1) “investment grade” ratings are in the following categories:
a.moody’s: aaa to bbb – s&p’s: aaa to baa
b.moody’s: aaa to baa – s&p’s: aaa to bbb
c.moody’s: aaa to a – s&p’s: aaa to a
d.moody’s: aaa to a – s&p’s: aaa to a
2) the current spot exchange rate is $1.55/ and the three-month forward rate is $1.50/.
you enter into a short position on 1,000. at maturity, the spot exchange rate is $1.60/.
how much have you made or lost?
a.lost $100
b.made 100
c.lost $50
d.made $150
3) calculate the dollar-based percentage return an american would have if he bought a
british stock at 50 per share and sold it one year later at 60. the spot exchange rate one
year ago was $1.50 = 1 and the spot rate prevailing at the end of the year was $1.20 = 1.
a.36% gain
b.20% gain
c.4% loss
d.9.6% gain
e.none of the above
4) the following is an outline of certain potential benefits as well as costs associated
with the cross-border listings of stocks:
(i) – the company can expand its potential investor base
(ii) – issues involving the disclosure and listing requirements
(iii) – creates a secondary market for the company’s shares
(iv) – volatility spillover from the overseas markets
(v) – liquidity
(vi) – control of the company by foreigners
(vii) – enhances the visibility of the company’s name and its products in foreign
marketplaces
which of the following represent all the potential costs of the cross-border listings of
stocks?
a.(i), (ii), and (iii)
b.(ii), (iv), and (vi)
c.(i), (iii), (v), and (vii)
d.(iv), (v), (vi), and (vii)
5) the vast majority of new international bond offerings
a.make annual coupon payments
b.have fixed coupon payments
c.have a fixed maturity
d.all of the above
6) suppose you observe the following exchange rates: 1 = $1.50; £1 = $2.00. calculate
the euro-pound exchange rate.
a.1.3333 = £1.00
b.£1.3333 = 1.00
c.3.00 = £1
d.1.25 = £1.00
7) assume the time from acceptance to maturity on a $5,000,000 banker’s acceptance is
90 days. further assume that the importing bank’s acceptance commission is 1.5 percent
and that the market rate for 90-day b/as is 6.0 percent. calculate the amount the exporter
will receive if he discounts the b/a with the importer’s bank.
a.$4,981,750
b.$4,906,250
c.$4,009,375
d.none of the above
8) if you have a long position in a foreign currency, you can hedge with:
a.a short position in an exchange-traded futures option
b.a short position in a currency forward contract
c.a short position in foreign currency warrants
d.borrowing (not lending) in the domestic and foreign money markets
9) a balance sheet hedge seeks to
a.eliminate any mismatch of net assets and net liabilities denominated in the same
currency
b.transfer accounting exposure to transaction exposure
c.create cumulative translation adjustment
d.none of the above
10) under a purely flexible exchange rate system
a.supply and demand set the exchange rates
b.governments can set the exchange rate by buying or selling reserves
c.governments can set exchange rates with fiscal policy
d.answers b and c are correct
11) the armed forces of ____________ leads all government agencies in countertrade.
a.the united states
b.great britain
c.china
d.the philippines
12) concentrated ownership of a public company
a.is normal in the united states, following the well-publicized scandals of recent years
b.is relatively rare in the united states and common in many other parts of the world
c.leads to a free-rider problem with the minority shareholders relying on the majority
shareholders to assume an undue burden in monitoring the management
d.is the norm in great britain
13) the smaller the concentration percentage,
a.the more concentrated a market is in a few stock issues
b.the less concentrated a market is
c.the more liquid the secondary stock market is
d.none of the above
14) according to the internalization theory of fdi
a.firms that have intangible assets with a public good property tend to invest directly in
foreign countries
b.property rights in intangible assets are difficult to establish and protect, especially in
foreign countries where legal recourse may not be readily available
c.both b and a
d.none of the above
15) the extent to which the value of the firm would be affected by unexpected changes
in the exchange rate is
a.transaction exposure
b.translation exposure
c.economic exposure
d.none of the above
16) consider the no-trade input/output situation presented in the following table and
graph for south and north carolina. assume that free trade is legal.
which state is better at making guns?
a.south carolina
b.north carolina
c.neither