1) when a country is more remote, with an uncommon language
a.domestic investors tend to invest more in country’s market and less abroad
b.foreign investors tend to invest less in country’s market
c.domestic investors tend to invest more in country’s market
d.both a and b
2) in a growing economy, the vat would raise prodigious amounts of money
a.in a way almost invisible to tax-paying voters
b.in a way obvious to tax-paying voters
c.but would discourage savings
d.none of the above
3) calculate the dollar-based percentage return an american would have if he bought a
german stock at 50 per share and sold it one year later at 60. the spot exchange rate one
year ago was $1.50 = 1 and the spot rate prevailing at the end of the year was $1.70 = 1.
a.36% gain
b.26.47% gain
c.4% loss
d.9.6% gain
e.none of the above
4) a country experiencing a significant balance-of-payments surplus would be likely to
a.expand imports, offering marketing opportunities for foreign enterprises
b.refrain from imposing foreign exchange restrictions
c.expand exports, offering international marketing opportunities for domestic
enterprises
d.both a and b
5) one of the objectives of corporate governance is to,
a.introduce expensive and burdensome accountings
b.strengthen the protection of outside investors from expropriation by managers and
controlling insiders
c.provide taxpayer financing for corporate raiders to strengthen the discipline of the
marketplace
d.none of the above
6) when the domestic currency is strong or expected to become strong,
a.this could erode the competitive position of the firm’s exports
b.this could erode the competitive position of the firm’s import competition
c.the firm should consider locating production facilities in a foreign country where costs
are low
d.both a and c
7) a foreign subsidiary is
a.an extension of the parent and is not an independently incorporated firm separate from
the parent
b.an affiliate organization of the mnc that is independently incorporated in the foreign
country, and one in which the u.s. mnc owns at least 10 percent of the voting equity
stock
c.either a minority foreign subsidiary (an uncontrolled foreign corporation) or a
controlled foreign corporation
d.both b and c
8) eurobonds are usually
a.registered bonds
b.bearer bonds
c.floating-rate, callable and convertible
d.denominated in the currency of the country that they are sold in
9) find the debt-to-value ratio for a firm with a debt-to-equity ratio of .
a.
b.
c.3/5
d.
e.5/7
10) your firm is a u.k.-based exporter of british bicycles. you have sold an order to an
italian firm for 1,000,000 worth of bicycles. payment from the italian firm (in ) is due in
twelve months. your firm wants to hedge the receivable into pounds. not dollars. use the
following table for exchange rate data.
detail a strategy using futures contracts that will hedge your exchange rate risk. have an
estimate of how many contracts of what type.
a.borrow 970,873.79 in one year you owe 1m, which will be financed with the
receivable. convert 970,873.79 to dollars at spot, receive $1.165.048,54. convert dollars
to pounds at spot, receive £728.155.34
b.sell 1m forward using 16 contracts at $1.20 per 1. buy £750,000 forward using 12
contracts at $1.60 per £1
c.sell 1m forward using 16 contracts at the forward rate of $1.29 per 1
d.sell 1m forward using 16 contracts at the forward rate of $1.29 per 1. buy £750,000
forward using 12 contracts at the forward rate of $1.72 per £1
11) a firm may cross-list its share to
a.establish a broader investor base for its stock
b.establish name recognition in foreign capital markets, thus paving the way for the
firm to source new equity and debt capital from investors in different markets
c.expose the firm’s name to a broader investor and consumer groups
d.all of the above
12) find the debt-to-value ratio for a firm with a debt-to-equity ratio of 3.
a.3/4
b.7/9
c.4/5
d.9/11
e.5/6
13) eurocurrency
a.is the euro, the common currency of europe
b.is a time deposit of money in an international bank located in a county different from
the country that issued the currency
c.is a demand deposit of money in an international bank located in a county different
from the country that issued the currency
d.either b or c
14) with regard to foreign currency translation methods used by foreign mncs,
a.foreign currency translation methods are generally only used by u.s. based mncs since
foreign firms have a built in hedge by being foreign
b.are generally the same methods used by u.s.-based firms
c.are exactly the same methods used by u.s.-based firms since gaap is gaap
d.none of the above is true statements
15) japan plays a major role as an exporter of fdi. as a recipient of fdi,
a.japan receives as much fdi as it exports, making it a major player on both fronts
b.japan plays a relatively minor role, reflecting a variety of legal, economic, and
cultural barriers to fdi
c.japan’s receipts of fdi are third in the world
d.none of the above
16) your firm is an italian importer of bicycles. you have placed an order with a british
firm for £1,000,000 worth of bicycles. payment (in pounds sterling) is due in 12
months. detail a strategy using futures contracts that will hedge your exchange rate risk.
have an estimate of how many contracts of what type and maturity.
a.go long 100 12-month pound futures contracts; and long 125 12-month euro futures
contracts
b.go short 100 12-month pound futures contracts; and short 125 12-month euro futures
contracts
c.go long 100 12-month pound futures contracts; and short 125 12-month euro futures
contracts
d.go short 100 12-month pound futures contracts; and long 125 12-month euro futures
contracts
e.none of the above
17) with regard to the past price performance of u.s.-based closed end countryfunds,
a.most cecfs behave more like u.s. securities than their corresponding navs
b.most cecfs have track records nearly identical to their currency returns
c.most cecfs have stock betas of around zero when measured against the s&p 500
d.none of the above
18) the japanese automobile company honda decided to establish production facilities in
ohio, mainly to
a.circumvent trade barriers
b.reduce transportation costs
c.reduce transactions costs
d.both a and b
19) the capital account is divided into three subcategories: direct investment, portfolio
investment, and other investment. “other” investment involves
a.acquisitions of controlling interests in foreign businesses
b.investments in foreign stocks and bonds that do not involve acquisitions of control
c.bank deposits, currency investment, trade credit, and the like
d.all of the above