1) as a rule, when the interest rate of the foreign currency is greater than the interest rate
of the quoting currency,
a.the outright forward rate is less than the spot exchange rate
b.the outright forward rate is more than the spot exchange rate
c.the currency will trade at a premium in the forward contract
d.none of the above
2) suppose a bank customer wishes to trade out of british pounds and into swiss francs.
a.in dealer jargon, this is a currency against currency trade
b.the bank will frequently handle such a trade by selling british pounds for u.s. dollars
and then buying swiss francs with u.s. dollars
c.the bank would typically sell the british pounds directly for swiss francs
d.both a and b
3) the required return on assets is 18%. the firm can borrow at 12.5%; firm’s target debt
to value ratio is 3/5. the corporate tax rate is 34%, and the risk-free rate is 4% and the
market risk premium is 9.2 percent. what is the weighted average cost of capital?
a.12.15%
b.13.02%
c.14.33%
d.23.45%
e.none of the above
4) in the real world, does the cost of capital differ among countries?
a.yes
b.no
c.none of the above
5) the investors supply funds to the company but are not involved in the company’s
daily decision making. as a result, many public companies come to have
a.strong shareholders and weak managers
b.strong managers and weak shareholders
c.strong managers and strong shareholders
d.weak managers and weak shareholders
6) when excess tax credits go unused, the foreign tax liability for a branch is greater
than the corresponding u.s. tax liability when the foreign income tax rate is greater than
the u.s. rate. calculate the total tax liability for a wholly-owned subsidiary when excess
tax credits cannot be used in a country given:
a.35.00%
b.37.00%
c.43.36%
d.42.05%
7) if french-based affiliate a owes u.s.-based affiliate b $1,000 and affiliate b owes
affiliate a 2,000 when the exchange rate is $1.50 = 1.00. the net payment between a and
b should be closest to
a.$2,000 from b to a
b.2,000 from a to b
c.$1,000 from b to a
d.none of the above
8) find the weighted average cost of capital for a firm that has a debt-to-equity ratio of
2, a tax rate of 40%, a levered cost of equity of 12% and a pre-tax cost of debt of 9%.
a.7.6%
b.7.968%
c.10%
d.none of the above
9) studies examining the influence of industrial structure on foreign equity returns
a.conclusively show a connection
b.have been inconclusive
c.show that industrialized economies outperform lesser developed economies
d.none of the above
10) advantages of a flexible exchange rates include which of the following?
a.national policy autonomy
b.easier external adjustments
c.the government can use monetary and fiscal policies to pursue whatever economic
goals it chooses
d.all of the above
11) several international banks offer multilateral netting software packages. these
packages
a.calculate the net currency positions of each affiliate
b.can integrate the netting function with foreign exchange exposure management
c.only work on the mac platform
d.both a and b
12) it is common practice among currency traders worldwide to both price and trade
currencies against the u.s. dollar. consider a currency dealer who makes a market in 5
currencies against the dollar. if he were to supply quotes for each currency in terms of
all of the others, how many quotes would he have to provide?
a.36
b.30
c.60
d.120
e.none of the above
13) yesterday, you entered into a futures contract to buy 62,500 at $1.50 per . your
initial performance bond is $1,500 and your maintenance level is $500. at what settle
price will you get a demand for additional funds to be posted?
a.$1.5160 per
b.$1.208 per
c.$1.1920 per
d.$1.4840 per
14) consider a dentist and a 14-year old boy. the dentist can make $100 per hour drilling
teeth and the 14-year old boy can make $2 per hour picking up used aluminum cans. the
dentist is a manly man and can mow his half-acre lot in one hour. the 14-year old boy
can mow the lawn in two hours. if the dentist hires the boy to mow his lawn at any price
less than $100, but more than $4
a.both he and the boy are better off
b.the dentist would be exploiting the boy
c.the boy would be exploiting the dentist
d.all of the above