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1) a firm's operating exposure is
a.defined as the extent to which the firm's operating cash flows would be affected by the
random changes in exchange rates
b.determined by the structure of the markets in which the firm sources its inputs, such
as labor and materials, and sells its products
c.determined by the firm's ability to mitigate the effect of exchange rate changes by
adjusting its markets, product mix, and sourcing
d.all of the above
2) suppose the mcdonalds corporation imports canadian beef, paying for it by
transferring the funds to a new york bank account kept by the canadian beef producer.
a.payment by mcdonalds will be recorded as a debit
b.the deposit of the funds by the seller will be recorded as a debit
c.payment by mcdonalds will be recorded as a credit
d.the deposit of the funds by the buyer will be credit
3) banking tends to be
a.a low marginal cost industry
b.a high marginal cost industry
c.a constant average cost industry
d.none of the above
4) the "j-curve effect" shows
a.the initial deterioration and the eventual improvement of a country's trade balance
following a currency depreciation
b.the initial improvement and the eventual depreciation of a country's trade balance
following a currency depreciation
c.the trade balance's lack of responsiveness to the exchanges rate changes
d.none of the above
5) when evaluating a foreign investment project, it is important for the mnc to consider
the effect of political risk, as a sovereign country can change "the rules of the game". to
account for this
a.the mnc may adjust the cost of capital upward
b.the mnc may lower the expected cash flows from the foreign project
c.the mnc may purchase insurance policies against the hazard of political risks
d.all of the above
6) translation exposure,
a.is not entity specific, rather it is currency specific
b.is not currency specific, rather it is entity specific
c.involves restatement from italian to french
d.none of the above
7) the japanese automobile company honda decided to establish production facilities in
ohio, mainly to
a.circumvent trade barriers
b.reduce transportation costs
c.reduce transactions costs
d.both a and b
8) use the following information to calculate the quality spread differential (qsd):
a.0.50%
b.1.00%
c.1.50%
d.2.00%
9) which of the following options strategies are internally consistent?
a.sell puts and buy calls
b.buy puts and sell calls
c.buy puts and buy calls
d.both a and b
10) international banks are different from domestic banks in what way(s)?
a.international banks can arrange trade financing
b.international banks can arrange for foreign exchange transactions
c.international banks can assist their clients in hedging exchange rate risk
d.all of the above
11) the underlying principle of the temporal method is
a.assets and liabilities should be translated based on their maturity
b.monetary accounts have a similarity because their value represents a sum of money
whose currency equivalent after translation changes each time the exchange rate
changes
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 for
stockholders' equity. a "plug" equity account named cumulative translation adjustment
(cta) is used to make the balance sheet balance, since translation gains or losses do not
go through the income statement according to this method
12) suppose the inbev corporation (a non-u.s. mnc) buys the anheuser-busch
corporation, paying the u.s. shareholders cash.
a.payment by inbev will be recorded as a debit
b.the deposit of the funds by the sellers will be recorded as a debit
c.payment by inbev will be recorded as a credit
d.the deposit of the funds by the buyer will be credit
13) a pyramidal ownership structure is one in which
a.a shareholder controls a holding company that owns a controlling block of another
company, which in turn owns controlling interests in yet another company, and so on
b.equity cross-holdings among a group of companies, such as keiretsu and chaebols can
be used to concentrate and leverage voting rights to acquire control
c.a combination of these schemes may also be used to leverage control in a pyramidal
ownership structure
14) a specialist on the nyse
a.is obliged to fill limit orders if they are more favorable than the specialist's posted bid
and ask quotes
b.is obliged to fill limit orders at the specialist's posted bid and ask quotes
c.is actually a computer program, not a human
d.both a and c
15) in a currency swap
a.it may be the case that two counterparties have equivalent credit ratings
b.it may be the case that firms have a comparative advantage in borrowing in their
domestic markets
c.both a and b
d.none of the above
