1) managing operating exposure
a.is a short-term tactical issue
b.is a long-term issue, like selecting a site for a factory
c.is relatively unimportant, since most mncs have a built-in hedge
d.none of the above
2) examples of transfer risk include
a.the unexpected imposition of capital controls, inbound or outbound, and withholding
taxes on dividend and interest payments
b.unexpected changes in environmental policies, sourcing/local content requirements,
minimum wage law, and restriction on access to local credit facilities
c.restrictions imposed on the maximum ownership share by foreigners, mandatory
transfer of ownership to local firms over a certain period of time (fade-out
requirements), and the nationalization of local operations of mncs
d.none of the above
3) an american hedge fund is considering a one-year investment in an italian
government bond with a one-year maturity and a euro-denominated rate of return of i =
5%. the bond costs 1,000 today and will return 1,050 at the end of one year without
risk. the current exchange rate is 1.00 = $1.50. u.s. dollar-denominated government
bonds currently have a yield to maturity of 4%. suppose that the european central bank
is considering either tightening or loosening its monetary policy. it is widely believed
that in one year there are only two possibilities:
following revaluation, the exchange rate is expected to remain steady for at least
another year
find the npv in dollars for the american firm if they wait one year to buy the bond after
the exchange rate rises to s1($|) = $1.80 per . assume that i doesn’t change.
4) monetary policy for the countries using the euro as a currency is now conducted by
a.the federal reserve
b.the bundesbank
c.european central bank
d.none of the above
5) international portfolio investments have boomed in recent years, as a result of
a.a depreciating u.s. dollar
b.increased gasoline and other commodity prices
c.the general relaxation of capital controls and regulation in many countries
d.none of the above
6) a limit order
a.is an instruction from a customer to a broker to buy or sell in at a particular price (or
better)
b.can be a “day order”that is the order is cancelled if not executed during that day’s
trading
c.can be “good till cancelled”
d.all of the above
7) the g-7 is composed of
a.canada, france, japan, germany, italy, the u.k., and the united states
b.switzerland, france, japan, germany, italy, the u.k., and the united states
c.switzerland, france, north korea, germany, italy, the u.k., and the united states
d.switzerland, france, japan, germany, canada, the u.k., and the united states
8) the cadbury code of best practice
a.is the u.n. equivalent of the sarbanes-oxley act
b.is voluntary, but firms that fail to comply must explain why they choose not to
comply
c.has the force of law, like the sarbanes-oxley act
d.none of the above
9) restrictions or impediments to free trade include such things as
a.import quotas
b.import tariffs
c.costly transportation
d.all of the above
10) in any given year, rightly 80 percent of new international bonds are likely to be
a.eurobonds
b.foreign currency bonds
c.domestic bonds
d.none of the above
11) the secondary stock markets
a.are the markets for “pre-owned” or “used” shares of stock
b.provide marketability to shares
c.provide price discovery or share valuation
d.all of the above
12) market makers in the secondary bond market
a.stand ready to buy or sell for their own account
b.quote bid and ask spreads
c.trade directly with one another, through a broker or with retail customers
d.all of the above
13) generally speaking,
a.it is not possible to hedge both translation exposure and transaction exposure
simultaneously
b.if a firm can hedge translation exposure then transaction exposure will be
simultaneously hedged
c.if a firm can hedge transaction exposure then translation exposure will be
simultaneously hedged
d.none of the above