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1) 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 = $1.50. u.s. dollar-denominated government
bonds currently have a yield to maturity of 4%. suppose that the european central bank
is considering either tightening or loosening its monetary policy. it is widely believed
that in one year there are only two possibilities:
following revaluation, the exchange rate is expected to remain steady for at least
another year
find the expost irr in euro for the american firm if they buy the bond today and then the
exchange rate rises to s1($|) = $1.80 per .
2) bca stands for
a.the balance on the current account
b.the balance on the capital account
c.the balance on the official reserves
d.net imports
3) over the last few years, turnover ratios in many emerging markets remained low and
market concentration ratios remained high, indicating
a.that investment opportunities in these markets have been improving
b.that investment opportunities in these markets have not been improving
c.that investment opportunities in these markets are about to improve
d.none of the above
4) mergers and acquisitions are a popular mode of investment for firms wishing to
protect, consolidate and advance their global competitive positions. examples include,
a.selling off divisions that fall outside the scope of their core competence
b.acquiring strategic assets that reduce their competitiveness
c.firms can better leverage their intangible assets and on a larger scale through licensing
d.none of the above
5) most foreign exchange transactions are for
a.intervention by central banks
b.interbank trades between international banks or nonbank dealers
c.retail trade
d.purchase of hard currencies
6) assuming that the interaffiliate cash flows are uncorrelated with one another,
calculate the standard deviation of the portfolio of cash held by the centralized
depository for the following affiliate members:
a.$34,960.33
b.$139,841.33
c.$104,880.88
d.none of the above
7) the organizational form of a mnc can affect the timing of a tax liability. this means
a.the principle of tax equity might be violated
b.as long as regardless of the country in which an affiliate of a mnc earns taxable
income, the same tax rates apply, then the tax due date doesn't matter
c.tax timing will even out over a reporting cycle, so there is no big deal here
d.none of the above
8) which of the following is a translation method where the gain or loss due to
translation adjustment does not affect reported cash flows?
a.current/noncurrent method
b.current rate method
c.current/future method
d.short/long term method
9) bonds with equity warrants
a.are really the same as convertible bonds if the prestated price of exercising the
warrant is the par value of the bond
b.can be viewed as straight debt with a call option (technically a warrant) attached
c.can only be exercised on coupon dates
d.typically are convertible as well
10) your u.s. firm has a £100,000 payable with a 3-month maturity. which of the
following will hedge your liability?
a.buy a call option on £100,000 with a strike price in euro
b.buy a put option on £100,000 with a strike price in dollars
c.buy a call option on £100,000 with a strike price in dollars
d.none of the above
