1) you are a u.s.-based treasurer with $1,000,000 to invest. the dollar-euro exchange
rate is quoted as $1.60 = 1.00 and the dollar-pound exchange rate is quoted at $2.00 =
£1.00. if a bank quotes you a cross rate of £1.00 = 1.20 how can you make money?
a.no arbitrage is possible
b.buy euro at $1.60/, buy £ at 1.20/£, sell £ at $2/£
c.buy £ $2/£, buy at 1.20/£, sell at $1.60/
2)
what is the bid cross-exchange rate for swiss francs priced in euro?
hint: find the price that a currency dealer will pay in euro to buy swiss francs.
a.0.5386/chf
b.0.5389/chf
c.0.5463/chf
d.0.5466/chf
3) the nestl corporation, a well-known swiss mnc, used to issue two different classes of
common stock, bearer shares and registered shares, and foreigners were allowed to hold
only
a.registered shares
b.bearer shares
c.voting shares
d.convertible shares
4) consider a u.s. mnc with three subsidiaries and the following foreign exchange
transactions shown at left. use multilateral netting to reduce the number of foreign
exchange transactions.
a.
b.
c.
d.none of the above
5) suppose that the british pound is pegged to gold at £6 per ounce, whereas one ounce
of gold is worth 12. under the gold standard, any misalignment of the exchange rate will
be automatically corrected by cross border flows of gold. calculate the possible gains
for buying 1,000, if the british pound becomes undervalued and trades for 1.80. (assume
zero shipping costs).
(hint: gold is first purchased using the devalued british pound from the bank of england,
then shipped to france and sold for 1,000 to the bank of france).
a.£55.56
b.£65.56
c.£75.56
d.£85.56
6) under multilateral netting
a.each affiliate nets all its inter-affiliate receipts against all its disbursements. it then
transfers or receives the balance, respectively, if it is the net payer or receiver
b.each pair of affiliates determines the net amount due between them, and only the net
amount is transferred
c.no inter-affiliate payments are made or even computed, since no real cash flows are
involved
d.all of the above
7) the world’s largest debtor nation and creditor nation, respectively, are
a.japan and the u.s
b.the u.s. and japan
c.the u.s. and canada
d.great britain and mexico
8) assume that the balance-of-payments accounts for a country are recorded correctly.
balance on the current account = bca = $130 billion
balance on the capital account = bka = -$86 billion
balance on the reserves account = bra = ?
the balance on the reserves account (bra), under the fixed exchange regime is
a.-$44 billion
b.$44 billion
c.$216 billion
d.none of the above
9) a domestic bank that becomes a multinational bank to prevent erosion by foreign
banks of the traveler’s checks, touring, and foreign business market
a.is playing the role of the desperate housewife in this relationship
b.is pursuing a wholesale defensive strategy
c.is pursuing a retail defensive strategy
d.none of the above
10) pricing a currency swap after inception involves
a.finding the difference between the present values of the payments streams the party
will receive in one currency and pay in the other currency, converted to a common
currency
b.sending a market order to a swap dealer
c.finding the sum of the present values of the payments streams that each party will
receive in one currency and pay in the other currency, converted to a common currency
d.none of the above
11) mncs might have been lured to invest in china not only by lower labor and material
costs but also
a.by china’s lower labor and material costs
b.by the desire to preempt the entry of rivals into china’s potentially huge market
c.by the kung pao chicken
d.by the desire to see, if not buy, all the tea in china
12) in an efficient market without barriers to capital flows, the cost-savings argument of
the qsd is difficult to accept, because
a.it implies that an arbitrage opportunity exists because of some mispricing of the
default risk premiums on different types of debt instruments
b.it implies that an arbitrage opportunity exists because of some mispricing of the
exchange rates on different maturities of forward contracts
c.none of the above
13) if the united states imports more than it exports, then this means that
a.the supply of dollars is likely to exceed the demand in the foreign exchange market,
ceteris paribus
b.the demand for dollars is likely to exceed the supply in the foreign exchange market,
ceteris paribus
c.the u.s. dollar would be under pressure to appreciate against other currencies
d.both b and c are correct
14) self-interested managers may be tempted to
a.indulge in expensive perquisites at company expense
b.adopt anti-takeover measures for their company to ensure their personal job security
c.waste company funds by undertaking unprofitable projects that benefit themselves but
not shareholders
d.all of the above are potential abuses that self-interested managers may be tempted to
visit upon shareholders
15) a firm that is committed to keeping manufacturing facilities in only the home
country (and not developing multiple production sites in a variety of countries) can
a.not mitigate the effects of exchange rate changes
b.lessen the effect of exchange rate changes by sourcing from where input costs are low
c.focus on selling commodity products with product differentiation
d.pursue a strategy of increasing its products price elasticity of demand
16) assume the time from acceptance to maturity on a $10,000,000 banker’s acceptance
is 90 days. further assume that the importing bank’s acceptance commission is 1 percent
and that the market rate for 90-day b/as is 3.0 percent. calculate the amount the banker
will receive if the exporter discounts the b/a with the importer’s bank.
a.$200,000
b.$100,000
c.$25,000
d.$75,000
17) the extent to which the firm’s operating cash flows would be affected by random
changes in exchange rates is called
a.asset exposure
b.operating exposure
c.both a and b
d.none of the above