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1) a controlled foreign corporation (cfc) is
a.a foreign corporation established as an affiliate of a u.s. corporation for the purpose of
"buying" from the u.s. corporation property for resale and use abroad
b.a foreign subsidiary that has more than 50 percent of its voting equity owned by u.s.
shareholders
c.a separate domestic u.s. corporation actively engaged in business in a u.s. possession
(puerto rico and the u.s. virgin islands)
d.one that has no "overall limitation" as regards to its foreign tax credits
2) abc inc., an exporting firm, expects to earn $20 million if the dollar depreciates, but
only $10 million if the dollar appreciates. assume that the dollar has an equal chance of
appreciating or depreciating. calculate the expected tax of abc if it is operating in a
foreign country that has progressive corporate taxes as shown below:
corporate income tax rate = 15% for the first $7,500,000.
corporate income tax rate = 30% for earnings exceeding $7,500,000.
a.$3,375,000
b.$6,000,000
c.$1,500,000
d.$4,500,000
3) an "international" gold standard can be said to exist when
a.gold alone is assured of unrestricted coinage
b.there is two-way convertibility between gold and national currencies at stable ratios
c.gold may be freely exported or imported
d.all of the above
4) your firm's interaffiliate cash receipts and disbursements matrix is shown below
($000):
find the net cash flow in (out of) the canadian affiliate.
a.$0 in or out
b.$20,000 out
c.$15,000 in
d.$30,000 out
e.none of the above
5) offshore banks
a.are frequently located on old oil drilling platforms located in international waters
b.are often located in "pariah" countries like north korea and iran
c.operate as branches or subsidiaries of the parent bank
d.none of the above
6) country risk refers to
a.political risk
b.credit risk, and other economic performances
c.every risk except political risk
d.both a and b
7) suppose a u.s. firm has an asset in britain whose local currency price is random. for
simplicity, suppose there are only three states of the world and each state is equally
likely to occur. the future local currency price of this british asset (p*) as well as the
future exchange rate (s) will be determined, depending on the realized state of the
world.
which of the following statements is most correct?
a.the firm faces no exchange rate risk since the local currency price of the asset and the
exchange rate are negatively correlated
b.the firm faces substantial exchange rate risk since the local currency price of the asset
and the exchange rate are positively correlated
c.the firm's exchange rate exposure can be completely hedged with derivatives written
on the british pound
d.since randomness is involved, no hedging is possible
8) solve for the weighted average cost of capital:
a.7.00%
b.6.89%
c.6.73%
d.6.67%
e.6.57%
9) when a currency trades at a premium in the forward market
a.the exchange rate is more than one dollar (e.g. 1.00 = $1.28)
b.the exchange rate is less than one dollar
c.the forward rate is less than the spot rate
d.the forward rate is more than the spot rate
10) in the graph at right, x and y represent
a.u.s. stocks and international stocks
b.international stocks and u.s. stocks
c.systematic risk and unsystematic risk
d.none of the above
11) suppose the domestic u.s. beta of ibm is 1.0, that is and that the expected
return on the u.s. market portfolio is percent, and that the u.s. t-bill rate is 6
percent. if the world beta measure of ibm is then we can say
a.that if the u.s. markets are fully integrated with the rest of the world, ibm's cost of
equity capital would be 20% lower than if u.s. markets were segmented
b.that if the u.s. markets are fully integrated with the rest of the world, ibm's cost of
equity capital would be 10% lower than if u.s. markets were segmented
c.that if the u.s. markets are fully integrated with the rest of the world, ibm's cost of
equity capital would be one-third lower than if u.s. markets were segmented
d.none of the above
12) ishares
a.exchange traded funds that are subject to u.s. sec and irs diversification requirements
b.open-end mutual funds sold otc
c.exchange traded funds that are not subject to u.s. sec and irs diversification
requirements
d.none of the above
13) suppose that the one-year interest rate is 3.0 percent in the italy, the spot exchange
rate is $1.20/, and the one-year forward exchange rate is $1.18/. what must one-year
interest rate be in the united states?
a.1.2833%
b.1.0128%
c.4.75%
d.none of the above
14) sensitivity analysis in the calculation of the adjusted present value (apv) allows the
financial manager to
a.analyze all of the risks (business, economic, exchange rate uncertainty, political, etc.)
inherent in the investment
b.more fully understand the implications of planned capital expenditures
c.consider in advance actions that can be taken should an investment not develop as
anticipated
d.all of the above
15) which one of the following is a false statement when engaged in bilateral netting?
a.total interaffiliate receipts will always equal total interaffiliate disbursements
b.we can reduce the number of foreign exchange transactions among a mnc with n
affiliates to or less
c.each affiliate nets all its interaffiliate receipts against all its disbursements. it then
transfers or receives the balance, respectively, if it is a net payer or receiver
d.all of the above
16) in the event of a default on one side of a futures trade,
a.the clearing member stands in for the defaulting party
b.the clearing member will seek restitution for the defaulting party
c.if the default is on the short side, a randomly selected long contract will not get paid.
that party will then have standing to initiate a civil suit against the defaulting short
d. both a and b
17) banks that both perform traditional commercial banking functions and engage in
investment banking activities are often called
a.international service banks
b.investment banks
c.commercial banks
d.merchant banks
18) in which type of policy actions by the fed can liquidity "dry up"?
a.easy money
b.tight money
c.decrease in the reserve requirement
d.decrease in the discount rate
19) the dominant source of fdi outflows
a.several developed countries
b.a few underdeveloped countries next to wealthy neighbors, like mexico
c.africa and china
d.none of the above
20) in the notation of the book, k = (1 - )kl + (1 - )i
which of the following are correct?
a.the debt-to-total market value ratio is
b.the tax rate is i
c.the after-tax cost of debt capital is i
d.all of the above
