00). the u.s. risk-free rate is 5% over the period.
the risk-neutral probability of dollar depreciation is 2/3 and the risk-neutral probability
of the dollar strengthening is 1/3.
a.$9.5238
b.$0.0952
c.$0
d.$3.1746
13) your firm’s interaffiliate cash receipts and disbursements matrix is shown below
($000):
find the net cash flow for the entire firm
a.$0 in or out
b.$5,000 out
c.$30,000 in
d.$30,000 out
e.none of the above
14) find an effective hedge financial hedge if a u.s. firm holds an asset in great britain
and faces the following scenario:
p* = pound sterling price of the asset held by the u.s. firm
p = dollar price of the same asset
the cfo runs a regression of the form
the regression coefficient beta is calculated as
where
the variance of the exchange rate is calculated as:
e(s) = 0.25 $2.20 + 0.50 $2.00 + 0.25 $1.80 = $.55 + $1 + $.45 = $2.00
var(s) = 0.25($2.20 – $2.00)2 + 0.50($2.00 – $2.00)2 + 0.25($1.80 – $2.00)2 = 0.01 + 0
+ 0.01
= 0.02
the expected value of the investment in u.s. dollars is:
e[p] = 0.25 $6,600 + 0.50 $5,000 + 0.25 $3,600 = $5,050
which of the following is the most effective hedge financial hedge?
a.sell £7,500 forward at the 1-year forward rate, f1($/£), that prevails at time zero
b.buy £7,500 forward at the 1-year forward rate, f1($/£), that prevails at time zero
c.sell £2,500 forward at the 1-year forward rate, f1($/£), that prevails at time zero
d.0.25 £3,000 + 0.50 £2,500 + 0.25 £2,000 = £2,500
15) the withholding tax on bond income was originally called the interest equalization
tax.
a.you can thank john f. kennedy for imposing this tax
b.you can thank ronald reagan for imposing this tax
c.you can thank jimmy carter for imposing this tax
d.you can thank george washington for imposing this tax