1) a foreign branch bank
a.is a small service facility staffed by parent bank personnel that is designed to assist
mnc clients of the parent bank in dealings with the bank’s correspondents
b.operates like a local bank, but legally is a part of the parent bank
c.is subject to domestic regulation only
d.all of the above
2) your firm is a swiss importer of bicycles. you have placed an order with an italian
firm for 1,000,000 worth of bicycles. payment (in euro) is due in 12 months. detail a
strategy using futures contracts that will hedge your exchange rate risk. have an
estimate of how many contracts of what type and maturity.
a.go short 100 12-month euro futures contracts; and short 160 12-month sfr. futures
contracts
b.go long 100 12-month futures contracts; and long 160 12-month sfr. futures contracts
c.go long 100 12-month euro futures contracts; and short 160 12-month swiss franc
futures contracts
d.go short 100 12-month euro futures contracts; and long 160 12-month swiss franc
futures contracts
e.none of the above
3) when the parent company fully responsible for the subsidiary’s obligations,
a.the independent financial structure of the subsidiary is irrelevant
b.potential creditors will examine the parent’s overall financial condition, not the
subsidiary’s
c.the independent financial subsidiary can have the same capital structure as the parent
d.all of the above
4) in comparison to the current/noncurrent method, the monetary/nonmonetary method
a.differs substantially with regard to the treatment of inventory
b.classifies accounts on the basis of similarity of attributes rather than the similarity of
maturities
c.both a and b
d.none of the above
5) recent studies show that when investors control exchange risk by using currency
forward contracts,
a.they can substantially enhance the efficiency of international bond portfolios
b.they can substantially enhance the efficiency of international stock portfolios
c.the risk of investing in foreign stock markets is can be completely hedged
d.both a and b
6) gresham’s law states that
a.bad money drives good money out of circulation
b.good money drives bad money out of circulation
c.if a country bases its currency on both gold and silver, at an official exchange rate, it
will be the more valuable of the two metals that circulate
d.none of the above
7) when a firm holds assets in many countries,
a.the firm’s cash flows are internationally hedged
b.thus, shareholders of the firm can indirectly benefit from international diversification
even if they are not directly holding foreign shares
c.thus, shareholders of the firm can directly benefit from international diversification
even if they are not directly holding foreign shares
d.none of the above
8) when managerial self-dealings are excessive and left unchecked,
a.they can have serious negative effects on share values
b.they can impede the proper functions of capital markets
c.they can impede such measures as gdp growth
d.all of the above
9) cross-border acquisitions of businesses are a politically sensitive issue,
a.as most countries prefer to retain foreign control of domestic firms
b.as most countries prefer to retain local control of domestic firms
c.as most countries prefer to retain local control of foreign firms
d.none of the above
10) the table below shows the bushels of wheat and the bottles of beer that north and
south dakota can produce per day of labor under two different hypothetical situations
(cases i and ii).
which state has a comparative advantage in wheat production in case i?
a.south dakota
b.north dakota
c.neither state
11) foreign-owned manufacturing companies in the world’s most highly developed
countries
a.generally are more productive and pay their workers more than do comparable
locally-owned businesses
b.generally are less productive and therefore pay their workers less than do comparable
locally-owned businesses
c.tend to specialize in different articles of manufacture than they produce in their home
countries
d.usually do not build their own production facilities but simply buy existing domestic
manufacturing firms
12) severe imperfections in the labor market lead to
a.persistent wage differentials among countries
b.persistent exchange rate volatility among countries
c.persistent interest rate differentials among countries
d.none of the above
13) in the graph at right, x, y, and z represent
a.entrenchment, alignment, entrenchment
b.alignment, entrenchment, alignment
c.misalignment and alignment
d.agency costs of debt and equity
14) an interest-only single currency interest rate swap
a.is also known as a plain vanilla swap
b.is also known as an interest rate swap
c.is about as simple as swaps can get
d.all of the above