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1) according to the research in the accuracy of paid exchange rate forecasters,
a.as a group, they do not do a better job of forecasting the exchange rate than the
forward rate does
b.the average forecaster is better than average at forecasting
c.the forecasters do a better job of predicting the future exchange rate than the market
does
d.none of the above
2) a mnc seeking to reduce transaction exposure with a strategy of leading and lagging
a.can probably employ the strategy more effectively with intra firm payables and
receivables than with customers or outside suppliers
b.can employ the strategy most easily with customers, regardless of market structure
c.can employ the strategy most easily with suppliers, regardless of market structure
d.none of the above
3) your firm is bidding on a large construction contract in a foreign country. this
contingent exposure could best be hedged
a.with put options on the foreign currency
b.with call options on the foreign currency
c.both a and b, depending upon the specifics ("the rest of the story")
d.with futures contracts
4) find the present value of a 2-year treasury bond that pays a semi-annual coupon, has
a coupon rate of 6%, a yield to maturity of 5%, a par value of $1,000 when the yield to
maturity is 5%.
a.$1,018.81
b.$1,231.15
c.$699.07
d.none of the above
5) as of today, the spot exchange rate is 1.00 = $1.25 and the rates of inflation expected
to prevail for the next year in the u.s. is 2% and 3% in the euro zone. what is the
one-year forward rate that should prevail?
a.1.00 = $1.2379
b.1.00 = $1.2623
c.1.00 = $0.9903
d.$1.00 = 1.2623
6) the nestl episode shows
a.that political risk can exist in a country like switzerland, long considered a haven from
such risk
b.the pricing to market phenomenon exists
c.it is possible to expropriate wealth from one group of shareholders and transfer it to
another group
d.all of the above
7) unlike a bond issue, in which the entire issue is brought to market at once, _______
is partially sold on a continuous basis through an issuance facility that allows the
borrower to obtain funds only as needed on a flexible basis.
a.a euro-medium term note issue
b.bearer bond
c.a euro-long term note issue
d.a euro-short term note issue
8) the cost of capital is
a.the minimum rate of return an investment project must generate in order to pay its
financing costs
b.the minimum rate of return an investment project must generate in order to pay its
financing costs plus a reasonable profit
c.the maximum rate of return an investment project must generate in order to pay its
financing costs
d.the maximum rate of return an investment project must generate in order to pay its
financing costs plus a reasonable profit
9) the most direct and popular way of hedging transaction exposure is by
a.exchange-traded futures options
b.currency forward contracts
c.foreign currency warrants
d.borrowing and lending in the domestic and foreign money markets
10) a u.s. firm holds an asset in israel and faces the following scenario:
where,
p* = israeli shekel (is) price of the asset held by the u.s. firm
p = dollar price of the same asset
the "exposure" (i.e. the regression coefficient beta) is:
a.-52.6316
b.1,289.80
c.12,898.00
d.none of the above
11) according to the technical approach, what matters in exchange rate determination
a.the past behavior of exchange rates
b.the velocity of money
c.the future behavior of exchange rates
d.the beta
