test bank financial management

8/13/2019 Test Bank Financial Management

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TEST BANK

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5. $nvironmental factors affecting international operations are as follows e%cept ))).A. foreign customsB. foreign economic factors

. foreign political situations!. foreign legal aspect# $. international "istance

8. ,hree major riss in international business are ))).A. political* financial an" weatherB. economic* political an" people

# . political* financial an" regulatory!. accounting* management an" information$. mareting* ethics an" political

6. onflicts of interest for multinational corporations "o not inclu"e ))).A. the interests of sovereign governments may be "ifferentB. the goals of multinationals are "ivergent from host countries. some conflicts may e%ist within multinational subsi"iaries!. multinational companies may conflict with local laws

# $. multinational managers live in "ifferent time &ones

17. ,he conflict between owners* employees* suppliers* an" customers of a company isnown as ))).A. regulatory ris B. problem of agency

. conflict of multiple environments# !. conflict of interests$. none of the above

11. ,he main "ifferences between "omestic an" international companies from a financialmanager's point of view are largely "ue to "ifferences in ))).A. rissB. national laws. economic factors!. political factors

# $. all of the above

12. A global company is an organi&ation that attempts to ))).A. have a worl"wi"e presence in its maretB. integrate its operations worl"wi"e. stan"ar"i&e operations in one or more of the company's functional areas!. A an" B

# $. A* B* an"

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1+. orporate governance is often narrowly "efine" as the pru"ent e%ercise of ownershiprights towar" the goal of increase" ))).

# A. sharehol"er value

B. profit. profit margin on sales!. asset turnover $. sales volume

1. ,he most common form of sharehol"er activism inclu"es ))).A. a sharehol"er proposal for pro%y fightB. "irect negotiation with management. public targeting of a corporation

# ! A* B* an" $. A an" only

10. ,he $! 9rinciples of orporate :overnance covers ))).A. the rights of sharehol"ersB. the e4uitable treatment of sharehol"ers. the responsibilities of the boar"!. "isclosure an" transparency


1. ,he political* regulatory* technological* an" economic forces ra"ically changing theglobal competitive environment inclu"e ))).A. the collapse of communism

B. the privati&ation of stateowne" enterprises aroun" the worl". the revolution in information technologies!. a wave of mergers* leverage" buyouts* an" taeovers


15. All of the following have playe" an important role in the globali&ation process of theworl" economy e%cept ))).A. a"vances in information technologies

# B. increase" tariffs. re"uctions in tra"e barriers!. re"uce" transportation an" communication costs$. re"uctions in technological barriers

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18. ;e"uctions in transportation an" communication costs have ))).A. facilitate" international pro"uction activitiesB. enlarge" tra"ing areas. enable" companies to e%ploit international cost "ifferentials

!. re"uce" technological barriers# $. all of the above

16. ;easons for management to focus on stochol"er wealth ma%imi&ation inclu"e ))).A. stochol"ers are the owners of the companyB. stochol"ers provi"e the ris capital that protects the welfare of other constituents. a high stoc price provi"es the best "efense against a hostile taeover!. enhance" sharehol"er value maes it easier for the company to attract a""itional

e4uity capital# $. all of the above

27. Which of the following statements about financial planning an" control is not true?A. financial planning an" control must be consi"ere" simultaneouslyB. the preparation of bu"gets is a planning function* but their a"ministration is a

controlling function. bu"gets are use" to compare actual performance with planne" performance!. the foreign e%change maret plays a ey role in /- financial planning an"

control# $. all of the above statements are true

21. ,he role of the /- financial manager has e%pan"e" in recent years to inclu"e ))).# A. corporate strategy

B. financial planning an" control. subsi"iary performance!. multiple environments$. regulatory riss

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Chapter 2

Motives for World Trade and Forein Invest!ent

1. Accor"ing to the classical economic theory* international tra"e taes place between

countries base" on the .A. absolute a"vantage of lan"B. absolute a"vantage of labor. absolute a"vantage of technology!. comparative a"vantage of sills

# $. comparative a"vantage of cost

2. Accor"ing to the theory of factor en"owments* a country must speciali&e in thepro"uction an" e%port of any goo" that uses its large amount of pro"uction factors.A. scarceB. limite"

. wasteful# !. abun"ant$. small

+. A pro"uct life cycle theory wors only .A. in international tra"eB. in international investment

# . in both international tra"e an" foreign investment!. with an e%porter who has a monopolistic position$. with an importer who has a comparative a"vantage

. Which of the following is not a major form of tra"e restriction?# A. forfaitingB. tariffs. nontariff barriers!. import 4uotas$. countervailing "uties

0. ,he main functions of the Worl" ,ra"e rgani&ation


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. ,he major forms of economic cooperation among countries "o not inclu"e .A. a free tra"e area

# B. a consortium ban . customs union

!. economic union$. political union

5. Which of the following is a vali" argument for protectionism?A. national securityB. unfair competition. "omestic employment!. A an" B

# $. A* B* an"

8. Which of the following is not a main objective of the free tra"e agreement between the

>nite" tates an" ana"a?# A. establish common e%ternal tariffsB. phase out tariffs between the two countries. liberali&e investment laws between the two countries!. grant @national treatment@ with each other$. liberali&e the tra"ing relationships between the two countries

6. ,wo loose tra"ing blocs in Asia are ))).A. A$A- an" -A(,AB. A$A- an" $>

# . A$A- an" A9$

!. -A(,A an" $>$. A9$ an" -A(,A

17. ,he $clectic ,heory* "esigne" to e%plain a logical lin between tra"e an" investmenttheories* was "evelope" by ))).A. evyB. nart. essar"!. -ehrt

# $. !unning

11. Which of the following theories best "escribes a major motive for international tra"e?# A. the theory of comparative a"vantage

B. portfolio theory. eclectic theory!. oligopoly mo"el$. none of the above

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12. -ehrt an" ogue suggeste" that companies invest abroa" because of ))).A. new maretsB. raw materials. pro"uct efficiency

!. new nowle"ge# $. all of the above

1+. Which of the following is not one of benefits of open tra"e?# A. increase" government spen"ing

B. comparative a"vantage. increase" competition!. increase" pro"uctivity$. e%pan"e" menu of goo"s

1. Which of the following is not an e%ample of tra"ing bloc?

# A. African >nionB. -orth American (ree ,ra"e Agreement. /ercosur !. the entral American ommon /aret$. the Asian 9acific $conomic ooperation

10. ,ariffs on importe" goo"s can be impose" for the following reason


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18. An oligopoly e%ists when firms "ominate the maret.A. manyB. e%actly two. 10

# !. a few$. about 20

16. ,he portfolio theory assumes that "omestic investment projects ten" to be correlate"with foreign investment projects than with other "omestic projects.

