1) if japan exports more than it imports, then
a.the supply of dollars is likely to exceed the demand in the foreign exchange market,
ceteris paribus
b.one can infer that the yen would be likely to appreciate against other currencies
c.a and b
d.none of the above
2) which of the following statements is false about “borrowing capacity”?
a.it is an especially important point in international capital budgeting analysis because
of the frequency of large concessionary loans
b.it creates tax shields for apv analysis regardless of how the project is actually financed
c.is synonymous to the “project debt”
d.is based on the firm’s optimal capital structure
3) financial development can contribute to economic growth in what way(s)?
a.financial development enhances savings
b.financial development channels savings toward real investments in productive
capacities
c.financial development enhances the efficiency of investment allocation through the
monitoring and signaling functions of capital markets
d.all of the above
4) unlike the theory of international trade or the theory of international portfolio
investment,
a.we do not have a well-developed, comprehensive theory of fdi
b.the comprehensive theory of fdi focuses on mean-variance efficiency
c.the comprehensive theory of fdi is an arbitrage argument, like interest rate parity
d.none of the above
5) the most widely used futures contract for hedging short-term u.s. dollar interest rate
risk is
a.the eurodollar contract
b.the euroyen contract
c.the euribor contract
d.none of the above
6) 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
7) the dollar-euro exchange rate is $1.25 = 1.00 and the dollar-yen exchange rate is
¥100 = $1.00. what is the euro-yen cross rate?
a.¥125 = 1.00
b.¥1.00 = 125
c.¥1.00 = 0.80
d.none of the above
8) which combination of the following represent the risks that a swap dealer confronts:
(i) – interest rate risk
(ii) – basis risk
(iii) – exchange rate risk
(iv) – political risk
(v) – sovereign risk
a.(i), (ii), (iii), and (v)
b.(i), (iii), and (iv)
c.(iii), (iv), and (iv)
d.(i), (ii), (iii), (iv), and (v)
9) the realized dollar returns for a u.s. resident investing in a foreign market will depend
on the return in the foreign market as well as on the exchange rate fluctuations between
the dollar and the foreign currency.
calculate the variance of the monthly rate of return in dollar terms, if the variance of the
foreign market’s return (in terms of its own currency) is 1.14, the variance between the
u.s. dollar and the foreign currency is 17.64, the covariance is 2.34, and the contribution
of the cross-product term is 0.04.
a.21.16
b.23.50
c.26.89
d.28.65
10) generally speaking, a firm is subject to high degrees of operating exposure when
a.either its cost or its price is sensitive to exchange rate changes
b.both the cost and the price are sensitive to exchange rate changes
c.both the cost and the price are insensitive to exchange rate changes
d.none of the above
11) consider a u.s.-based mnc with manufacturing activities in japan. the result of a
change in the ¥-$ exchange rate on the assets and liabilities of the consolidated balance
sheet is:
ignoring transaction exposure in the yen, the translation exposure will indicate a
possible need for a “derivatives hedge” of
a.short position in ¥200,000,000 currency futures
b.long position in ¥200,000,000 currency futures
c.either a or b
d.none of the above
12) the capital account is divided into three subcategories: direct investment, portfolio
investment, and other investment. portfolio investment involves
a.acquisitions of controlling interests in foreign businesses
b.investments in foreign stocks and bonds that do not involve acquisitions of control
c.bank deposits, currency investment, trade credit, and the like
d.all of the above