1) an income tax is a direct tax.
2) an edge act bank is typically located in a state different from that of its parent in
order to get around the prohibition on interstate branch banking.
3) a centralized cash management system with a cash pool can reduce the investment
the mnc has in precautionary cash balances, saving the firm money.
4) the cash manager of a domestic firm should source funds internationally to obtain the
lowest borrowing cost and to place excess funds wherever the greatest return can be
earned regardless of currency.
5) cross-border acquisitions are generally found to be synergy-generating corporate
activities.
6) a central cash manager has a global view of the most favorable borrowing rates and
most advantageous investment rates.
7) in the early 1980s, honda, the japanese automobile company, built an assembly plant
in marysville, ohio, and began to produce cars for the north american market. as the
production capacity at the ohio plant expanded, honda began to export its
u.s.-manufactured cars to japan.
8) the difference between foreign direct investment and portfolio investment is that
a.portfolio investment mostly represents the sale and purchase of foreign financial
assets such as stocks and bonds that do not involve a transfer of control
b.foreign direct investment mostly represents the sale and purchase of foreign financial
assets such as stocks whereas portfolio investment mostly involves the sales and
purchase of foreign bonds
c.foreign direct investment is about buying land and building factories, whereas
portfolio investment is about buying stocks and bonds
d.all of the above
9) the return and variance of return to a u.s. dollar investor from investing in individual
foreign security i are given by:
a.ri$ = (1 + ri)(1 + ei) – 1 and var(ri$) = var(ri)
b.ri$ = ri + ei and var(ri$) = var(ri) + var(ei)
c.ri$ = (1 + ri)(1 + ei) – 1 and var(ri$) = var(ri) + var(ei) + 2cov(ri,ei)
d.none of the above
10) if the united states imports more than it exports, then this means that
a.the supply of dollars is likely to exceed the demand in the foreign exchange market,
ceteris paribus
b.the demand for dollars is likely to exceed the supply in the foreign exchange market,
ceteris paribus
c.the u.s. dollar would be under pressure to appreciate against other currencies
d.both b and c are correct
11) assume the time from acceptance to maturity on a $5,000,000 banker’s acceptance is
90 days. further assume that the importing bank’s acceptance commission is 1.5 percent
and that the market rate for 90-day b/as is 6.0 percent. calculate the amount the exporter
will receive if he holds it to maturity.
a.$4,981,750
b.$4,906,250
c.$4,009,375
d.none of the above
12) banker’s acceptances usually have maturities ranging from
a.30 to 180 days
b.90 to 360 days
c.1 year to 5 years
d.over 5 years
13) financial accounting standards board (fasb) statements 8 and 52 relate to the
translation methods. the following outlines the objectives and descriptions of the two
statements.
(i) – measure in dollars an enterprise’s assets, liabilities, revenues, or expenses that are
denominated in a foreign currency according to generally accepted accounting
principles
(ii) – is essentially the temporal method of translation (with some subtle differences)
(iii) – provide information that is generally compatible with the expected economic
effects of a rate change on an enterprise’s cash flows and equity
(iv) – reflect in consolidated statements the financial results and relationships of the
individual consolidated entities as measured in their functional currencies in conformity
with u.s. generally accepted accounting principles
which of the above statements pertain to fasb 52?
a.(i)
b.(i) and (ii)
c.(iii) and (iv)
d.(i), (ii), and (iii)
14) the official reserve account includes
a.the export and import of goods and services
b.all purchases and sales of assets such as stocks, bonds, bank accounts, real estate, and
businesses
c.all purchases and sales of international reserve assets such as dollars, foreign
exchanges, gold, and special drawing rights (sdrs)
d.none of the above
15) during the 1980s, cross-border equity investment was largely confined
a.to the equity markets of developed countries
b.to the emerging equity markets
c.to the equity markets of the former soviet union
d.none of the above
16) credit entries in the u.s. balance of payments
a.result from foreign sales of u.s. goods and services, goodwill, financial claims, and
real assets
b.result from u.s. purchases of foreign goods and services, goodwill, financial claims,
and real assets
c.give rise to the demand for dollars
d.give rise to the supply of dollars
e.both a and c
17) financial accounting standards board (fasb) statements 8 and 52 relate to the
translation methods. the following outlines the objectives and descriptions of the two
statements.
(i) – measure in dollars an enterprise’s assets, liabilities, revenues, or expenses that are
denominated in a foreign currency according to generally accepted accounting
principles
(ii) – is essentially the temporal method of translation (with some subtle differences)
(iii) – provide information that is generally compatible with the expected economic
effects of a rate change on an enterprise’s cash flows and equity
(iv) – reflect in consolidated statements the financial results and relationships of the
individual consolidated entities as measured in their functional currencies in conformity
with u.s. generally accepted accounting principles
which of the above statements pertain to fasb 8?
a.(i)
b.(i) and (ii)
c.(iii) and (iv)
d.(i), (ii), and (iii)
18) the time from acceptance to maturity on a $30,000,000 banker’s acceptance is 45
days.
the importing bank’s acceptance commission is 1.5 percent and that the market rate for
45-day b/as is 4 percent.
determine the amount the exporter will receive if he discounts the b/a with the
importer’s bank.
19) the time from acceptance to maturity on a $500,000 banker’s acceptance is 270
days.
the importing bank’s acceptance commission is 0.75 percent and that the market rate for
270-day b/as is 4 percent.
determine the amount the exporter will receive if he holds the b/a until maturity.
20) the time from acceptance to maturity on a $30,000,000 banker’s acceptance is 45
days.
the importing bank’s acceptance commission is 1.5 percent and that the market rate for
45-day b/as is 4 percent.
calculate the amount the banker will receive if the exporter discounts the b/a with the
importer’s bank.
21) consider an option to buy 12,500 for £10,000. in the next period, the euro can
strengthen against the pound by 25% (i.e. each euro will buy 25% more pounds) or
weaken by 20%.
big hint: don’t round, keep exchange rates out to at least 4 decimal places.
using risk neutral valuation find the value of the call (in pounds).
22) for your swap (the one you have shown above) how would the swap bank quote the
swap against prime? (hint: they are quoting a bid-ask spread against “flat” prime.)
23) consider an option to buy 12,500 for £10,000. in the next period, the euro can
strengthen against the pound by 25% (i.e. each euro will buy 25% more pounds) or
weaken by 20%.
big hint: don’t round, keep exchange rates out to at least 4 decimal places.
calculate the current /£ spot exchange rate.
24) consider an option to buy 12,500 for £10,000. in the next period, the euro can
strengthen against the pound by 25% (i.e. each euro will buy 25% more pounds) or
weaken by 20%.
big hint: don’t round, keep exchange rates out to at least 4 decimal places.
state the composition of the replicating portfolio; your answer should contain “trading
orders” of what to buy and what to sell at time zero.