# A. lessB. more. perfectly negatively!. perfectly positively$. in"epen"ently

27. Which of the following a"vantages typically is


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2+. Which of the flowing statements concerning economies of scale is false?A. it is a synergistic effect sai" to e%ist when the whole is worth more than the mere

sum of its partsB. costs fall as outputs e%pan"

. each country shoul" speciali&e in a limite" number of pro"ucts in which it has acomparative a"vantage# !. mass pro"uction an" mass mareting "eplete sills an" technologies

$. the functions of pro"uction* mareting an" purchasing can be consoli"ate"

2. ,he synergistic effect sai" to e%ist when the whole is worth more than the mere sum of itsparts is calle" ))).

# A. economies of scaleB. "ifferences in taste. the theory of factor en"owments!. the pro"uct lifecycle theory

$. the theory of comparative a"vantage

20. Anti"umping "uties are ))).A. impose" for technical an" health regulationsB. nontariff barriers. a""itional import "uties impose" to offset an e%port subsi"y by another country

# !. customs "uties impose" on an importe" pro"uct whose price is lower than that ofthe same pro"uct in the home maret

$. customs "uties impose" on an importe" pro"uct whose price is higher than that ofthe same pro"uct in the home maret

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Chapter "

The Balance of #a$!ents

1. ,he balance of payments on current account "oes not inclu"e the following items .

A. merchan"ise e%portsB. invisible tra"e items


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. Which of the following is not one of the major groups that mae up the balance ofpayments?A. current accountB. capital account

. financial account!. net errors an" omissions# $. profit account

5. ,he financial account in the balance of payments "oes not inclu"e )))).A. foreign "irect investmentsB. foreign portfolio investments

# . e%ports of goo"s an" services!. other investments$. A* B* an" !

8. ,he accounting statement that summari&es all the economic transactions between acountry's resi"ents an" foreign resi"ents is calle" the balance of .A. merchan"ise tra"eB. current account. capital account!. official account

# $. payments

6. 3n a freely floating e%change rate system* a current account "eficit shoul" pro"uce afinancial account .

# A. surplus

B. "eficit. balance!. both A an" B$. all of the above

17. !uring the 1667s* the >nite" tates ha" a in its current account.A. surplus

# B. "eficit. reasonable balance!. both A an" B$. none of the above

11. As the real value of the yen rises* the balance on Capan's current account is liely to .A. stay the sameB. improve

# . "eteriorate!. cannot tell$. none of the above

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12. 3f a country imposes tariffs on importe" goo"s* then that country's balance of paymentswill very liely .

# A. improve

B. "eteriorate. stay the same!. cannot tell$. all of the above

1+. ol"ing other things constant* an increase in the current account "eficit of a country'sbalance of payments will most liely .

# A. weaen the value of its currencyB. increase the value of its currency. not affect the value of its currency!. all of the above

$. none of the above

1. 3nterest an" "ivi"en" incomes show up in the .A. merchan"ise accountB. reserves an" relate" items. capital account

# !. current account$. financial account

10. ,he current account inclu"es .A. merchan"ise e%ports an" imports

B. earnings from invisible tra"e. unilateral transfer items!. A an" B

# $. A* B* an"

1. fficial reserve assets are compose" of .A. gol"B. convertible foreign e%changes. special "rawing rights


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15. ,he balance of payments i"entify states that the combine" balance of current account*capital account* financial account* net errors an" omissions* an" reserves an" relate"items must be .A. greater than one


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22. All of the following statements concerning a countryEs balance of payments are truee%cept ))).A. it is a sourcesan"uses of fun"s statementB. it recor"s transactions that earn or e%pen" foreign e%change

. it reflects changes in assets* liabilities* an" net worth "uring a specifie" perio"# !. statistics are gathere" on a "oubleentry accounting basis$. it recor"s transactions between "omestic an" foreign resi"ents

2+. A country incurs a surplus in its balance of payments when ))).A. cre"it transactions e%cee" "ebit transactionsB. it earns more abroa" than it spen"s. autonomous receipts e%cee" autonomous payments!. A an" B


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Chapter %

The International Monetar$ S$ste!

1. Which of the following is not one of a"vantages for a fle%ible e%change rate system?

A. countries can maintain in"epen"ent monetary policy# B. e%change rates un"er a fle%ible system are unstable. countries can maintain in"epen"ent fiscal policy!. fle%ible e%change rates permit a smooth a"justment to e%ternal shocs$. entral bans "o not nee" to maintain large reserves

2. >n"er the purely fluctuating e%change rate system* the balance of payments imbalancesare automatically correcte" by the following mechanism .A. speculationB. government intervention. interest rate changes

# !. supply an" "eman" in e%change marets$. none of the above

+. Which of the following is not "irectly relate" to the Bretton Woo"s system?A. 16B. the fi%e" e%change rate system

# . the ban of $nglan"!. the 3nternational /onetary (un"$. the Worl" Ban

. Which of the following is not "irectly attributable to the collapse of the fi%e" e%change

rate system?A. >.. balance of payments "eficitsB. the "ecrease in the >.. "ollar value. the "ecline of international reserves

