1) tax equity means that
a.similarly situated taxpayers should participate in the cost of operating the government
according to the same rules
b.regardless of the country in which an affiliate of a mnc earns taxable income, the
same tax rate and tax due date apply
c.a dollar earned by a foreign affiliate is taxed under the same rules as a dollar earned
by a domestic affiliate of the mnc
d.all of the above
2) consider a u.s. mnc with three subsidiaries and the following foreign exchange
transactions shown at left. use multilateral netting with a central depository to reduce
the number of foreign exchange transactions.
a.
b.
c.
d.none of the above
3) assume that the firm will partially finance the project with a $3,000,000 interest-only
30-year loan at 10.0 percent apr with annual payments.
what is the levered after-tax incremental cash flow for year 0?
a.-$1,010,000
b.-$1,000,000
c.-$660,000
d.-$2,100,000
e.none of the above
4) there are two types of equity related bonds:
a.convertible bonds and dual currency bonds
b.convertible bonds and kitchen sink bonds
c.convertible bonds and bonds with equity warrants
d.callable bonds and exchangeable bonds
5) suppose the quote for a five-year swap with semiannual payments is 5060 percent.
the means
a.the swap bank will pay semiannual fixed-rate dollar payments of 8.50 percent against
receiving six-month dollar libor
b.the swap bank will receive semiannual fixed-rate dollar payments of 8.60 percent
against paying six-month dollar libor
c.both a and b
d.none of the above
6) for most countries and most firms, the domestic country beta
a.can be no lower than its world beta
b.is normally much smaller than the world beta
c.is normally much much higher than the world beta
d.is exactly equal to the world beta
7) it is conventional to classify foreign currency exposures into the following types:
a.economic exposure, transaction exposure, and translation exposure
b.economic exposure, noneconomic exposure, and political exposure
c.national exposure, international exposure, and trade exposure
d.conversion exposure, and exchange exposure
8) 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
9) under the bretton woods system,
a.the u.s. dollar was the only currency that was fully convertible to gold; other
currencies were not directly convertible to gold
b.all currencies of member states were fully convertible to gold
c.all currencies of member states were fully convertible to gold or silver
d.none of the above
10) in a consignment sale
a.the importer only pays the exporter once he sells the merchandise
b.the exporter retains title to the merchandise that is shipped
c.if the goods do not sell, the importer can return them to the exporter
d.all of the above
11) since the end of the fixed exchange rate system of the smithsonian agreement
a.exchange rates were revalued in the bretton woods agreement
b.exchange rates have been allowed to float
c.the united states returned to a gold standard
d.the zone of monetary stability has been limited to the u.s., canada, and mexico
12) in germany the corporate board is
a.legally charged with representing the interests of shareholders exclusively
b.legally charged with looking after the interests of stakeholders (e.g., workers,
creditors, etc.) in general, not just shareholders
c.legally charged as a supervisory board only
d.legally charged as a management board only
13) once the changeover to the euro was completed by july 1, 2002, the legal-tender
status of national currencies in the euro zone
a.was canceled, leaving the euro as the sole legal tender in the euro zone countries
b.was affirmed at the fixed exchange rate
c.was tied to gold
d.none of the above
14) with regard to the financial structure of a foreign subsidiary
a.using local financing can reduce political risk
b.a mnc that finances a foreign investment with home-country equity faces greater risk
of expropriation than if it had financed the investment with at least some local debt or
equity
c.there may be advantages other than a reduction in political risk that encourage mncs
to finance foreign subsidiaries with local money
d.all of the above