1) a domestic bank that follows a multinational client abroad to preserve that banking
relationship
a.is playing the role of the desperate housewife in this relationship
b.is pursuing a wholesale defensive strategy
c.is pursuing a retail defensive strategy
d.none of the above
2) 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
3) if you could accurately and consistently forecast exchange rates
a.this would be a very handy thing as girls prefer guys with skills
b.you could impress your dates
c.you could make a great deal of money
d.all of the above
4) cash management refers to
a.the decision to grant credit to customers or to remain “cash and carry”
b.the investment the firm has in transaction balances and precautionary balances
c.a domestic firm’s investment in foreign currency
d.none of the above
5) as capital markets are becoming more integrated, the goal of shareholder wealth
maximization
a.has been altered to include other goals as well
b.has lost out to other goals, even in the u.s
c.has been given increasing importance by managers in europe
d.has been shown to be a deterrent to raising funds abroad
6) to formula to compute the value of the “block premium” is
a.
b.
c.
d.
7) the idea that an ideal tax should be effective in raising revenue for the government
but not have any negative effects on the economic decision-making process of the
taxpayer is referred to as
a.capital-export neutrality
b.capital-import neutrality
c.national neutrality
d.none of the above
8) you entered in to a 3 6 forward rate agreement that obliged you to borrow
$10,000,000 at 3%. suppose at the maturity of the fra, the correct interest rate is 3%.
clearly you are better off since you have the ability to borrow $10,000,000 for 3 months
at 3% instead of 3%. what is the payoff at the maturity of the fra?
a.net payment of $12,391.57 to you
b.net payment of $12,500 to you
c.net payment of $50,000 to you
d.net payment of $48,309.18 to you
9) an “option” is
a.a contract giving the seller (writer) of the option the right, but not the obligation, to
buy (call) or sell (put) a given quantity of an asset at a specified price at some time in
the future
b.a contract giving the owner (buyer) of the option the right, but not the obligation, to
buy (call) or sell (put) a given quantity of an asset at a specified price at some time in
the future
c.a contract giving the owner (buyer) of the option the right, but not the obligation, to
buy (put) or sell (call) a given quantity of an asset at a specified price at some time in
the future
d.a contract giving the owner (buyer) of the option the right, but not the obligation, to
buy (put) or sell (sell) a given quantity of an asset at a specified price at some time in
the future
10) a swap bank has identified two companies with mirror-image financing needs (they
both want to borrow equivalent amounts for the same amount of time. company x has
agreed to one leg of the swap but company y is “playing hard to get”.
a.the swap bank could just sell the company x side of the swap
b.company x should lobby y to “get on board”
c.company y should calculate the qsd and subtract that from their best outside offer
d.none of the above
11) 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
12) an exporter can share exchange rate risk with their customers by
a.invoicing in their customer’s local currency
b.splitting the difference, and invoicing half of sales in local currency and half of sales
in home currency
c.invoicing sales in a currency basket such as the sdr as the invoice currency
d.both b and c
13) which investment is likely to be the most liquid?
a.a share of publicly traded company trading on the nyse
b.a bond issued by a fortune 500 company
c.a house in a nice part of town
d.a and b are equally liquid
14) in the notation of the book, k = (1 – )kl + (1 – )i
which of the following are correct?
a.the weighted average cost of capital for a levered firm is k
b.the tax rate is
c.the after-tax cost of debt capital is i
d.all of the above