# !. Capan's tra"e surplus$. none of the above

0. ,he :roup of ,en got together at the mithsonian 3nstitution to agree on a wi"er ban"system so that e%change rates can fluctuate .A. 0F above an" below the central rate

# B. 2.20F above an" below the central rate. 2F above an" below the central rate!. F above an" below the central rate$. 17F above an" below the central rate

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. ,he Camaican Agreement was hel" to amen" the Bretton Woo"s Agreement of the fi%e"e%change rate system in .A. 165+B. 1650

# . 165!. 1658$. 1656

5. (actors that cause "eman" an" supply sche"ules for foreign e%change to shift "o notinclu"e GA. relative inflation ratesB. relative interest rates

# . "ifferent welfare systems!. relative income levels$. government intervention

8. ,he Culy 166+ currency crisis in $urope cause" the $uropean /onetary ystem to wi"enthe ban"s within which member currencies coul" fluctuate against other membercurrencies* to of a central value.A. 1F

# B. 10F. 1F!. 15F$. 18F

6. ,he objectives of the 3nternational /onetary (un"


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11. Which of the following is not a !; component currency?A. > "ollar B. euro

# . wiss franc

!. Capanese yen$. British poun"

12. pecial "rawing rights are use" to settle payments by the following organi&ations e%ceptA. 3/( member countriesB. prescribe" organi&ations. central bans

# !. multinational corporations$. A* B* an"

1+. ,he euro began public circulation in )))).

A. 1666B. 2777. 2771!. 277+

# $. 2772

1. ,he "irty floating e%change system was establishe" in .A. 166

# B. 165+. 165!. 1656

$. 1687

10. ,he "ecline of the > "ollar value in the late 1687s was mainly attributable to thefollowing agreement .A. ouvre Accor"

# B. 9la&a Accor". mithsonian Agreement!. Camaica Agreement$. -one of the above

1. ,he Asian currency crisis in 1665 starte" in .A. Horea

# B. ,hailan". 3n"onesia!. ong Hong$. 9hilippines

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15. ,he eptember 1662 currency crisis in $urope was mainly attributable to .A. the British currency action

# B. the increase in :erman interest rate. the !anish election

!. the (rench currency policy$. all of the above

18. ,he proposal un"er which a par value of a currency is a"juste" intermittently is referre"to as a .A. wi"e ban"B. narrow ban"

# . crawling peg!. crawling ban"$. gli"ing ban"

16. ,he 4uota allotte" to a member country of the 3/(* which it can borrow at will* is nownas tranche.A. gol"B. basic. member !. cre"it

# $. reserve

27. $conomists regar" the creation of the $uro as a new $uropean currency in theinternational monetary system as the most important "evelopment since .A. 160+

B. 16+# . 165+!. 168+$. 166+

21. A country may lin its e%change rate to the value of a major currency* often the >"ollar. ,his is calle" .A. a currency par

# B. a currency peg. a currency composite!. a currency baset$. none of the above

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22. 3f an" when the value of the Capanese yen against the > "ollar goes up 10F* it affectsthe following items .A. the price of importe" Capanese carsB. the price of Capanese cameras

. the price of Capanese pearls sol" in ,roy* hio!. the price of a harp copier in !etroit# $. all of the above

2+. Which of the following currencies is "irectly line" to the value of gol"?A. > "ollar B. Capanese yen. euro!. British poun"

# $. none of the above

2. A foreign e%change rate ))).A. is the par valueB. is an e%change rate which "oes not fluctuate. can involve a single currency

# !. is the price of one currency e%presse" in terms of another currency$. fluctuates accor"ing to maret forces

20. A fi%e" e%change rate ))).A. is an e%change rate which "oes not fluctuate or which changes within a

pre"etermine" ban"B. will have a par value

. re4uires central bans to absorb currency surpluses an" eliminate currency"eficiencies!. B an"


2. A currency boar" ))).A. is a monetary institution that only issues currency to the e%tent it is fully bace"

by foreign reservesB. is an e%treme form of the fi%e" e%change rate system. involves an e%change rate fi%e" by law!. B an"


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25. A currency "evaluation is ))).A. an official increase in the value of a currency by the government of that currencyB. a rise in the value of a currency against other currencies un"er a floating system. a "ecrease in the value of a currency against other currencies un"er a floating

system# !. an official re"uction in the par value of a currency un"er a fi%e" rate system$. a currency boar"

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Chapter &

The Forein E'chane Mar(et and #arit$ Conditions

1. ,he foreign e%change maret is referre" to as a maret where one country's currency is

e%change" for another currency. ,he currency e%change is usually ma"e through thefollowing metho"s .A. buyers an" sellers of foreign e%change meet at a physical location.B. buyers an" sellers of foreign e%change meet through a telephone networ. buyers an" sellers of foreign e%change meet through computer communications!. A an" B

# $. B an"

2. Which of the following is not a function of a commercial ban in the foreign e%changemaret?A. they operate the payment mechanism

# B. they "etermine e%change rates. they e%ten" cre"it!. they help re"uce foreign e%change ris$. they buy an" sell foreign e%change

+. Which of the following is not a characteristic of speculation .A. profit motiveB. e%change rate fluctuation

# . he"ging!. ris taing$. "eliberate uncovere" position

. A cross rate is an e%change rate between ))) an" ))).A. ,he > "ollar an" the Capanese yen

# B. any two nonhome currencies. the /e%ican peso an" the euro!. the "omestic currency an" a foreign currency$. the euro an" the Capanese yen

0. A > company is e%pecte" to receive I177*777 in 127 "ays. 3f the company wants tominimi&e the ris of foreign e%change* then it woul" .A. buy British poun"s forwar"

# B. sell British poun"s forwar". buy British poun"s 127 "ays from now!. sell British poun"s 127 "ays from now$. sell British poun"s in the current spot maret

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. peculation in foreign e%change marets entails .A. covering in the forwar" maretB. covering in the money maret. he"ging in the option maret

# !. buying in the current spot maret an" selling in the future spot maret$. covering in the futures maret

5. (oreign e%change marets are efficient if .# A. goo" information is available at no or little cost

B. you have insi"e information. marets are highly regulate"!. maret information is secretive$. most foreign e%change "ealers are speculators

8. ,he theory of purchasing power parity says that .

