1) among the reasons put forth for government assistance in exporting
a.success in international trade is fundamentally important for a country
b.success in exporting implies that there is demand for a country’s products, that its
labor force is employed, and that some resources are used for technological
advancement
c.to be successful in international trade means that the government is popular
d.both a and b
2) you invested $100,000 in british equities. the stock’s price was £50 and the exchange
rate was £0.50/$1.00. at selling time, one year after purchase, they were £45 and
£0.60/$1.00. assume the investor sold £50,000 forward at the forward exchange rate of
£0.55/$1.00. the dollar rate of return would be:
a.-27.27%
b.1.09%
c.28.00%
d.-9.09%
3) privatization refers to process of
a.having government operate businesses for the betterment of the public sector
b.government allowing the operation of privately owned business
c.prohibiting government operated enterprises
d.a country divesting itself of the ownership and operation of a business venture by
turning it over to the free market system
4) when evaluating a foreign investment project, it is important for the mnc to consider
the effect of political risk, as a sovereign country can change “the rules of the game”. to
account for this
a.the mnc may adjust the cost of capital upward
b.the mnc may lower the expected cash flows from the foreign project
c.the mnc may purchase insurance policies against the hazard of political risks
d.all of the above
5) for firms with free cash flows,
a.debt can be a stronger mechanism than stocks for credibly bonding managers to
release cash flows to investors
b.equity dividends can be a stronger mechanism than bonds for credibly bonding
managers to release cash flows to investors
c.preferred stock dividends can be a stronger mechanism than bonds for credibly
bonding managers to release cash flows to investors
d.none of the above
6) with regard to a swap bank acting as a dealer in swap transactions, mismatch risk
refers to
a.the risk that arises from the situation in which the floating-rates of the two
counterparties are not pegged to the same index
b.the risk that interest rates changing unfavorably before the sap bank can lay off to an
opposing counterparty on the other side of an interest rate swap entered into with the
first counterparty
c.the risk the swap bank faces from fluctuating exchange rates during the time it takes
for the bank to lay off a swap it undertakes with one counterparty with an opposing
transaction
d.the risk that it may be difficult or impossible to find an exact opposite match for a
swap the bank has agreed take
7) bema gold is an exploration and production company that trades on the toronto stock
exchange. assume that when purchased by an international investor the stock’s price and
the exchange rate were cad5 and cad1.0/usd0.72 respectively. at selling time, one year
after the purchase date, they were cad6 and cad1.0/usd1.0. calculate the investor’s
annual percentage rate of return in terms of the u.s. dollars if the investor had sold cad5,
the principal investment amount at the same time that the stock was purchased, forward
at the forward exchange rate of cad1/usd.80.
a.-13.60%
b.66.67%
c.38.89%
d.28.00%
8) the “j-curve effect” shows
a.the initial deterioration and the eventual improvement of a country’s trade balance
following a currency depreciation
b.the initial improvement and the eventual depreciation of a country’s trade balance
following a currency depreciation
c.the trade balance’s lack of responsiveness to the exchanges rate changes
d.none of the above
9) show how your proposed swap would work for firm a. (e.g. if you were acting as an
agent for the swap bank, try to ‘sell” firm a on your swap)
10) find the debt-to-value ratio for a firm with a debt-to-equity ratio of 4.
a.3/4
b.7/9
c.4/5
d.9/11
e.5/6
11) 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
the expected value of the investment in u.s. dollars is
a.$4,950
b.$3,700
c.$2,112.50
d.none of the above
12) to avoid currency crisis in the face of fully integrated capital markets, a country can
have a
a.floating exchange rate
b.fixed exchange rate
c.fixed exchange rate that adjusts
d.a and b can both help to avoid currency crises
13) which of the following is correct?
a.time value = intrinsic value + option premium
b.intrinsic value = option premium + time value
c.option premium = intrinsic value – time value
d.option premium = intrinsic value + time value
14) under the territorial method of declaring a national tax jurisdiction
a.the possibility of double taxation exists if the parent county of a foreign affiliate also
levies a tax on worldwide income
b.tax is levied on all income earned within the country by any taxpayer, domestic or
foreign
c.tax is levied on foreign residents of the country on their home-country income but not
foreign-earned income
d.none of the above
15) eurocredits
a.are credit cards that work in the euro zone
b.short- to medium-term loans of eurocurrency extended by eurobanks to corporations,
sovereign governments, nonprime banks, or international organizations
c.short- to medium-term loans of eurocurrency extended by eurobanks to corporations,
sovereign governments, nonprime banks, or international organizations
d.none of the above
16) which one of the following is a false statement when engaged in bilateral netting?
a.total interaffiliate receipts will always equal total interaffiliate disbursements
b.we can reduce the number of foreign exchange transactions among a mnc with n
affiliates to or less
c.each affiliate nets all its interaffiliate receipts against all its disbursements. it then
transfers or receives the balance, respectively, if it is a net receiver or payer respectively
d.all of the above
17) the parent company should decide the financing method for its own subsidiaries
a.with a view toward minimizing the parent’s overall cost of capital
b.by copying the norms of the host country
c.with a view toward gaming the bankruptcy system of the host country
d.none of the above