1) you are the debt manager for a u.s.-based multinational. you need to borrow
100,000,000 for five years. you can either borrow the 100,000,000 directly in germany
or borrow dollars in the u.s. and enter into a combined interest rate and currency swap
with a swap bank. one risk that you face by using the swap that you do not face by
borrowing euros directly is
a.exchange rate risk
b.sovereign risk
c.credit risk
d.interest rate risk
2) which of the following would not count as a foreign-exchange reserve held by a
central bank?
a.the local currency
b.u.s. dollars
c.sdrs
d.euro
3) a purely domestic firm sources its products, sells its products, and raises its funds
domestically
a.can face stiff competition from a multinational corporation that can source its
products in one country, sell them in several countries, and raise its funds in a third
country
b.can be more competitive than a mnc on its home turf due to superior knowledge of the
local market
c.can still face exchange rate risk, just like a mnc
d.all of the above are true
4) the table below shows the bushels of wheat and the bottles of beer that north and
south dakota can produce per day of labor under two different hypothetical situations
(cases i and ii).
what is the relative price of wheat in north dakota prior to trade in case ii?
a.2 bushels of wheat = bottle of beer
b. bushel of wheat = 2 bottles of beer
c.1 bushel of wheat = bottle of beer
d.1 bushel of wheat = 2 bottles of beer
5) your firm’s interaffiliate cash receipts and disbursements matrix is shown below
($000):
find the net cash flow in (out of) the u.s. affiliate.
a.$0 in or out
b.$5,000 out
c.$10,000 in
d.$15,000 out
e.none of the above
6) a “three against nine” forward rate agreement
a.could call for a buyer to sell a six-month eurobond in three months at prices agreed
upon today
b.could call for a buyer to pay the seller the increased interest cost on a notational
amount if six-month interest rates fall below an agreed rate beginning three months
from now and ending nine months from now
c.is a forward contract on a three-month eurobond with a nine-month maturity
d.is a forward contract on a nine-month eurobond with a three-month maturity
7) production of goods and services has become globalized to a large extent as a result
of
a.natural resources being depleted in one country after another
b.skilled labor being highly mobile
c.multinational corporations’ efforts to source inputs and locate production anywhere
where costs are lower and profits higher
d.common tastes worldwide for the same goods and services
8) an increase in political risk can be managed by
a.adjusting a foreign investment project’s npv by either reducing its expected cash
flows, or by increasing the cost of capital
b.forming joint venture with a local company
c.purchase insurance against the hazard of political risk
d.all of the above
9) the link between a firm’s future operating cash flows and exchange rate fluctuations
is
a.asset exposure
b.operating exposure
c.both a and b
d.none of the above
10) abc trading company of singapore purchases spices in bulk from around the world,
packages them into consumer size quantities and sells them through sales affiliates in
hong kong and the unites states. for a recent month, the following payments matrix of
interaffiliate cash flows, stated in singapore dollars, was forecasted.
calculate, in singapore dollars, the amount that the interaffiliate foreign exchange
transaction will be reduced by with multilateral netting.
a.s$152,000
b.s$170,000
c.s$322,000
d.s$405,000
11) bka 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
12) with regard to the financial structure of a foreign subsidiary
a.one option is to conform to the parent company’s capital structure
b.one option is to conform to the local norm of the country where the subsidiary
operates
c.one option is to vary judiciously to capitalize on opportunities to lower taxes, reduce
financing costs and risks, and take advantage of market imperfections
d.all of the above
13) proceeding the asian crisis,
a.domestic price bubbles in east asia, particularly in real estate, were fostered by capital
inflows from bankers from the g-10 countries
b.the liberalization of financial markets coupled with capital inflows from bankers from
the g-10 countries contributed to bubbles in financial asset prices
c.the close interrelationships common among commercial firms and financial
institutions in asia resulted in poor investment decision making
d.all of the above
14) generally speaking, liberalization of financial markets when combined with a weak,
underdeveloped domestic financial system tends to
a.strengthen the domestic financial system in the short run
b.create an environment susceptible to currency and financial crises
c.raise interest rates and lead to domestic recession
d.none of the above
15) in the london market, rolls-royce stock closed at £0.875 per share. on the same day,
the british pound sterling to the u.s. dollar spot exchange rate was £0.6366/$1.00. rolls
royce trades as an adr in the otc market in the united states. five underlying rolls-royce
shares are packaged into one adr. the no-arbitrage u.s. price of one adr is
a.$4.87
b.$5.87
c.$6.87
d.$7.87
16) a “registered bond” is one that
a.shows the owner’s name on the bond
b.the owner’s name is recorded by the issuer
c.the owner’s name is assigned to a bond serial number recorded by the issuer
d.all of the above
17) underlying the theory of comparative advantage are assumptions regarding
a.free trade between nations
b.that the factors of production (land, labor, capital, and entrepreneurial ability) are
relatively immobile
c.that the factors of production (land, labor, capital, and entrepreneurial ability) are
relatively mobile
d.a and b
18) assume that the balance-of-payments accounts for a country are recorded correctly.
balance on the current account = bca = $130 billion
balance on the capital account = bka = -$86 billion
balance on the reserves account = bra = ?
the balance on the reserves account (bra), under the fixed exchange regime is
a.-$44 billion
b.$44 billion
c.$216 billion
d.none of the above
19) the goal of a greater accounting transparency
a.is to impose more rules and harsher penalties for their violation
b.is to reduce the information asymmetry between corporate insiders and the public
c.is to discourage managerial self-dealings
d.answers b and c
20) suppose that the annual interest rate is 5.0 percent in the united states and 3.5
percent in germany, and that the spot exchange rate is $1.12/ and the forward exchange
rate, with one-year maturity, is $1.16/. assume that an arbitrager can borrow up to
$1,000,000. if an astute trader finds an arbitrage, what is the net cash flow in one year?
a.$10,690
b.$15,000
c.$46,207
d.$21,964.29