A. the inflation rates in two countries are unrelate"# B. the e%change rate will a"just to reflect changes in the price levels of two countries. the inflation rate is greater than the interest rate!. the interest rate is greater than the inflation rate$. the interest rate an" the inflation rate are i"entical

6. ,he (isher $ffect assumes that the .A. real interest rate is e4ual to the nominal interest rate

# B. nominal interest rate is e4ual to the real interest rate plus the inflation rate. inflation rate is e4ual to the real interest rate!. nominal interest rate is e4ual to the inflation rate

$. nominal interest rate is lower than the inflation rate

17. ,he 3nternational (isher $ffect says that the .A. e%change rate "ifference reflects the inflation rate "ifference between two

countries# B. future spot rate shoul" move in an amount e4ual to* but in the opposite "irection

from* the "ifference in interest rates between two countries. future spot rate reflects the forwar" rate!. interest rate is greater than the inflation rate$. all of the above

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11. ,he theory of interest rate parity means that the .A. interest rates are e4ual in two countries

# B. "ifference between a forwar" rate an" a spot rate e4uals the "ifference between a"omestic interest rate an" a foreign interest rate

. "ifference between the spot rate an" the future spot rate reflects the interest rate"ifference between two countries!. future spot rate reflects the inflation "ifference between two countries$. all of the above

12. A forwar" rate is e4ual to a future spot rate if foreign e%change marets are .A. controlle" by the government

# B. efficient. controlle" by speculators!. are partially controlle" by the 3nternational /onetary (un"$. none of the above

1+. Actual e%change maret participants inclu"e .A. bansB. companies. in"ivi"uals!. governments


1. ommercial bans play the flowing role in international transactions ))).A. they operate the payment mechanismB. they e%ten" cre"it

. they help re"uce ris !. A an" B# $. all of the above

10. ))) is use" a major means of re"ucing ris in international transactions.A. e%change tra"ingB. the payment mechanism

# . letter of cre"it!. the > (e"eral ;eserve$. ban tra"ing rooms

1. entral bans ))).A. attempt to control the growth of the money supply within their juris"ictionsB. serve as their governmentsE baner for "omestic an" international payments. strive to maintain the value of their own currency against any foreign currency!. A an"


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15. 3f the spot rate of the /alaysian ringgit is J.+7 an" the si% month forwar" rate of theringgit is J.+2* what is the forwar" premium or "iscount on an annual basis?A. premiumK about 1.0FB. "iscountK about 1.0F

# . premiumK about 1+.+F!. "iscountK about 1+.+F$. premiumK about 1.5F

Solution) use E*uation +&,%-

.+/"2 , /"0-/"0 ' +"30140- 5 1"/"6

18. 3f the spot rate of the 3srael sheel is J.+2 an" the si% month forwar" rate is J.+7* what isthe forwar" premium or "iscount on an annual basis?A. "iscountK 11.0FB. premiumK 11.0F

. premiumK 12.0F# !. "iscountK 12.0F$. premiumK 22.0F

Solution) use E*uation +&,%-

.+/"0 , /"2-/"2 ' +"30140- 5 ,12/&6

16. 3f the ana"ian "ollar is e4ual to J.8 an" the Bra&ilian real is e4ual to J.28* what is thevalue of the Bra&ilian real in terms of ana"ian "ollars?

# A. about .+20 realsB. about .+08 reals. about 1.2 reals

!. about 1.0 reals$. about .077 reals

Solution) cross rate

/24/43 5 /"2&3

27. 3f the Capanese yen was worth J.77+0 si% months ago an" is worth J.770 to"ay* howmuch has the yen appreciate" or "epreciate"?

# A. appreciate"K about 26FB. appreciate"K about 20F. "epreciate"K about 27F!. "epreciate"K about 18F$. appreciate"K about 10F

Solution) use E*uation +&,1-

+/00%& , /00"&-/00"& 5 276

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21. AssumeG annual interest rate L 17FK


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2. Where woul" you invest your J17*777 to ma%imi&e your yiel" with no foreign e%changeris?

# A. in the >nite" tatesB. in the >nite" Hing"om

. cannot tell!. "oes not mae any "ifference$. in :ermany

Solution) invest in the @S)


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>se the following information to answer the ne%t two 4uestionsGAssume that the spot rate change" from J7. per wiss franc on Canuary 1 in one recentyear to J7.8 per wiss franc on !ecember +1 of that year.

25. What is the percentage change in the franc spot rate using "irect 4uotes for a >company?A. 0.00F

# B. .20F. 5.00F!. 8.77F$. 6.66F

Solution) @se E*uation +&,1-/

6 Chane 5 +0/34 , 0/3%-0/3% 5 0/032& or 3/2&6

28. What is the percentage change in the franc spot rate using in"irect 4uotes for a >company?

# A. .20FB. 5.55F. 8.88F!. 6.0F$. 0.00F

Solution) Convertin the a:ove e'a!ple into indirect *uotations the S;iss franc

chanes fro! 1/&32& francs to 1/%803 francs/ @se E*uation +&,2- to solve thispro:le!/

6 Chane 5 +1/&32& , 1/%803-1/%803 5 3/2&6

26. ,he bi" price is J7. for the ana"ian "ollar an" the as price is J7.8 for the ana"ian"ollar. What is the bi"as sprea" for the ana"ian "ollar?A. .55FB. 5.55F. 8.50F

# !. .20F$. 0.20F

Solution) @se E*uation +&,"-/

Spread 5 +0/34 , 0/3%-0/3% 5 0/032& or 3/2&6

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Chapter 3

Currenc$ Futures and ptions

1. ,he 3nternational /onetary /aret in the hicago /ercantile $%change tra"es .

