Archives: Quiz

1) You are analyzing a project and have developed the following estimates. The depreciation is $14,800 a year and the tax rate is 35 percent. What is the base case operating cash flow? A.$18,770 B.$18,972 C.$21,433 D.$21,690 E.$22,410 2) The […]

1) The 1-year forward rate for the British pound is 0.6781 = $1. The spot rate is 0.6789 = $1. The interest rate on a risk-free asset in the U.K. is 4.6 percent. If interest rate parity exists, what is […]

1) Which one of the following is the best universal definition of an exchange rate? A.Price of one country’s currency expressed in terms of another country’s currency B.Number of foreign dollars that can be purchased for every one U.S. dollar […]

1) Taylor’s Market received five checks today and went to the bank to deposit all of them. Unfortunately, the bank was closed for the day due to a robbery. How does the bank closure affect the firm’s float assuming these […]

1) The inflation premium: A.increases the real return B.is inversely related to the time to maturity C.remains constant over time D.rewards investors for accepting interest rate risk E.compensates investors for expected price increases 2) Bruce Moneybags owns several restaurants and […]

1) The required return on a stock is equal to which one of the following if the dividend on the stock decreases by 1 percent per year? A.(P0/D1)-g B.(D1/P0)/g C.Dividend yield + capital gains yield D.Dividend yield – capital gains […]

1) Given an interest rate of zero percent, the future value of a lump sum invested today will always: A.remain constant, regardless of the investment time period B.decrease if the investment time period is shortened C.decrease if the investment time […]

1) Which one of the following is an underwriting of securities where the offer price is determined by investor bids? A.Private placement B.Best efforts underwriting C.Initial public offering D.Green Shoe option E.Dutch auction 2) The Furniture Hut is offering a […]

1) The manager of Gloria’s Boutique has approved Carla’s application for credit. The maximum payment that has been approved is $65 a month for 24 months. The APR is 15.7 percent. What is the maximum initial purchase that Carla can […]

1) The stock price of Samuelson, Inc., is $71. Investors require a 15 percent rate of return on similar stocks. If the company plans to pay a dividend of $4.20 next year, what growth rate is expected for the company’s […]

1) Assume that PE is the euro price of a product, PUS is the U.S. price of the identical product, and S0 is the spot exchange rate, quoted as the amount of foreign currency per dollar. Given this, which one […]

1) The Green House has a profit margin of 5.6 percent on sales of $311,200. The firm currently has 15,000 shares of stock outstanding at a market price of $11.60 per share. What is the price-earnings ratio? A.9.98 B.10.02 C.11.50 […]

1) The relationship between the present value and the time period is best described as: A.direct B.inverse C.unrelated D.ambiguous E.parallel 2) You purchase a bond with an invoice price of $1,120. The bond has a coupon rate of 7.5 percent, […]

1) The sources and uses of cash over a stated period of time are reflected on the: A.income statement B.balance sheet C.shareholders’ equity statement D.cash flow statement E.statement of operating position 2) Which of the following are cash inflows from […]

1) You have agreed to pay a five percent commission to your best friend if he can locate a buyer for your car. This arrangement is most similar to the compensation arrangement for which one of these individuals who is […]

1) The Green Shingle purchased a parcel of land 6 years ago for $299,500. At that time, the firm invested $64,000 grading the site so that it would be usable. Since the firm wasn’t ready to use the site itself […]

1) Key facts and assumptions concerning FM Foods, Inc. at December 31, 2011, appear below. Estimate FM’s after-tax cost of equity capital. A.4.50% B.6.92% C.7.93% D.12.20% E.17.48% 2) Which one of the following relates to a negative change in net […]

1) If today’s exchange rate reflects any historical trends in Canadian dollar exchange rate movements, but not all relevant public information, then the Canadian dollar market is: a. weak-form efficient b. semistrong-form efficient c. strong-form efficient d. all of the […]

1) An MNC has determined that the degree of appreciation for the Singapore dollar that equates the foreign and domestic yield is 2%. If the Singapore dollar appreciates by less than 2%, the investment in Singapore will be more attractive. […]

1) Which of the following is not a way in which country risk analysis can be used? a. to monitor countries where an MNC is currently doing business b. as a screening device to avoid conducting business in countries with […]

1) In general, the ____ rate payer in a plain vanilla swap believes interest rates are going to ____. a. fixed; decline b. floating; decline c. floating; increase d. none of the above 2) The VAR method presumes that the […]

1) Which of the following would probably not cause the stock price of a foreign target to decrease? a. Its expected cash flows decline b. General stock market conditions in the foreign country are deteriorating c. Investors anticipate that the […]

1) If the one-year forward rate for the euro is $1.07, while the current spot rate is $1.05, the expected percentage change in the euro is ____%. a. 1.90 b. 2.00 c. -1.87 d. none of the above 2) In […]

1) Which of the following is not true regarding options? a. Options are traded on exchanges, never over-the-counter b. Similar to futures contracts, margin requirements are normally imposed on option traders c. Although commissions for options are fixed per transaction, […]

