1) efficient cash management techniques can
a.reduce the investment in cash balances and foreign exchange transaction expenses
b.provide for maximum return from the investment of excess cash
c.result in borrowing at lowest rate when a temporary cash shortage exists
d.all of the above
2) consider the dollar- and euro-based borrowing opportunities of companies a and b.
a is a u.s.-based mnc with aaa credit; b is an italian firm with aaa credit. firm a wants to
borrow 1,000,000 for one year and b wants to borrow $2,000,000 for one year. the spot
exchange rate is $2.00 = 1.00 and the one-year forward rate is given by irp as $2.00
(1.08)/1.00 (1.06) = $2.0377/1.
is there a mutually beneficial swap?
a.no, qsd = 0
b.yes, qsd = 2% = (7% – 6%) – (8% – 9%) = 1% – (-1%)
c.yes, qsd = [7% – 6%] $2.00/1.00 – ($8% – $9%) = $2% + $1% = $3%
d.yes, qsd = [7% – 6%] – ($8% – $9%) 1.00/$2.00 = 1%
3) on a reset date, floating-rate notes
a.experience very volatile price changes
b.market price will usually gravitate toward par
c.market price will usually gravitate toward par, unless the borrowers credit rating has
declined
d.both b and c
4) for european currency options written on euro with a strike price in dollars, what of
the effect of an increase in the exchange rate s(/$)?
a.decrease the value of calls and puts ceteris paribus
b.increase the value of calls and puts ceteris paribus
c.decrease the value of calls, increase the value of puts ceteris paribus
d.increase the value of calls, decrease the value of puts ceteris paribus
5) eurobond market makers and dealers are members of the ______________, a
self-regulatory body based in zurich.
a.international currency market association (icma)
b.international bond marketers association (ibma)
c.international bond regulators association (ibra)
d.international capital market association (icma)
6) when company ownership is diffuse,
a.a “free rider” problem discourages shareholder activism
b.the large number of shareholders ensures strong monitoring of managerial behavior
because with a large enough group, there’s almost always someone who will to incur the
costs of monitoring management
c.few shareholders have a strong enough incentive to incur the costs of monitoring
management
d.both a and c are correct
7) according to the monetary approach, the exchange rate can be expressed as
a.
b.
c.
d.none of the above
8) at the wholesale level
a.most trading takes place otc between individuals on the floor of the exchange
b.most trading takes place over the phone
c.most trading flows over reuters and ebs platforms
d.most trading flows through specialized “broking” firms
9) a japanese exporter has a 1,000,000 receivable due in one year. detail a strategy using
a money market hedge that will eliminate any exchange rate risk.
a.borrow 970,873.79 today. convert the euro to dollars at the spot exchange rate, receive
$1,165,048.54. convert these dollars to yen at the spot rate, receive ¥
b.borrow 943,396.22 today. convert the euro to dollars at the spot exchange rate,
convert these dollars to yen at the spot rate, receive ¥117,924,528.30
c.lend 943,396.22 today. convert the euro to dollars at the spot exchange rate, convert
these dollars to yen at the spot rate
d.convert ¥117,924,528.30 to dollars at the spot rate; convert dollars to euro at the spot
rate; lend 943,396.22 at 5.25%
10) suppose you are a euro-based investor who just sold microsoft shares that you had
bought six months ago. you had invested 10,000 to buy microsoft shares for $120 per
share; the exchange rate was $1.55 per euro. you sold the stock for $135 per share and
converted the dollar proceeds into euro at the exchange rate of $1.50 per euro. compute
the rate of return on your investment in euro terms.
a.12.50%
b.16.25%
c.28.00%
d.-9.09%
11) one way to measure the value of private benefits of control
a.is to measure the difference in value between non-voting shares and voting shares
b.is to measure the value of the “block premium” the value difference between the price
per share paid for a control block of shares versus the exchange price of regular shares
c.both a and b
12) a withholding tax
a.is borne by a taxpayer who did not directly generate the income that serves as the
source of the passive income
b.a direct tax on workers
c.assures the local tax authority that it will receive the tax due on the passive income
earned within its tax jurisdiction
d.both a and c
13) prior to the argentine peso crisis
a.argentina had a “dirty float” where the government allowed the exchange rate to float
within wide bands
b.argentina had a currency board arrangement with the peso pegged to the u.s. dollar at
parity
c.the argentine government defaulted on its international debts
d.weakening of the u.s. dollar led the argentine government to abandon dollarization
14) your firm is an italian exporter of bicycles. you have sold an order to a swiss firm
for sfr. 2,000,000 worth of bicycles. payment from the customer (in swiss francs) is due
in 12 months. detail a strategy using futures contracts that will hedge your exchange
rate risk. have an estimate of how many contracts of what type and maturity.
a.go long 200 12-month swiss franc futures contracts; and long 125 12-month euro
futures contracts
b.go short 200 12-month swiss franc futures contracts; and short 125 12-month euro
futures contracts
c.go long 200 12-month swiss franc futures contracts; and short 125 12-month euro
futures contracts
d.go short 200 12-month swiss franc futures contracts; and long 125 12-month euro
futures contracts
e.none of the above
15) why can blocked funds can be detrimental to all concerned?
a.host countries want to attract foreign industries that benefit their economic
development; blocked funds make mncs less willing to invest
b.mncs should not be expected to make beneficial investment where they may not be
able to receive an appropriate return
c.local competitors may be able to reap monopoly profits
d.both a and b