A. stocsB. bon"s. > ,reasury Bills

# !. currency futures$. all of the above

2. !ifferences between the futures maret an" the forwar" maret inclu"e .A. price rangeB. maturity. si&e of contract!. cre"it ris


+. ,he buyer an" the seller in currency future marets agree on .A. a future "elivery "ateB. the price to be pai". the 4uantity of the currency

# !. all of the above$. none of the above

. ,he main objective of he"gers in currency futures marets is to .A. mae a profit

# B. protect against e%change ris . mae sure that foreign bills are collecte"!. protect against political ris$. none of the above

0. urrency futures contracts are normally available .# A. in a pre"etermine" amount for a specifie" maturity "ate

B. in fle%ible maturity "ates. tailore" to the "esire of the buyer!. tailore" to the "esire of the seller$. tailore" to the "esire of both the buyer an" the seller

. ,he forwar" maret of foreign e%change offers contracts .# A. tailore" to meet the nee"s of the buyers an" sellers

B. which are normally stan"ar"i&e". which have a stan"ar"i&e" maturity "ate!. which are regulate" by the ommo"ity (utures ommission$. which are available in a pre"etermine" amount

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5. urrency futures contracts are .# A. tra"e" on organi&e" e%changes

B. actually settle" for "elivery

. bace" by compensating balances!. han"le" by commercial bans$. han"le" by mutual savings bans

8. ,he lifetime high an" low figures in the currency futures 4uotation table mean .A. the highest an" lowest prices "uring the yearB. the highest an" lowest prices "uring the "ay

# . the highest an" lowest prices for each contract month "uring its life time!. the highest an" lowest prices for each wee$. none of the above

6. ,he @open interest@ in a currency futures 4uotation table refers to the .A. total number of contracts tra"e"# B. total number of outstan"ing contracts which are not offset by opposing

transactions. total number of intereste" parties!. total number of contracts tra"e" in a year$. none of the above

17. /argin re4uirements in currency futures marets are a form of .A. transaction cost

# B. collateral "eposit

. broerage fee!. compensation$. all of the above

11. peculators in currency futures marets are .A. covere" by options contractsB. covere" by future contracts. usually maing profits

# !. greatly e%pose" to e%change rate ris $. always losing money

12. ,he e%changes that tra"es currency options inclu"e ))).A. 9hila"elphia toc $%changeB. hicago /ercantile $%change. hicago Boar" ptions $%change!. ingapore toc $%change


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1+. A currency call option gives the .# A. buyer the right to buy the un"erlying currency

B. seller the right to sell the un"erlying currency. broer the right to buy the un"erlying currency

!. seller the right to buy the currency futures contracts$. none of the above

1. A currency put option gives the the un"erlying currency.A. buyer the right to buy

# B. buyer the right to sell. broer the right to sell!. seller the right to sell$. none of the above

10. A strie price in currency options marets is the specifie" e%change rate at which the .

# A. option can be e%ercise"B. option can be bought. option can be sol"!. futures options can be sol"$. none of the above

1. A call option has an intrinsic value if the strie price is .A. above the e%change rate of the un"erlying currency

# B. below the e%change rate of the un"erlying currency. above the forwar" rate!. below the forwar" rate

$. above the spot rate of the >.. "ollar

15. A currency futures call option gives .A. the buyer the obligation to buy a particular currency futures contractB. the seller the right to sell a particular currency futures contract. the seller the obligation to sell a particular un"erlying currency

# !. the buyer the right to buy a particular currency futures contract$. none of the above

18. A currency futures put option gives .A. the buyer the obligation to sell a particular currency futures contractB. the seller the right to sell a particular currency futures contract. the seller the right to sell an un"erlying currency!. both the seller an" the buyer to sell a particular currency futures contract

# $. the buyer the right to sell a particular currency futures contract

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16. ption premiums consist of .A. intrinsic value* time value* an" current value

# B. intrinsic value* time value* an" volatility. current value* time value* an" volatility

!. time value* intrinsic value* an" historical value$. all of the above

27. (utures contracts of the following currencies are tra"e" on the hicago /ercantile$%change e%cept )))).A. British poun"B. euro. Capanese yen!. wiss franc

# $. -ew Mealan" "ollar

21. A long currency futures position means that an investor has the following situation .A. a put option# B. a call option

. a forwar" he"ge!. a futures he"ge$. none of the above

22. Which of the following instruments is a financial "erivative?A. currency futuresB. currency forwar". interest swap

!. currency swap# $. all of the above

2+. rgani&e" e%changes tra"e the following futures instrumentsG .A. currency futures of any maturity

# B. stan"ar"i&e" currency futures. currency futures of any si&e!. currency futures sol" in any currency$. none of the above

2. urrency futures contracts are ac4uire" for the following purposes ))).A. he"gingB. speculation. arbitrage!. he"ging an" speculation


21+


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20. ,he major types of ris in "erivatives tra"ing are .A. cre"itB. li4ui"ity. settlement

!. maret# $. all of the above

2. A multinational company wants to use a currency put option to he"ge 17 millioningapore "ollars in accounts receivable. ,he premium of the currency option with astrie price of J.00 > is J.70 >. 3f the option is e%ercise"* what is the total amount of> "ollars receive" after accounting for the premium payment?

# A. J0*777*777.B. J0*277*777.. J0*077*777.!. J*777*777.

$. J6*777*777.

Solution) total receipts 5 Sinapore dollars 10000000 ' /&& 5


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>se the following information to answer the ne%t three 4uestionsGn ctober 2+* the closing e%change rate of British poun"s was J1.87. alls whichwoul" mature the following Canuary with a strie price of J1.80 were tra"e" at J7.17.

