1) suppose you are a citizen of the united states with foreign-source income. in the
foreign country the tax rate is 40 percent and your u.s. rate is 30%. for every $10,000 of
foreign-source income you will
a.receive a tax credit of $3,000
b.receive a tax credit of $3,500
c.receive a tax credit of $4,000
d.receive a tax credit of $1,000
2) suppose that the current exchange rate is £1.00 = $2.00. the indirect quote, from the
u.s. perspective is
a.£1.00 = $2.00
b.£1.00 = $0.50
c.£0.50 = $1.00
d.none of the above
3) assume that xyz corporation is a leveraged company with the following information:
kl = cost of equity capital for xyz = 13%
i = before-tax borrowing cost = 8%
t = marginal corporate income tax rate = 30%
if xyz’s debt-to-total-market-value ratio is 40%, then its weighted average cost of
capital, k, is:
a.8%
b.9%
c.10%
d.12%
4) a u.s. firm holds an asset in great britain and faces the following scenario:
where,
p* = pound sterling price of the asset held by the u.s. firm
p = dollar price of the same asset
which of the following would be an effective hedge?
a.sell £7,500 forward at the 1-year forward rate, f1($/£), that prevails at time zero
b.buy £2,500 forward at the 1-year forward rate, f1($/£), that prevails at time zero
c.sell £25,000 forward at the 1-year forward rate, f1($/£), that prevails at time zero
d.none of the above
5) the current/noncurrent method of foreign currency translation was generally accepted
in the united states from the 1930s until 1975, when
a.fasb 2 became effective
b.fasb 4 became effective
c.fasb 6 became effective
d.fasb 8 became effective
6) in a given year, the u.s. irs places an overall limitation applied to foreign tax credits.
a.the maximum tax credit is figured on world-wide foreign-source income; losses in one
country can offset profits in another
b.the maximum tax credit is figured on foreign-source income in each country; losses in
one country cannot offset profits in another
c.the overall limitation is limited to the amount of tax that would be due on the
foreign-source income if it had been earned in the united states
d.both a and c
7) because __________ do not have to meet national security regulations, name
recognition of the issuer is an extremely important factor in being able to source funds
in the international capital market.
a.eurobonds
b.foreign bonds
c.bearer bonds
d.registered bonds
8) arguments in favor of countertrade include benefits such as
a.conservation of cash or hard currency
b.improvement of trade imbalances
c.maintenance of export prices
d.all of the above
9) teltrex international can borrow $3,000,000 at libor plus a lending margin of .75
percent per annum on a three-month rollover basis from barclays in london. suppose
that three-month libor is currently 5 1732 percent. further suppose that over the second
three-month interval libor falls to 5 18 percent. how much will teltrex pay in interest to
barclays over the six-month period for the eurodollar loan?
a.$79,921.875
b.$91,171.88
c.$96,174.39
d.$364,687.52
10) the moving average crossover rule
a.is a fundamental approach to forecasting exchange rates
b.states that a crossover of the short-term moving average above the long-term moving
average signals that the foreign currency is appreciating
c.states that a crossover of the short-term moving average above the long-term moving
average signals that the foreign currency is depreciating
d.none of the above
11) the term “countertrade” refers to
a.many different types of transactions in which the seller provides a buyer with goods
or services and promises in return to purchase goods or services from the buyer
b.barter, clearing arrangement, and switch trading
c.buy-back, counter purchase, and offset
d.all of the above
12) companies domiciled in countries with weak investor protection can reduce agency
costs between shareholders and management
a.by moving to a better county
b.by listing their stocks in countries with strong investor protection
c.by voluntarily complying with the provisions of the u.s. sarbanes-oxley act
d.having a press conference and promising to be nice to their investors