1) with regard to translation exposure versus operating exposure
a.upper management should be more concerned with translation exposure
b.any discussion really involves speculation about foreign exchange rate changes
c.upper management should be more concerned with operating exposure
d.none of the above
2) including the transactions costs of the bid-ask spread, the euro-pound cross exchange
rate for a customer who wants to sell euro and buy pounds can be computed as
a.
b.
c.
d.all of the above
3) find the debt-to-value ratio for a firm with a debt-to-equity ratio of 4 .
a.3/4
b.7/9
c.4/5
d.9/11
e.5/6
4) synergistic gains
a.are obtained when the acquiring firm is greater in value than the stand-alone
valuations of the target firm(s)
b.can only be obtained by increases in market power
c.are obtained when the value of the combined firm is greater than the stand-alone
valuations of the individual (acquiring and target) firms
d.none of the above
5) will an arbitrageur facing the following prices be able to make money?
a.yes, borrow $1,000 at 5%; trade for at the ask spot rate $1.01 = 1.00; invest 990.10 at
5.5%; hedge this with a forward contract on 1,044.55 at $0.99 = 1.00; receive $1.034.11
b.yes, borrow 1,000 at 6%; trade for $ at the bid spot rate $1.00 = 1.00; invest $1,000 at
4.5%; hedge this with a forward contract on 1,045 at $1.00 = 1.00
c.no; the transactions costs are too high
d.none of the above
6) a common set of factors that affect equity returns include
a.macroeconomic variables that influence the overall economic environment in which
the firm issuing the security conducts its business
b.exchange rate changes between the currency of the country issuing the stock and the
currency of other countries where suppliers, customers, and investors of the firm reside
c.the industrial structure of the country in which the firm operates
d.all of the above
7) simplify the following set of intra company cash flows for this swiss firm.
consider the following exchange rates.
8) what does it mean to have redenominated an asset in terms of the dollar?
a.you have undertaken a hedging strategy that gives the asset a constant dollar value
b.multiply the foreign currency value of the asset by the spot exchange rate
c.undertaken accounting changes to eliminate translation exposure
d.none of the above
9) a dealer in british pounds who thinks that the pound is about to depreciate
a.may want to widen his bid-ask spread by raising his ask price
b.may want to lower his bid price and his ask price
c.may want to lower his ask price
d.none of the above
10) the sensitivity of the firm’s consolidated financial statements to unexpected changes
in the exchange rate is
a.transaction exposure
b.translation exposure
c.economic exposure
d.none of the above
11) as a rule, payments to and from foreign affiliates,
a.involve the issue of transfer pricing
b.involve accounting values assigned to goods or services exchanged between foreign
affiliates
c.involve tax credits trading between affiliates
d.both a and b