1) the first full-fledged gold standard
a.was not established until 1821 in great britain, when notes from the bank of england
were made fully redeemable for gold
b.was not established until 1780 in the united states, when notes from the continental
army were made fully redeemable for gold
c.was established in 986 during the han dynasty in china
d.none of the above
2) since its inception the euro has brought about revolutionary changes in european
finance. for example,
a.by redenominating corporate bonds and stocks from several different currencies into
one common currency, the euro has precipitated the emergence of continent wide
capital markets in europe that are comparable to u.s. markets in depth and liquidity
b.swiss bank accounts are all denominated in euro
c.the european banking sector has become much more important as a source of
financing for european firms
d.there have actually not been any revolutionary changes
3) on the paris bourse, shares of avionelle trade at 45. the spot exchange rate is $1.40 =
1.00. what is the no-arbitrage u.s. dollar price of an avionelle adr? assume that
transactions costs are negligible.
a.$63
b.$32.14
c.$45
d.$45.50
4) since a corporation can hedge exchange rate exposure at low cost
a.there is no benefit to the shareholders in an efficient market
b.shareholders would benefit from the risk reduction that hedging offers
c.the corporation’s banker would benefit from the risk reduction that hedging offers
d.none of the above
5) capital budgeting analysis is very important, because it
a.involves, usually expensive, investments in capital assets
b.has to do with the productive capacity of a firm
c.will determine how competitive and profitable a firm will be
d.all of the above
6) investments in r&d
a.are usually a waste of time and money
b.can allow the firm to maintain and strengthen its competitive position
c.can allow the firm to cut costs and enhance productivity
d.both b and c
7) a banker’s acceptance is created when
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.after taking title to the goods via a bill of lading, the importer’s bank accepts the time
draft
c.a time draft that calls for payment upon physical delivery of goods matures
d.none of the above
8) most exchange traded currency options
a.mature every month, with daily resettlement
b.have original maturities of 1, 2, and 3 years
c.have original maturities of 3, 6, 9, and 12 months
d.mature every month, without daily resettlement
9) 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
10) private benefits of corporate control will tend to be higher in
a.french civil law countries than in english common law countries
b.english common law countries than in french civil law countries
c.french civil law countries than in scandinavian civil law countries
d.english common law countries than in german civil law countries
11) the time from acceptance to maturity on a $1,000,000 banker’s acceptance is 60
days.
the importing bank’s acceptance commission is 1.00 percent and that the market rate for
60-day b/as is 5 percent.
determine the amount the exporter will receive if he holds the b/a until maturity.
12)
please note that your answers are worth zero points if they do not include currency
symbols ($, )
there is (at least) one profitable arbitrage at these prices. what is it?
13) find the risk-neutral probability of an “up” move for your tree. hint: you can’t
recycle your risk neutral probability from the call option.
14) the time from acceptance to maturity on a $1,000,000 banker’s acceptance is 90
days.
the importing bank’s acceptance commission is 3 percent and that the market rate for
90-day b/as is 5 percent.
if the exporter’s opportunity cost of capital is 11 percent, should he discount the b/a or
hold it to maturity?
15) the first two columns give the maximum daily amounts of beer and whiskey that
southern ireland and northern ireland can produce when they completely specialize in
one or other product. the last two columns give each country’s consumption without
trade.