1) 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
2) consider a u.s.-based mnc with manufacturing activities in japan. the result of a
change in the ¥-$ exchange rate on the assets and liabilities of the consolidated balance
sheet is:
ignoring transaction exposure in the yen, the translation exposure will indicate a
possible need for a “balance sheet hedge” of
a.¥200,000,000 more liabilities denominated in yen
b.¥200,000,000 less assets denominated in yen
c.both a or b
d.none of the above
3) 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.
if the international price of beer is one keg of beer = 1 bottle of whiskey, how much
whiskey will northern ireland consume? each country completely specializes and 500
kegs of beer are traded for 500 bottles of whiskey.
a.1,000 bottles
b.1,200 bottles
c.500 bottles
d.600 bottles
4) the underlying principle of the current/noncurrent method is
a.assets and liabilities should be translated based on their maturity
b.monetary balance sheet accounts should be translated at the spot rate; nonmonetary
accounts are translated at the historical rate in effect when the account was first
recorded
c.monetary accounts are translated at the current exchange rate; other accounts are
translated at the current exchange rate if they are carried on the books at current value;
items carried at historical cost are translated at historic exchange rates
d.all balance sheet accounts are translated at the current exchange rate, except
stockholder equity
5) corporations today are operating in an environment in which exchange rate changes
may adversely affect their competitive positions in the marketplace. this situation, in
turn, makes it necessary for many firms to
a.carefully manage their exchange risk exposure.
b.carefully measure their exchange risk exposure.
c.both a and b
6) sensitivity analysis in the calculation of the adjusted present value (apv) allows the
financial manager to
a.analyze all of the risks (business, economic, exchange rate uncertainty, political, etc.)
inherent in the investment
b.more fully understand the implications of planned capital expenditures
c.consider in advance actions that can be taken should an investment not develop as
anticipated
d.all of the above
7) suppose that you implement your hedge from the last question at f1($/£) = $2/£. your
cash flows in state 1, 2, and 3 respectively will be
a.$5,100, $5,000, $5,100
b.$5,100, $5,100, $5,100
c.$5,000, $5,000, $5,000
d.none of the above
8) as of 2011 gold accounted for
a.90 percent of the total reserve assets held by imf member countries
b.70 percent of the total reserve assets held by imf member countries
c.approximately 50 percent of the total reserve assets held by imf member countries
d.less than one percent of the total reserve assets held by imf member countries
9) find the input d1 of the black-scholes price of a six-month call option on japanese
yen. the strike price is $1 = ¥100. the volatility is 25 percent per annum; r$ = 5.5% and
r¥ = 6%.
a.d1 = 0.074246
b.d1 = 0.005982
c.d1 = $0.006137/¥
d.none of the above
10) the current spot exchange rate is $1.50/ and the three-month forward rate is $1.55/.
based on your analysis of the exchange rate, you are confident that the spot exchange
rate will be $1.62/ in three months. assume that you would like to buy or sell 1,000,000.
what actions do you need to take to speculate in the forward market? what is the
expected dollar profit from speculation?
a.sell 1,000,000 forward for $1.50/
b.buy 1,000,000 forward for $1.55/
c.wait three months, if your forecast is correct buy 1,000,000 at $1.62/
d.buy 1,000,000 today at $1.50/; wait three months, if your forecast is correct sell
1,000,000 at $1.62/
11) a depreciation will begin to improve the trade balance immediately if
a.imports and exports are responsive to the exchange rate changes
b.imports and exports are inelastic to the exchange rate changes
c.consumers exhibit brand loyalty and price inelasticity
d.b and c
12) the smaller the concentration percentage,
a.the more concentrated a market is in a few stock issues
b.the less concentrated a market is
c.the more liquid the secondary stock market is
d.none of the above