1) currency risk
a.is the same as currency exposure
b.represents random changes in exchange rates
c.measure “what the firm has at risk.”
d.both a and b
2) your firm is an italian exporter of bicycles. you have sold an order to a british firm
for £1,000,000 worth of bicycles. payment from the customer (in pounds sterling) is
due in 12 months. use a money market hedge to redenominate this one-year receivable
into a euro-denominated receivable with a one-year maturity.
the following were computed without rounding. select the answer closest to yours.
a.1,225,490.20
b.1,244,212.10
c.1,250,000
d.1,219,815.78
3) a “bearer bond” is one that
a.shows the owner’s name on the bond
b.the owner’s name is recorded by the issuer
c.possession is evidence of ownership
d.both a and b
4) since the end of world war i, the u.s. dollar has played the role of the dominant global
currency, displacing the
a.german mark
b.french franc
c.japanese yen
d.british pound
5) act as a swap bank and quote bid and ask prices to a and b that are attractive to a and
b and promise to make at least 20bp for your firm.
6) if the $/ bid and ask prices are $1.50/ and $1.51/, respectively, the corresponding /$
bid and ask prices are
a.0.6667 and 0.6623
b.$1.51 and $1.50
c.0.6623 and 0.6667
d.cannot be determined with the information given
7) the required return on equity for an all-equity firm is 10.0%. they currently have a
beta of one and the risk-free rate is 5% and the market risk premium is 5%. they are
considering a change in capital structure to a debt-to-equity ratio of the tax rate is 40%,
the pre-tax cost of debt is 8%. find the beta if this firm changes capital structure.
a.1.12
b.1
c.7.4%
d.none of the above
8) since international banks have the facilities to trade foreign exchange,
a.they generally also make a market as a dealer in foreign exchange
b.they generally also make a market as a dealer in foreign exchange derivatives
c.they generally also trade foreign exchange products for their own account
d.none of the above
9) the current spot exchange rate is $1.55/ and the three-month forward rate is $1.50/.
based on your analysis of the exchange rate, you are confident that the spot exchange
rate will be $1.52/ in three months. assume that you would like to buy or sell 1,000,000.
what actions do you need to take to speculate in the forward market?
a.take a long position in a forward contract on 1,000,000 at $1.50/
b.take a short position in a forward contract on 1,000,000 at $1.50/
c.buy euro today at the spot rate, sell them forward
d.sell euro today at the spot rate, buy them forward
10) what kind of integration is vertical integration?
a.when the government outlaws discrimination against both short and tall people
b.when two firms join together in a conglomerate merger
c.when two firms related in the production process are owned by the same firm, as in a
plywood manufacturer owning a logging company
d.all of the above
11) during the five-year period 2007-2011,
a.china received the largest amount of fdi inflows
b.india received the largest amount of fdi inflows
c.mexico received the largest amount of fdi inflows
d.the united states received the largest amount of fdi inflows