26. ,he call options were .A. in the money.B. at the money.

# . out of the money.!. below the money.$. above the money.

Solution)


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Chapter 8

Financial S;aps

1. (inancial swap marets have emerge" in recent years because of the following reasons

))).A. e%change rates fluctuate wi"elyB. interest rates fluctuate wi"ely. forwar" marets may not function properly!. currency futures are available only for selecte" currencies


2. (inancial swaps are use" by the following organi&ations ))).A. multinational companiesB. commercial bans. worl" organi&ations

!. sovereign governments# $. all of the above

+. ,he origins of the swap maret are usually regar"e" as an outgrowth of the followingfinancial instruments ))).A. parallel loansB. bactobac loans. commercial paper !. treasury bills

# $. A an" B

. ,ypically* parallel loans involve the following parties .A. two multinational firmsB. three multinational firms. two subsi"iary firms!. five multinational firms

# $. A an"

0. A bactobac loan usually involves companies in "ifferent countries.# A. two* two

B. four* four . three* three!. A an" B$. all of the above

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. ,he shortcomings of parallel an" bactobac loans inclu"e .A. "ifficulty of fin"ing counterpartiesB. a noncompliance by one of the parties. "ifficulty of fin"ing e%act matching nee"s

!. A an" B# $. A* B* an"

5. urrency swaps overcome the shortcomings of parallel an" bactobac loans becauseof .

# A. speciali&e" swap "ealers an" broersB. their simplicity. their cost effectiveness!. A an" B$. A* B* an"

8. ,he first currency swap between the Worl" Ban an" 3B/ was arrange" in 1681 by .A. iticorpB. BanAmerica

# . olomon Brothers!. /errill ynch$. none of the above

6. A currency swap ban is usually .A. an en" user

# B. a financial interme"iary. a currency speculator

!. A an" B$. all of the above

17. A currency swap broer is a swap ban who .A. uses his or her own account in completing transactions

# B. is strictly an agent to tae or"ers from her client. a currency speculator !. A an" B$. all of the above

11. 3nterest rate swaps involve counterparties who want to .# A. e%change a floating rate commitment for a fi%e" rate loan

B. e%change "ebt for stoc. e%change a shortterm loan for a longterm loan!. A an" B$. none of the above

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12. urrency swaps involve .A. one currency

# B. two currencies. foreign stocs

!. B an" $. none of the above1+. all swaptions are attractive when interests are e%pecte" to .# A. fall

B. rise. stay the same!. A an" B$. none of the above

1. An interest rate floor in currency swaps sets .

A. a ma%imum rate on floating interest rate paymentsB. a ma%imum rate on fi%e" interest rate payments# . a minimum rate on floating interest rate payments

!. a minimum rate on fi%e" interest rate payments$. none of the above

10. ,he basic motivations for swaps inclu"e))).A. to provi"e protection against future changes in e%change ratesB. to eliminate interest rate riss arising from normal commercial operations. to re"uce financing costs!. A an" B


1. /ortgage companies may use interest rate swaps mainly because .# A. they have shortterm liabilities an" longterm assets

B. they have longterm "ebt. they have mortgage loans!. A an" B$. none of the above

15. 3nterest rate swaps are usually possible because international financial marets in"ifferent countries are .A. efficientB. perfect

# . imperfect!. A an" B$. none of the above

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18. urrency swaps* as oppose" to parallel an" bactobac loans* ))).A. are arrange" by speciali&e" swap "ealersB. inclu"e the right of offset. re4uire principal values to be reflecte" in the participantsE boos

# !. A an" B$. all of the above

16. 9lain vanilla swaps ))).A. are the most basic form of swapB. involve two counterparties agreeing to mae payments to each other on the basis

of some 4uantity of un"erlying assets. re4uire two parties to e%change notional principals


27. -otional principals ))).A. may or may not be e%change" in plain vanilla swapsB. are use" to calculate interest payments. e4ual the value of un"erlying assets involve" in swaps!. B an"


>se the following information to answer the ne%t three 4uestionsGAssume that you are a swap "ealer an" have just acte" as a counterparty in an interestrate swap. ,he notional principal for the swap was J5.0 million an" you are nowobligate" to mae five annual payments of 8 percent interest. ,he floating rate that you

will receive is 8.2 percent* an" the floating payments to you are annual as well.

21. 3f interest rates "o not change over the ne%t five years* what will be your annual netinflow?A. J17*777

# B. J10*777. J20*777!. J7*777$. J00*777

Solution)


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Solution)


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2. 3f a net payment is recor"e" for interest in year one an" e%change rates "o not change*what will be the net payment?A. J1*777B. J2*777

. J+*777# !. J0*777$. J5*777

Solution)


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Chapter 4

E'chane 9ate Forecastin

1. (oreign e%change marets are efficient if .

A. there are many informe" investorsB. e%change rates reflect all available information. there are no barriers of fun"s movement!. transaction costs are negligible


2. 3n empirical stu"ies on foreign e%change rate forecasting* efficiency best "escribesthe general consensus on maret efficiency.A. strongformB. semistrongform

# . weaform

!. semiweaform$. all of the above

+. A fun"amental analysis in e%change rate forecasting involves the following e%cept .A. inflation ratesB. interest rates. national income growth!. money supply

# $. price tren"s

. A technical analysis in e%change rate forecasting involves the following e%cept .

