1) the first two columns give the maximum daily amounts of beer and whiskey that
southern ireland and northern ireland can produce when they completely specialize in
one or other product. the last two columns give each country’s consumption without
trade.
suppose that northern ireland and southern ireland each have 1,000 hours of labor per
day. southern workers are paid 1 per day and northern workers are paid £1 per day. what
is the exchange rate associated with an international price of one keg of beer = 1 bottle
of whiskey?
a.1.25 = £1
b.0.80 = £1
c.1 = £1
d.none of the above
2) which one of the following is a false statement when engaged in bilateral netting?
a.total interaffiliate receipts need not 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 payer or receiver
d.all of the above
3) what is the -denominated npv of this project? i did not round my intermediate steps,
if you did, select the answer closest to yours.
a.5,563.23
b.2,270.79
c.7,223.14
d.3,554.29
e.there is not enough information (e.g. u.s. inflation) to do this problem.
4) the current spot exchange rate is $1.55 = 1.00 and the three-month forward rate is
$1.60 = 1.00. consider a three-month american call option on 62,500 with a strike price
of $1.50 = 1.00. if you pay an option premium of $5,000 to buy this call, at what
exchange rate will you break-even?
a.$1.58 = 1.00
b.$1.62 = 1.00
c.$1.50 = 1.00
d.$1.68 = 1.00
5) the monetary system of bimetallism is unstable. due to the fluctuation of the
commercial value of the metals,
a.the metal with a commercial value lower than the currency value tends to be used as
metal and is withdrawn from circulation as money (gresham’s law)
b.the metal with a commercial value higher than the currency value tends to be used as
money (gresham’s law)
c.the metal with a commercial value higher than the currency value tends to be used as
metal and is withdrawn from circulation as money (gresham’s law)
d.none of the above
6) interest rate parity (irp) is best defined as
a.when a government brings its domestic interest rate in line with other major financial
markets
b.when the central bank of a country brings its domestic interest rate in line with its
major trading partners
c.an arbitrage condition that must hold when international financial markets are in
equilibrium
d.none of the above
7) country a can produce 10 yards of textiles or 6 pounds of food per unit of input.
compute the opportunity cost of producing one additional unit of food instead of
textiles.
a.1 yard of textiles per 1.67 pounds of food
b.1 pound of food per 1.67 yards of textiles
c.1 yard of textiles per .6 pounds of food
d.1 pound of food per .6 yards of textiles
8) suppose that the annual interest rate is 2.0 percent in the united states and 4 percent
in germany, and that the spot exchange rate is $1.60/ and the forward exchange rate,
with one-year maturity, is $1.58/. assume that an arbitrager can borrow up to
$1,000,000 or 625,000. if an astute trader finds an arbitrage, what is the net cash flow in
one year?
a.$238.65
b.$14,000
c.$46,207
d.$7,000
9) on blocked funds strategy is
a.transferring personnel from corporate headquarters to the subsidiary offices
b.using the national airlines of the host country when possible for the international
travel of all mnc executives
c.holding business conferences of the mnc in the host country, where all expenses are
paid by the local subsidiary
d.all of the above
10) which combination of the following statements is true about a swap bank?
(i) – it is a generic term to describe a financial institution that facilitates swaps between
counterparties
(ii) – it can be an international commercial bank
(iii) – it can be an investment bank
(iv) – it can be a merchant bank
(v) – it can be an independent operator
a.(i) and (ii)
b.(i), (ii) and (iii)
c.(i), (ii), (iii) and (iv)
d.(i), (ii), (iii), (iv) and (v)
11) from the perspective of the writer of a put option written on 62,500. if the strike
price is $1.55/, and the option premium is $1,875, at what exchange rate do you start to
lose money?
a.$1.52/
b.$1.55/
c.$1.58/
d.none of the above
12) which of the following are true?
a.a vat fosters national saving
b.an income tax is a disincentive to save because the returns from savings are taxed
c.national tax authorities find that a vat is easier to collect than an income tax because
tax evasion is more difficult
d.all of the above are true
13) suppose that both gold and silver are used as international means of payment and
the exchange rates among currencies are determined by either their gold or silver
contents. suppose that the dollar was pegged to gold at $20 per ounce, the japanese yen
is pegged to gold at 120,000 yen per ounce and to silver at 8,000 yen per ounce of
silver, and the australian dollar is pegged to silver at $5 per ounce of silver. what would
the exchange rate between the u.s. dollar and australian dollar be under this system?
a.$1 u.s. = $1 australian
b.$1 u.s. = $2 australian
c.$1 u.s. = $3 australian
d.none of the above
14) u.s. corporations
a.are allowed to issue bearer bonds to non-u.s. citizens
b.are not allowed to issue bearer bonds
c.are allowed to issue treasury bonds but not t-bills
d.none of the above
15) in recent years, the u.s. dollar has depreciated substantially against most major
currencies of the world, especially against the euro.
a.the stronger euro has made many european products more expensive in dollar terms,
hurting sales of these products in the united states
b.the stronger euro has made many american products less expensive in euro terms,
boosting sales of u.s. products in europe
c.both a and b
d.none of the above