1) a time draft can become a negotiable money market instrument called
a.eurodollars
b.a banker’s acceptance
c.a letter of credit
d.a bill of lading
2) global registered shares
a.are created when a mnc issues shares globally
b.purchased on one exchange (say nyse) is fully fungible with shares purchased on
another exchange (e.g. frankfurt stock exchange)
c.can trade in multiple currencies
d.all of the above
3) if you own a foreign currency denominated bond, you can hedge with
a.a long position in a currency forward contract
b.a long position in an exchange-traded futures option
c.buying the foreign currency today and investing it in the foreign county
d.a swap contract where pay the cash flows of the bond in exchange for dollars
4) a time draft
a.is a document issued by the common carrier specifying that it has received the foods
for shipment; it can serve as title to the goods
b.later becomes a banker’s acceptance
c.written order instructing the importer or his agent that calls for payment the amount
specified on its face on a certain date
d.none of the above
5) find the input d1 of the black-scholes price of a six-month call option written on
100,000 with a strike price of $1.00 = 1.00. the current exchange rate is $1.25 = 1.00;
the u.s. risk-free rate is 5% over the period and the euro-zone risk-free rate is 4%. the
volatility of the underlying asset is 10.7 percent.
a.d1 = 0.103915
b.d1 = 2.9871
c.d1 = -0.0283
d.none of the above
6) in a pure flexible exchange rate regime, a country’s central banks will not need to
maintain official reserves. under this regime
a.-bca = bka
b.bca = -bra = 0
c.bka = -bra
d.bsa = bca
7) your firm’s interaffiliate cash receipts and disbursements matrix is shown below
($000):
find the net cash flow in (out of) the u.k. affiliate.
a.$5,000 in
b.$5,000 out
c.$30,000 out
d.$30,000 in
e.none of the above
8) the capital account is divided into three subcategories: direct investment, portfolio
investment, and other investment. direct 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
9) a japanese exporter has a 1,000,000 receivable due in one year.
estimate the cost today of an options strategy that will eliminate exchange rate risk.
a.$20,000
b.$5,000
c.$12,500
d.none of the above
10) with a mnc
a.the decision to set a transfer price is further complicated by import duty
considerations
b.the decision to set a transfer price can be further complicated by exchange rate
restrictions imposed by governments
c.the decision to set a transfer price is further complicated by tax considerations, if there
is a difference in tax rates between the host country and the home country
d.all of the above
11) consider a project of the cornell haul moving company, the timing and size of the
incremental after-tax cash flows (for an all-equity firm) are shown below in millions:
the firm’s tax rate is 34%; the firm’s bonds trade with a yield to maturity of 8%; the
current and target debt-equity ratio is 2; if the firm were financed entirely with equity,
the required return would be 10%
using the weighted average cost of capital methodology, what is the npv? i didn’t round
my intermediate steps. if you do, you’re not going to get the right answer.
a.-$1,406,301.25
b.$12,494,643.75
c.$36,580,767.55
d.$108,994.618.20
e.$59,459,301.03
12) suppose the spot ask exchange rate, sa($|£), is $1.90 = £1.00 and the spot bid
exchange rate, sb($|£), is $1.89 = £1.00. if you were to buy $10,000,000 worth of
british pounds and then sell them five minutes later, how much of your $10,000,000
would be “eaten” by the bid-ask spread?
a.$1,000,000
b.$52,910.05
c.$100,000
d.$52,631.58
13) while there is no comprehensive theory of fdi, many existing theories emphasize
a.imperfections in product markets
b.imperfections in capital markets
c.imperfections in labor markets
d.all of the above
14) an american hedge fund is considering a one-year investment in an italian
government bond with a one-year maturity and a euro-denominated rate of return of i =
5%. the bond costs 1,000 today and will return 1,050 at the end of one year without
risk. the current exchange rate is 1.00 = $1.50. u.s. dollar-denominated government
bonds currently have a yield to maturity of 4%. suppose that the european central bank
is considering either tightening or loosening its monetary policy. it is widely believed
that in one year there are only two possibilities:
following revaluation, the exchange rate is expected to remain steady for at least
another year
find the npv in euro for the american firm if they wait one year to undertake the project
after the exchange rate falls to s1($|) = $1.40 per . assume that i doesn’t change.
15) in an agency market, the broker takes the client’s order through the agent, who
matches it with another public order. the agent can be viewed as
a.a dealer
b.a specialist
c.a broker’s broker
d.none of the above
16) the required return on equity for a levered firm is 10.60%. the debt to equity ratio is
the tax rate is 40%, the pre-tax cost of debt is 8%. find the cost of capital if this firm
were financed entirely with equity.
a.10%
b.12%
c.8.67%
d.none of the above
17) many of the larger the larger emerging equity markets (e.g. korea, india)
a.have poor liquidity at present
b.are more liquid stock markets than the developed world, since the poor people living
in the developing world are eager to sell their securities
c.have high turnover ratios
d.none of the above
18) not all countries allow mncs the freedom to net payments,
a.by limiting netting, more needless foreign exchange transactions flow through the
local banking system
b.mncs can avoid these restrictions by using a centralized cash depository
c.mncs can avoid these restrictions by using wire transfers
d.both b and c
19) spot foreign exchange trading
a.accounts for about 5 percent of all foreign exchange trading
b.accounts for about 20 percent of all foreign exchange trading
c.accounts for about 33 percent of all foreign exchange trading
d.accounts for about 70 percent of all foreign exchange trading
20) when exchange rates change
a.the value of a foreign subsidiary’s foreign currency denominated assets and liabilities
change to new numbers still denominated in the foreign currency
b.the value of a foreign subsidiary’s foreign currency denominated assets and liabilities
change when redenominated into the home currency
c.hedging should be done after the change
d.none of the above