1) which banks cannot accept foreign deposits?
a.domestic banks located in the u.s
b.edge act banks located in the u.s
c.subsidiary banks located overseas
d.foreign branches located overseas
2) assume the time from acceptance to maturity on a $2,000,000 banker’s acceptance is
90 days. further assume that the importing bank’s acceptance commission is 1.25
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.$1,993,750
b.$1,999,375
c.$1,963,750
d.$1,009,375
3) suppose the face amount of a promissory note is $1,000,000 and the importer’s bank
charges an acceptance commission of 1.5 percent. the note is for 60 days. calculate the
amount of the acceptance commission that the bank will charge.
a.$997,500
b.$15,000 = $1,000,000 (0.015)
c.$2,500
d.none of the above
4) in a given year, the u.s. irs places an overall limitation applied to foreign tax credits.
a.the maximum tax credit is figured on world-wide foreign-source income; losses in one
country can offset profits in another
b.the maximum tax credit is figured on foreign-source income in each country; losses in
one country cannot offset profits in another
c.the overall limitation is limited to the amount of tax that would be due on the
foreign-source income if it had been earned in the united states
d.both a and c
5) three days ago, you entered into a futures contract to sell 62,500 at $1.50 per . over
the past three days the contract has settled at $1.50, $1.52, and $1.54. how much have
you made or lost?
a.lost $0.04 per or $2,500
b.made $0.04 per or $2,500
c.lost $0.06 per or $3,750
d.none of the above
6) the u.s. irs allows transfer prices to be set using the resale price method
a.finding the price that an unrelated willing seller would accept from an unrelated
willing buyer
b.the price at which the good is resold by the distribution affiliate is reduced by an
amount sufficient to cover overhead costs and a reasonable profit
c.an appropriate profit is added to the cost of the manufacturing affiliate
d.financial models and econometric techniques
7) assume the time from acceptance to maturity on a $10,000,000 banker’s acceptance is
90 days. further assume that the importing bank’s acceptance commission is 1 percent
and that the market rate for 90-day b/as is 3.0 percent. the bond equivalent yield that the
bank earns in holding the b/a to maturity is:
a.22.87%
b.1.02%
c.4.06%
d.none of the above
8) the export-import bank provides competitive assistance to u.s. exporters through
a.direct loans to foreign importers
b.loan guarantees
c.credit insurance to u.s. exporters
d.all of the above
9) under a gold standard, if britain exported more to france than france exported to great
britain,
a.such international imbalances of payment will be corrected automatically
b.this type of imbalance will not be able to persist indefinitely
c.net export from britain will be accompanied by a net flow of gold in the opposite
direction
d.all of the above
10) the foreign exchange market closes
a.never
b.4:00 p.m. est (new york time)
c.4:00 p.m. gmt (london time)
d.4:00 p.m. (tokyo time)
11) under the investment dollar premium system,
a.u.k. residents received a premium over the prevailing commercial exchange rate when
they sold foreign securities and repatriated the funds to the u.k
b.u.k. residents had to pay a premium over the prevailing commercial exchange rate
when they bought foreign currencies to invest in foreign securities
c.none of the above
12) under the bretton woods system each country established a par value for its
currency in relation to the dollar. and the u.s. dollar was pegged to gold at
a.$1 per ounce
b.$35 per ounce
c.$350 per ounce
d.$900 per ounce
13) the choice between the alternative exchange rate regimes (fixed or floating) is likely
to involve a trade-off between
a.national monetary policy autonomy and international economic integration
b.exchange rate uncertainty and national policy autonomy
c.balance of payments autonomy and inflation
d.unemployment and inflation
14) the variability of the dollar value of an asset (invested overseas) depends on
a.the variability of the dollar value of the asset that is related to random changes in the
exchange rate
b.the dollar value variability that is independent of exchange rate movements
c.both a and b
d.none of the above
15) 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
16) among imf member countries, the dollar’s dominant position in the world’s reserve
holdings may decline to a certain extent as the euro becomes a “known quantity” and its
external value becomes more stable. in fact, the euro’s share has increased
a.from zero percent in 1999 to 25.8 percent in 2006
b.from 13.5 percent in 1999 to 25.8 percent in 2006
c.from 13.5 percent in 1999 to 52.8 percent in 2006
d.none of the above
17) the extent to which the value of the firm would be affected by unexpected changes
in the exchange rate is
a.transaction exposure
b.translation exposure
c.economic exposure
d.none of the above
18) a “foreign bond” issue is
a.one denominated in a particular currency but sold to investors in national capital
markets other than the country that issued the denominating currency
b.one offered by a foreign borrower to investors in a national market and denominated
in that nation’s currency
c.for example, a german mnc issuing dollar-denominated bonds to u.s. investors
d.both b and c
19) 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 variance of the exchange rate is:
a.0.001968
b.0.002969
c.0.003968
d.0.004968
20)
please note that your answers are worth zero points if they do not include currency
symbols ($, )
using your previous answers and a bit more work, find the 1-year forward ask exchange
rate in $ per that that satisfies irp from the perspective of a customer.
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.
find the cost today of your hedge portfolio in pounds.
22) a country that gives foreign aid to another country can be viewed as
a. importing goodwill from the latter
b. exporting goodwill to the latter
23) the stock market of country a has an expected return of 8%, and standard deviation
of expected return of 5%. the stock market of country b has an expected return of 16%
and standard deviation of expected return of 10%.
find the expected return of a portfolio with half invested in a and half invested in b.
24) consider an option to buy £10,000 for 12,500. in the next period, if the pound
appreciates against the dollar by 37.5 percent then the euro will appreciate against the
dollar by ten percent. on the other hand, the euro could depreciate against the pound by
20 percent.
big hint: don’t round, keep exchange rates out to at least 4 decimal places.
draw the binomial tree for this option.
25) calculate the euro-based return an italian investor would have realized by investing
10,000 into a $50 american stock on margin with only 40% down and 60%
borrowed.the stock pays a $0.30 quarterly dividend, and after one year the investment
sells for $54 the exchange has changed from .625 per dollar to .6875 per dollar. the
interest on the margin loan is 1% per year. the margin loan is denominated in dollars.
our investor’s initial endowment is $16,000. if that represents 40% of his investment,
then he borrows $24,000 and has a total investment of $40,000. at $50/share $40,000
buys 800 shares. at the end of the year he must repay a $24,000 loan.
26) calculate the cumulative translation adjustment for this u.s. mnc translating the
balance sheet and income statement of a french subsidiary, which keeps its books in
euro, but that is translated into u.s. dollars using the current rate method, the reporting
currency of the u.s. mnc.
the subsidiary is at the end of its first year of operation.
the historical exchange rate is $1.60/1.00 and the most recent exchange rate is $1.50/
