1)
the euro-pound cross exchange rate can be computed as:
a.s(/£) = s($/£) s(/$)
b.
c.
d.all of the above
2) consider a u.s.-based mnc with a wholly-owned french subsidiary. following a
depreciation of the dollar against the euro, which of the following best describes the
mechanism of any effect of the depreciation?
a.the change in the cash flow in euro due an alteration in the firm’s competitive position
in the marketplace is in part a function of the elasticity of demand for the firm’s product
b.a given operating cash flow in euro will be translated to a higher u.s. dollar cash flow
regardless of the firm’s hedging program
c.both a and b
d.none of the above
3) in an efficient market without barriers to capital flows, the cost-savings argument of
the qsd is difficult to accept, because
a.it implies that an arbitrage opportunity exists because of some mispricing of the
default risk premiums on different types of debt instruments
b.it implies that an arbitrage opportunity exists because of some mispricing of the
exchange rates on different maturities of forward contracts
c.none of the above
4) advantages of investing in u.s.-based international mutual funds include
a.lower transactions costs relative to direct investing
b.circumvention of many legal and institution barriers to direct portfolio investment in
many foreign markets
c.professional management, potentially expertise in security selection, definitely
record-keeping
d.all of the above
5) solve for the weighted average cost of capital:
a.7.00%
b.6.89%
c.6.73%
d.6.67%
e.6.57%
6) the primary reasons for a counterparty to use a currency swap are
a.to hedge and to speculate
b.to play in the futures and forward markets
c.to obtain debt financing in the swapped currency at an interest cost reduction brought
about through comparative advantages each counterparty has in its national capital
market, and the benefit of hedging long-run exchange rate exposure
d.both a and b
7) with regard to cash management systems in practice, studies suggest that the benefits
of a multilateral netting system include
a.the decrease in the expense associated with funds transfer, which in some cases can be
over $1,000 for a large international transfer of foreign exchange
b.the savings in administrative time
c.the reduction in intra company float, which is frequently as high as five days, even for
wire transfers
d.all of the above
8) a call option on £1,000 with a strike price of 1,250 is equivalent to
a.a put option on 1,250 with an exercise price of 1,000
b.a portfolio of options: a put on 1,250 with a strike price in dollars plus a call on
£1,000 with a strike price in dollars
c.a put option on £1,000 with an exercise price of 1,250
d.both a and b
9) systematic risk is
a.nondiversifiable risk
b.the risk that remains even after investors fully diversify their portfolio holdings
c.both a and b
d.none of the above
10) pricing an interest-only single currency swap after inception involves
a.sending a market order to a swap dealer
b.finding the difference between the present values of the payments streams the party
will receive and pay
c.finding the sum of the present values of the payments streams that each party will
receive in one currency and pay in the other currency, converted to a common currency
d.none of the above
11) the european monetary system (ems) has the chief objective(s)
a.to establish a “zone of monetary stability” in europe
b.to coordinate exchange rate policies vis–vis the non-ems currencies
c.to pave the way for the eventual european monetary union
d.all of the above
12) suppose that the one-year interest rate is 5.0 percent in the united states; the spot
exchange rate is $1.20/; and the one-year forward exchange rate is $1.16/. what must
one-year interest rate be in the euro zone to avoid arbitrage?
a.5.0%
b.6.09%
c.8.62%
d.none of the above
13) find the hedge ratio for a put option on 10,000 with a strike price of $15,000. in one
period the exchange rate (currently s($/) = $1.50/) can increase by 60% or decrease by
37.5% (i.e. u = 1.6 and d = 0.625).
a.-15/49
b.8/13
c.-5/13
d.15/49
14) in a study of the effect of international acquisitions on the stock prices of u.s. firms.
u.s. acquiring firms with information-based intangible assets experience a significantly
positive stock price reaction upon foreign acquisition.
a.this is consistent with the finding that the market value of the firm is positively related
to its multinationality because of the firm’s intangible assets, such as r&d capabilities,
with public good nature
b.it is not the multinationality per se that contributes to the firm’s value
c.their empirical findings support the (forward-) internalization theory of fdi
d.all of the above
15) a clearing arrangement
a.is also called a bilateral clearing agreement
b.is a form of barter
c.involves two parties agreeing to buy a specified amount of goods or services from one
another
d.all of the above
16) corporations today are operating in an environment in which exchange rate changes
may adversely affect their competitive positions in the marketplace. this situation, in
turn, makes it necessary for many firms to
a.carefully manage their exchange risk exposure.
b.carefully measure their exchange risk exposure.
c.both a and b