1) consider the following variances of different stocks all with the same expected
returns. which stock represents the riskiest choice?
a.stock a: 0.03
b.stock b: 0.25
c.stock c: 0.005
d.stock d: 0.22
2) the u.s. economy is experiencing large trade deficits. suppose that the u.s. considers
devaluing its dollar against a foreign currency to improve the trade balance. what type
of currency contracting would improve the u.s. trade deficit?
a.the u.s. import contracts are written in foreign currency and the u.s. export contracts
are written in dollar
b.the u.s. import contracts are written in dollar and the u.s. export contracts are written
in foreign currency
c.both of the u.s. import and export contracts are written in dollar
d.both of the u.s. import and export contracts are written in foreign currency
3) which of the following is not a step in the capital budgeting process?
a.identify the initial outlay of the investment project
b.estimate net future cash flows over the lifetime of the project
c.identify appropriate interest rate to discount the future cash flows
d.use foreign inflation rates to discount the future cash flows
4) in general, the more competitive a countrys markets are, the fewer the opportunities
for ________.
a.corruption
b.free trade
c.profits
d.government seizures
5) which of the follow are examples of characteristics of offshore financial centers?
i.different regulations for domestic and foreign currencies
ii.low (or no) taxes
iii.banks work confidential interaction with clients
iv.strict rules on deposit insurance
a.i only
b.i and iv
c.i, ii, and iii
d.i, ii, iii, and iv
6) action by a central bank to offset the effect of a foreign exchange intervention, on the
domestic money supply, by using the open-market operations is known as:
a.monetary protectionism
b.sterilized intervention
c.currency creation
d.injecting money supply
7) table 6-1: spot and forward exchange rates on may 5, 2012
refer to table 6-1. on may 5, 2012, the 1-month forward yen was selling at a:
a.1.69% premium per annum against the dollar.
b.20.22% premium per annum against the dollar.
c.1.69% discount per annum against the dollar.
d.20.22% discount per annum against the dollar.
8) which of the following options correctly reflect the assumptions in the overshooting
approach?
a.both ppp and cirp hold in the short run
b.ppp holds in the short run, but cirp does not
c.cirp holds in the short run, but ppp does not
d.neither ppp nor cirp holds in the short run
9)
perfect mobility of factors of production is a requirement for
a.spatially concentrated trade zones
b.optimal currency areas
c.commodity money standards
d.free floating exchange rates
10) general candy, inc., a u.s. firm, manufactures and sells candies worldwide. because
of a rising price of sugar in the u.s., the company is considering to build a new plant in
the u.k. the plant will cost £15 million to build. assume that the plant will have a life of
3 years before it is confiscated by the british government (zero salvage value) and the
discount rate of the cash flows is 10%. consider the following cash flows for this
project.
table 9-1:
refer to table 9-1. based on the net present value,
a.the project can be accepted because the net present value is positive
b.the project should be rejected because the net present value is negative
c.the project can be accepted because the net present value is negative
d.the project should be rejected because the net present value is positive
11) assume that bank of america quotes you a buy rate of $1.95 per pound and a sell
rate of $1.98 per pound. if you buy 1,000 pounds from bank of america, the bank will
have too few pounds. to square off, bank of america has to ________ the buy rate and
______ the sell rate.
a.raise; raise
b.raise; lower
c.lower; raise
d.lower; lower