1) u.s. banks that establish subsidiary and affiliate banks
a.are allowed to underwrite securities
b.must provide fdic insurance on their foreign-currency denominated demand deposits
c.can underwrite securities, but not accept dollar-denominated deposits
d.both a and b
2) consider a u.s.-based mnc with a wholly-owned european subsidiary selling a
product sourced in euro and priced in euro with inelastic demand. following a
depreciation of the dollar against the euro, which of the following is the most true?
a.since they have inelastic demand, the u.s. firm can just pass through the impact of the
exchange rate change
b.since they have elastic demand, the u.s. firm cannot just pass through the impact of
the exchange rate change
c.since the exchange rate movement was favorable to the u.s. firm, there is no impact on
the firm’s position
d.none of the above
3) the firm may not be subject to high degrees of operating exposure
a.when changes in real exchange rates are exactly offset by the inflation differential
b.when changes in nominal exchange rates are exactly matched by the inflation
differential
c.when changes in nominal exchange rates are exactly offset by the inflation differential
d.none of the above
4) for european currency options written on euro with a strike price in dollars, what of
the effect of an increase in the exchange rate s($/)?
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) for a u.s. trader working in american quotes, if the forward price is higher than the
spot price
a.the currency is trading at a premium in the forward market
b.the currency is trading at a discount in the forward market
c.then you should buy at the spot, hold on to it and sell at the forwardit’s a built-in
arbitrage
d.all of the aboveit really depends if you’re talking american or european quotes
6) a disproportionate share of eurobonds have high credit ratings in comparison to
domestic and foreign bonds. (approximately 40 percent of eurobond issues are rated aaa
and 30 percent are aa). explanations for this include
a.the issuers receiving low credit ratings invoke their publication rights and have had
them withdrawn prior to dissemination
b.the eurobond market is accessible only to firms that have good credit ratings and
name recognition to begin with; hence, they are rated highly
c.there is “grade inflation” on the part of the bond rating agencies which are paid by the
issuers and have to compete for business
d.both a and b
7) what paradigm is used to define the futures price?
a.irp
b.hedge ratio
c.black scholes
d.risk neutral valuation
8) floating for floating currency swaps
a.the reference rates are different for the different currencies: e.g. dollar libor versus
euro libor
b.do not exist
c.offer the swap bank a built-in hedge
d.none of the above
9) labor services in a country might be underpriced relative to productivity because
a.workers are not allowed to freely mover across national boundaries to seek higher
wages
b.some countries do a bad job of educating their work force, consequently they are not
very productive
c.in some countries there is a shortage of capital investment
d.all of the above are equally important
10) suppose that britain pegs the pound to gold at the market price of £6 per ounce, and
the united states pegs the dollar to gold at the market price of $36 per ounce. if the
official exchange rate between pounds and u.s. dollars is $5 = £1. which of the
following trades is profitable?
a.start with £100 and trade for $500 at the official exchange rate. redeem the $500 for
13.89 ounces of gold. trade the gold for £83.33
b.start with $100 and buy gold. sell the gold for £16.67. sell the pounds at the official
exchange rate
c.start with £100 and buy gold. sell the gold for $600
d.start with $500 and trade for £100 at the official exchange rate. redeem the £100 for
16 2/3 ounces of gold. trade the gold for $600
11) bonds with equity warrants
a.are really the same as convertible bonds if the prestated price of exercising the
warrant is the par value of the bond
b.can be viewed as straight debt with a call option (technically a warrant) attached
c.can only be exercised on coupon dates
d.typically are convertible as well
12)
what is the ask cross-exchange rate for canadian dollars priced in euro?
hint: find the price that a currency dealer will take in euro to sell canadian dollars.
a.0.6094/cad
b.0.6104/cad
c.0.6181/cad
d.0.6191/cad
13) the worldwide method of declaring a national tax jurisdiction
a.is to tax national residents of the country on their worldwide income no matter in
which country it is earned
b.is to tax all income earned within the country by any taxpayer, domestic or foreign
c.is to tax national residents of the country on their domestic income but not
foreign-earned income
d.none of the above