1) in the united states, managers are bound by the “duty of loyalty” to serve the
shareholders.
a.this is an ethical, not legal, obligation
b.this is a legal obligation
c.this is only a moral obligation; there are no penalties
2) in many countries with concentrated ownership
a.the conflicts of interest between shareholders and managers are worse than in
countries with diffuse ownership of firms
b.the conflicts of interest are greater between large controlling shareholders and small
outside shareholders than between managers and shareholders
c.the conflicts of interest are greater between managers and shareholders than between
large controlling shareholders and small outside shareholders
d.corporate forms of business organization with concentrated ownership are rare
3) xyz corporation, located in the united states, has an accounts payable obligation of
¥750 million payable in one year to a bank in tokyo. which of the following is not part
of a money market hedge?
a.buy the ¥750 million at the forward exchange rate
b.find the present value of ¥750 million at the japanese interest rate
c.buy that much yen at the spot exchange rate
d.invest in risk-free japanese securities with the same maturity as the accounts payable
obligation
4) when nestl, a swiss firm, bought the american firm carnation, it was engaged in
foreign direct investment. if nestl had only bought a non-controlling number of shares
of the firm,
a.nestl would have been engaged in portfolio investment
b.nestl would have been engaged in a cross-border acquisition
c.it would depend if they bought the shares from an american or a canadian
d.none of the above
5) implementing capital import neutrality means that
a.a sovereign government follows the taxation policies of foreign tax authorities on the
foreign-source income of its resident mncs
b.the tax burden a host country imposes on the foreign subsidiary of a mnc should be
the same regardless of the country in which the mnc is incorporated
c.the tax burden a host country imposes on the foreign subsidiary of a mnc should be
the same as that placed on domestic firms
d.all of the above
6) asprem (1989) found that changes in industrial production, employment, and
imports, the level of interest rates, and an inflation measure explained only a small
portion of the variability of equity returns for 10 european countries, but that
substantially more of the variation was explained by
a.an international market index
b.changes in exchange rates
c.the herfindahl index
d.the 4-firm concentration ratio
7) forward rate agreements can be used for speculative purposes. if one believes rates
will be less than the agreement rate,
a.take a short position in a forward rate agreement
b.the purchase of a fra is the suitable position
c.the sale of a fra is the suitable position
d.take a long position in the spot market
8) abc international has borrowed $4,000,000 at libor plus a lending margin of .65
percent per annum on a three-month rollover basis from barclays in london. three
month libor is currently 5.5 percent, but abc is worried about an increase in three-month
libor 3 months from now. what could they do to hedge?
a.buy a 3 6 fra in the amount of $4 million
b.sell a 3 6 fra in the amount of $4 million
c.buy a 3 3 fra in the amount of $4 million
d.buy a 3 9 fra in the amount of $4 million
9) the largest and most active financial market in the world is
a.the fleet street exchange in london
b.the nyse in new york
c.the fx market
d.none of the above
10) 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 payable,
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.sell 10 call options on the euro with a strike in pounds sterling
d.sell 8 put options on the pound with a strike in euro
e.both a and b
f.both c and d
11) a swap bank has identified two companies with mirror-image financing needs (they
both want to borrow equivalent amounts for the same amount of time. company x has
agreed to one leg of the swap but company y is “playing hard to get”.
a.the swap bank could just sell the company x side of the swap
b.company x should lobby y to “get on board”
c.company y should calculate the qsd and subtract that from their best outside offer
d.none of the above
12) find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of 5/6.
a.1
b.2
c.3
d.4
e.5
13) the growth of the eurodollar market, which is a transnational, unregulated fund
market
a.was encouraged by u.s. legislation designed to stem the outflow of dollars from the
u.s
b.was discouraged by u.s. legislation designed to stem the outflow of dollars from the
u.s
14) which of the following is correct?
a. the value (in dollars) of a call option on £5,000 with a strike price of $10,000 is equal
to the value (in dollars) of a put option on $10,000 with a strike price of £5,000 only
when the spot exchange rate is $2 = £1
b. the value (in dollars) of a call option on £5,000 with a strike price of $10,000 is equal
to the value (in dollars) of a put option on $10,000 with a strike price of £5,000
15) the time from acceptance to maturity on a $300,000 banker’s acceptance is 30 days.
the importing bank’s acceptance commission is 3 percent and that the market rate for
30-day b/as is 4 percent.
determine the amount the exporter will receive if he discounts the b/a with the
importer’s bank.
16) devise a direct swap for a and b that has no swap bank. show their external
borrowing. answer the problem in the template provided.
17) the time from acceptance to maturity on a $2,000,000 banker’s acceptance is 90
days.
the importing bank’s acceptance commission is 1.25 percent and that the market rate for
90-day b/as is 6 percent.
determine the amount the exporter will receive if he discounts the b/a with the
importer’s bank.
18) in high-growth industries where companies’ internally generated funds fall short of
profitable investment opportunities,
a. managers are less likely to waste funds in unprofitable projects
b. managers are more likely to waste funds in unprofitable projects
19) a french firm is considering a one-year investment in the united kingdom with a
pound-denominated rate of return of i£ = 15%. the firm’s local cost of capital is i = 10%
the project costs £1,000 and will return £1,150 at the end of one year.
the current exchange rate is 2.00 = £1.00
suppose that the bank of england is considering either tightening or loosening its
monetary policy. it is widely believed that in one year there are only two possibilities:
following revaluation, the exchange rate is expected to remain steady for at least
another year
find the expost irr in euro for the french firm if they undertake the project today and
then the exchange rate falls to s1(|£) = 1.80 per £.
20)
consider the following international investment opportunity. it involves a gold mine that
can be opened at a cost, then produces a positive cash flow, but then requires
environmental clean-up:
what is the euro-denominated irr of this project?