1) Exhibit 14-1 Assume that Baps Corporation is considering the establishment of a subsidiary in Norway. The initial investment required by the parent is $5,000,000. If the project is undertaken, Baps would terminate the project after four years. Baps’ cost […]

1) Transaction exposure reflects: a. the exposure of a firm’s international contractual transactions to exchange rate fluctuations b. the exposure of a firm’s local currency value to transactions between foreign exchange traders c. the exposure of a firm’s financial statements […]

1) Intracompany trade makes up approximately ____ percent of all international trade. a. 50 b. 70 c. 25 d. 13 e. 5 2) At present, U.S. firms acquire more targets in the former Soviet Union than in any other country. […]

1) The currency futures markets are regulated by the International Monetary Fund. a. True b. False 2) An MNC may be more exposed to agency problems if most of its shares are held by: a. a few mutual funds b. […]

1) A cross exchange rate expresses the amount of one foreign currency per unit of another foreign currency. a. True b. False 2) If interest rate parity exists, and transaction costs do not exist, the money market hedge will yield […]

1) Which of the following is not true regarding letters of credit? a. They are issued by banks on behalf of the importer promising to pay the exporter b. A revocable letter of credit can be cancelled or revoked at […]

1) The ____ is the difference between exports and imports. a. balance of trade b. balance on goods and services c. balance of payments d. current account e. capital account 2) The U.S. inflation rate is expected to be 4 […]

1) Currency options are only traded on exchanges. That is, there is no over-the-counter market for options. a. True b. False 2) Assume zero transaction costs. If the 90-day forward rate of the euro underestimates the spot rate 90 days […]

1) Your company expects to receive 5,000,000 Japanese yen 60 days from now. You decide to hedge your position by selling Japanese yen forward. The current spot rate of the yen is $.0089, while the forward rate is $.00 You […]

1) A subsidiary will normally have a more difficult time forecasting future outflow payments if its purchases are international rather than domestic. a. True b. False 2) To force the value of the British pound to depreciate against the dollar, […]

1) The highest amount a buyer of a call or a put option can lose is the exercise price. a. True b. False 2) Even if the interest rate associated with a foreign country is higher than the domestic interest […]

1) If markets were perfect, then labor and other costs of production would be perfectly stable (no movement across borders). a. True b. False 2) If the functional currencies for reporting purposes are highly correlated, translation exposure is magnified. a. […]

1) A set of currency cash inflows is more volatile if the correlations are low. a. True b. False 2) ____ purchases more U.S. exports than the other countries listed here. a. Italy b. Spain c. Mexico d. Canada Answer: […]

1) If managers of foreign subsidiaries make decisions that maximize the values of their respective subsidiaries, they automatically maximize the value of the entire corporation. a. True b. False 2) Which of the following is not mentioned in the text […]

1) An MNC must assess country risk not only in countries where it currently does business but also in those where it expects to export or establish subsidiaries. a. True b. False 2) According to your text, U.S. firms pursue […]

1) The lower bound of the call option premium is the greater of zero and the difference between the spot rate and the exercise price; the upper bound of a currency call option is the spot rate. a. True b. […]

1) The parent of MNC can implement compensation plans that directly reward the subsidiary managers for enhancing the value of the MNC. a. True b. False 2) The Bank of England is responsible for setting the monetary policy for the […]

1) MNCs can use ____ to reduce exchange rate risk. This occurs when two parties provide simultaneous loans with an agreement to repay at a specified point in the future. a. forward contracts b. currency swaps c. parallel loans d. […]

1) Whitewater Co. is a U.S. company with sales to Canada amounting to C$8 million. Its cost of materials attributable to the purchase of Canadian goods is C$6 million. Its interest expense on Canadian loans is C$4 million. Given these […]

1) Which of the following does not represent the risk from using forward contracts? a. if a forward contract is used to hedge receivables, and the spot exchange rate at the expiration of contract exceeds the contract price b. if […]

1) Latin American countries have historically experienced relatively high inflation, and their currencies have weakened. This information is somewhat consistent with the concept of: a. interest rate parity b. locational arbitrage c. purchasing power parity d. the exchange rate mechanism […]

1) ____ can cause the parent’s after-tax cash flows to differ from the subsidiary’s after-tax cash flows. a. The number of units sold by the subsidiary b. The subsidiary’s earnings before income and taxes (EBIT) c. The tax rate the […]

1) Japan’s annual interest rate has been relatively ____ compared to other countries for several years, because the supply of funds in its credit market has been very ____. a. low; small b. high; small c. low; large d. high; […]

1) Springfield Co., based in the U.S., has a cost from orders of foreign material that exceeds its foreign revenue. All foreign transactions are denominated in the foreign currency of concern. This firm would ____ a stronger dollar and would […]

1) Research indicates that deviations from purchasing power parity (PPP) are reduced over the long run. a. True b. False 2) To reduce the exposure to a host government takeover, an MNC may attempt to recover cash flows from the […]

1) The Asian crisis is generally believed to have started in Japan. a. True b. False 2) Assume that the bank’s bid quote of Mexican peso is $.126 and ask price is $.129. If you have Mexican pesos, what is […]