A. past priceB. volume movements. price charting

# !. political factors$. filter rule

0. ,here are three in"s of efficient marets. ,hese are .A. wea form efficient maretB. semistrong form efficient maret. strong form efficient maret!. perfectly efficient form maret

# $. A* B* an"

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. ,hree metho"s are wi"ely use" to forecast floating e%change rates. ,hese three metho"sare .A. technical analysis* fun"amental analysis* an" forwar" ratesB. technical analysis* maretbase" forecasts* an" spot rates

. fun"amental analysis* maretbase" forecasts* an" forwar" rates# !. fun"amental analysis* technical analysis* an" maretbase" forecasts$. all of the above

5. !ufey an" :i""y suggeste" that currency forecasting can be consistently useful orprofitable only if one of four con"itions is met. ,hese con"itions inclu"e the following))).A. the forecaster has e%clusive use of a superior forecasting mo"elB. the forecaster has consistent access to information before other investors. the forecaster pre"icts the nature of government intervention in the foreign

e%change maret

!. A an" B# $. A* B* an"

8. 3f the forwar" rate is the best available pre"ictor


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11. ,wo major 4ualities of mechanical rules as compare" with chartists are .A. subjective ju"gement an" objective sillB. consistency an" superior ju"gement. superior accuracy an" subjective ju"gement

# !. consistency an" "iscipline$. objective ju"gement an" errorfree results

12. (ilter rule is a rule that belongs to the following forecasting metho".A. fun"amental analysisB. maretbase" forecast. econometrics mo"el!. forwar"rate forecasting mo"el

# $. technical analysis

1+. /aretbase" forecasts consist of .

A. spot rate* forwar" rate* an" inflation rateB. spot rate* forwar" rate* an" e%change rate# . spot rate* forwar" rate* an" interest rate

!. spot rate* forwar" rate* an" wage rate$. technical analysis an" fun"amental analysis

1. ,he fourstep se4uence as a general forecasting proce"ure un"er a fi%e" rate systemconsists of .A. assessing the balance of payments outlooB. measuring the magnitu"e of re4uire" a"justment. timing of a"justment

!. nature of a"justment# $. all of the above

10. ,here are at least three ways to "etermine the si&e of the change in the e%change ratere4uire" to bring the balance of payments bac into e4uilibrium. Which of the followingis one of the three ways to restore the balanceofpayments e4uilibrium?A. the theory of purchasing power parityB. forwar" e%change rate. free maret or blac maret rate


22


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1. Whether a country will "evalue its currency un"er a fi%e" rate system is ultimately a ))"ecision.A. economicB. momentary

# . political!. fiscal$. international

15. 3n the case of a structural balance of payments "eficit* policy maers attempt toimplement a number of corrective policies* e%clu"ing .A. tight monetary policyB. tight fiscal policy. e%change controls

# !. higher government spen"ing$. wage controls

18. ,he flowing may be e%pose" to foreign e%change riss ))).A. cre"it purchases whose prices are state" in foreign currenciesB. borrowe" fun"s "enominate" in foreign currencies. uncovere" forwar" contracts!. A an" B


16. Woring capital management involves all of the following e%cept ))).A. short term financing "ecisionsB. shortterm investment "ecisions

# . fi%e" assets!. interest rates$. selection of loan currencies

27. A maretbase" forecast is ))).A. a currency forecasting techni4ue that uses historical prices or tren"s

# B. a forecast base" on maret in"icators such as forwar" rates. a systematic effort at uncovering functional relationships between a set of

in"epen"ent variables an" a "epen"ent variable!. A an" B$. none of the above

>se the following information to answer the ne%t two 4uestions.Assume that the ana"ian "ollar appreciates from >J7.0 at the beginning of the yearto >J7.57 at the en" of the year.

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21. What is the percentage appreciation of the ana"ian "ollar?A. .6FB. 0.6F. .6F

# !. 5.6F$. 8.6F

Solution) @se E*uation +4,1-)

#ercentae Chane 5 +0/80 , 0/3&-0/3& 5 8/376

22. What is the percentage "epreciation of the > "ollar?# A. 5.1F

B. .77F. 0.1F!. 8.88F

$. 6.16#


#ercentae Chane 5 +0/3& , 0/80-0/80 5 ,8/1%6

>se the following information to answer the ne%t three 4uestions.uppose that the wiss franc appreciates from >J7.7 at the beginning of the year to>J7. at the en" of the year. ,he > inflation rate is 0 percent an" the wiss inflationrate is + percent "uring the year.

2+. What is the percentage appreciation of the wiss franc?

A. 11.12FB. 11.77F# . 17.77F

!. 17.06F$. 12.77F


#ercentae Chane 5 +0/%% , 0/%0-0/%0 5 106

22


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2. What will the "ollar price of the wiss franc be in one year?A. J7.7B. J7.07. J7.710

!. J7.5700# $. J7.758

Solution) @se E*uation +4,"-)

#redicted 9ate 5


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Chapter 7

Manain Transaction E'posure and Econo!ic E'posure

1. ,ransaction e%posure occurs if there is a change in an e%change rate an" .

# A. an outstan"ing obligation "enominate" in a foreign currency is settle"B. sales are ma"e in cash. purchases are ma"e in cash!. an outstan"ing obligation "enominate" in a home currency is settle"$. all of the above

2. 3f a foreign currency "epreciates* e%change losses will occur when e%pose" .# A. receipts are greater than e%pose" payments

B. payments are greater than e%pose" receipts. receipts are greater than e%pose" net worth!. receipts an" e%pose" payments are the same


+. $conomic e%posure measures the impact of actual e%change conversion involving thefollowing cases e%cept .A. cash flows from a foreign investmentB. a foreign subsi"iary borrows money in international financial marets. a foreign subsi"iary imports raw materials

# !. local wages go up$. none of the above

. A forwar" maret he"ge involves the following e%cept .

