1) continued u.s. trade deficits coupled with foreigners’ desire to diversify their
currency holdings away from u.s. dollars
a.could further diminish the position of the dollar as the dominant reserve currency
b.could affect the value of u.s. dollar (e.g. through the currency diversification decisions
of asian central banks)
c.could lend steam to the emergence of the euro as a credible reserve currency
d.all of the above
2) in the long run, both exports and imports tend to be
a.unresponsive to changes in exchange rates
b.responsive to changes in exchange rates
c.both a and b
d.none of the above
3) in many countries with concentrated ownership
a.the conflicts of interest between shareholders and managers are worse than in
countries with diffuse ownership of firms
b.the conflicts of interest are greater between large controlling shareholders and small
outside shareholders than between managers and shareholders
c.the conflicts of interest are greater between managers and shareholders than between
large controlling shareholders and small outside shareholders
d.corporate forms of business organization with concentrated ownership are rare
4) with currency futures options the underlying asset is
a.foreign currency
b.a call or put option written on foreign currency
c.a futures contract on the foreign currency
d.none of the above
5) a bond market index
a.is a reference rate, like libor, that adjustable rate bonds use to set the coupon
b.is analogous to a stock market index, but with bond price data instead of stock price
data
c.represents a price-weighted average of all bonds that exist
d.none of the above
6) a tax haven is
a.a country that has a low corporate income tax rate and low withholding tax rates on
passive income
b.a country with no taxes and no enforcement of foreign tax laws within its borders
c.any country with a higher tax rate that available domestically
d.none of the above
7) the capital account includes
a.the export and import of goods and services
b.all purchases and sales of assets such as stocks, bonds, bank accounts, real estate, and
businesses
c.all purchases and sales of international reserve assets such as dollars, foreign
exchanges, gold, and special drawing rights (sdrs)
d.none of the above
8) a u.s. firm holds an asset in great britain and faces the following scenario:
where,
p* = pound sterling price of the asset held by the u.s. firm
p = dollar price of the same asset
the “exposure” (i.e. the regression coefficient beta) is:
a.-25,000
b.2,5000
c.-2,500
d.none of the above
9) which investment is likely to be the least liquid?
a.a share of publicly traded company trading on the nyse
b.a bond issued by a fortune 500 company
c.a house in a nice part of town
d.a and b are equally liquid
10) a central bank can fix an exchange rate
a.in perpetuity
b.only for as long as the market believes that it has the political will to do so
c.only for as long as it has reserves of gold
d.only for as long as it has independence of monetary policy
11) as of today, the spot exchange rate is 1.00 = $1.25 and the rates of inflation
expected to prevail for the next three years in the u.s. is 2% and 3% in the euro zone.
what spot exchange rate should prevail three years from now?
a.1.00 = $1.2379
b.1.00 = $1.2139
c.1.00 = $0.9903
d.$1.00 = 1.2623
12) the conflicts between the upstream and downstream firms can be resolved,
a.if the two firms form a horizontally integrated firm
b.if the two firms form a vertically integrated firm
c.if the two firms form a linearly integrated firm
d.none of the above
13) when the balance-of-payments accounts are recorded correctly, the combined
balance of the current account, the capital account, and the reserves account must be
a.equal in magnitude to the country’s national debt
b.zero
c.equal in magnitude to the trade deficit or surplus
d.none of the above
14) deregulated financial markets and heightened competition in financial services
provided an environment for financial innovations that resulted in the introduction of
various instruments. examples of these innovative instruments include
a.currency futures and options, foreign stock index futures and options
b.multicurrency bonds
c.international mutual funds, country funds, exchange traded funds
d.all of the above
15) floating for floating currency swaps
a.the reference rates are different for the different currencies: e.g. dollar libor versus
euro libor
b.the reference rates can be the same but have different frequencies
c.both a and b
d.none of the above
16) for a recent month, the following payments matrix of interaffiliate cash flows was
forecasted:
the spot exchange rates are $1.20 = 1.00 and $1.80 = £1.00; affiliates get paid in home
currency. use multilateral netting to find the net payments to and from all parties.
which of the following is an accurate chart of their current situation?
a.
b.
c.
d.none of the others