A. a fi%e" amount of foreign currencyB. forwar" rate. forwar" contract

# !. future spot rate$. commercial bans

0. A moneymaret he"ge "oes not involve the following .A. spot rateB. interest rate

# . forwar" rate!. maretable securities$. accounts receivable

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. An optionmaret he"ge in foreign e%change ris management is a form of a


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11. $conomic e%posure management "oes not involve the following .A. "iversifie" pro"uctionB. "iversifie" mareting. "iversifie" financing

# !. balance sheet he"ge$. "iversifie" operations

12. ,he three types of foreign e%change e%posures are .A. precautionary* transaction* an" speculative

# B. translation* economic* an" transaction. translation* precautionary* an" political!. transaction* political* an" "evaluation$. transaction* political* an" economic

1+. When a firm has "ivi"en"s payable "enominate" in foreign currency* the firm is sai" to

have .A. economic e%posureB. translation e%posure

# . transaction e%posure!. ta% e%posure$. political e%posure

1. (oreign e%change ris ))).A. becomes less complicate" when currencies are allowe" to floatB. "oes not e%ist when all currencies are fi%e"

# . is the ris of loss "ue to changes in the international e%change value of national

currencies!. "ecreases with the effects of globali&ation$. none of the above

10. A crosshe"ge ))).A. involves the use of forwar" contracts* a combination of spot an" maret an"

money maret transactions* an" other techni4ues to protect from foreign e%changeloss

# B. is a techni4ue "esigne" to he"ge e%posure in one currency by the use of futures orother contracts on another currency that is correlate" with the first currency

. involves an e%change of cash flows in two "ifferent currencies between twocompanies

!. involves a loan contract an" a source of fun"s to carry out that contract in or"er tohe"ge transaction e%posure

$. involves the e%change of one currency for another at a fi%e" rate on some future"ate to he"ge transaction e%posure

2+7


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1. $conomic e%posure management ))).A. is "esigne" to neutrali&e the impact of une%pecte" e%changerate changes on net

cash flowsB. can use the same techni4ues use" to eliminate translation an" transaction riss

. uses "iversifie" operations an" financing to re"uce economic e%posure# !. A an" $ all of the above

>se the following information to answer the ne%t two 4uestionsGONM ompany has an account receivable of I17*777*777 from a British company to bepai" in three months. ,he a""itional information is as followsG

British poun" spot rateG J2.7267British poun" +month forwar" rateG J2.77+2

+month interest rate in the >G 2F+month interest rate in the >HG +F

15. What will be the appro%imate value of the account receivable in > "ollars if thecompany maes a forwar" maret he"ge?A. J27*777*777B. J27*267*777

# . J27*7+2*777!. J21*777*777$. J17*777*777

Solution) @S dollar value 5 "ollars if thecompany maes a moneymaret he"ge?A. about J27*701*777

# B. about J27*76+*777. about J27*101*777!. about J27*26+*777$. about J+7*777*777

Solution) +1- :orro; 78048"4 +100000001/0"-

+2- :u$


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>se the following information to answer the ne%t five 4uestionsGA subsi"iary in 3srael re4uires the 3srael sheel e4uivalent of J1 million at the currente%change rate of sheels per "ollar. ,o obtain million sheels for the subsi"iary in3srael* the parent must open a J1 million cre"it in favor of as 3sraeli ban. ,he 3sraeli

ban charges the parent 17F per year on the million sheels ma"e available to thesubsi"iary an" pays no interest on the J1 million that the parent has "eposite" in favor ofthe ban. ,he parent's opportunity cost on the J1 million "eposit is 27F. ,wo financingalternatives are "irect loan an" cre"it swap.

16. 3f the current e%change rate stays the same* which alternative is less e%pensiveG "irectloan or cre"it swap?

# A. "irect loanB. cre"it swap. both alternatives are e4ually e%pensive!. cannot tell

$. "epen"s on the government policy

Solution) Annual interest of the direct loan 5 206

Annual interest of the credit s;ap 5 "06

27. Which alternative is more attractiveG "irect loan or cre"it swap?A. "irect loanB. cre"it swap. e4ually attractive

# !. cannot tell$. "epen"s on the government policy

Solution) The direct loan is cheaper :ut su:ect to e'chane ris(? the credit s;ap is

!ore e'pensive and has no e'chane ris(/ Thus one cannot tell for sure ;hich

alternative is !ore attractive.

21. What is the e%change rate that will mae the cost of the "irect loan e4ual to the cost ofthe cre"it swap?A. 3srael sheel .7 per J

# B. 3srael sheel . per J. 3srael sheel .8 per J!. 3srael sheel 0.0 per J$. 3srael sheel 6.7 per J

Solution) Girect Hoan Cost Credit S;ap Cost

200000$ = +1000000$ , %000000- 5 200000$ = %00000

$ 5 %/%

2+2


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22. A multinational company believes that the e%change rate at the maturity "ate of the loanis 0 3srael sheels per "ollar. 3f the company's pre"iction proves correct* which alternativeis cheaper?A. "irect loan

# B. cre"it swap. e4ually e%pensive!. cannot tell$. all of the above

Solution)

Girect loan cost 5 +200000 ' &- =.+1000000 ' &- , %000000 5 2000000 Israel

she(els

Credit s;ap cost 5 200000 ' & = %00000 5 1%00000 Israel she(els

2+. 3f maret analysts pre"ict that the e%change rate will be 0 3srael sheels per "ollar at the

maturity of the loan* which alternative woul" rational "ecisionmaers recommen"?A. "irect loan for sure# B. cre"it swap for sure

. cannot tell!. all of the above$. none of the above

Solution) The credit s;ap is :etter :ecause it is cheaper and has no e'chane ris(/

2++


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Chapter 10

Translation E'posure Manae!ent

1. ,ranslation e%posure means that .

A. a firm incurs actual losses in foreign e%change maretsB. currency conversion taes place in foreign e%change maret. a firm maes actual profits in foreign e%change marets!. a firm covers its foreign e%change ris in the forwar" marets

# $. a firm e%periences an accounting impact of e%change rate changes

2. -et translation e%posure means .A. the "ifference between e%pose" operating e%penses an" fi%e" assetsB. the "ifference between e%pose" assets an" accounts receivable

# . the "ifference between e%pose" assets an" e%pose" liabilities!. the "ifference between e%pose" revenues an" e%pose" e%penses


+. ,he currentPnoncurrent metho" of currency translation will not affect .A. cashB. accounts receivable. accounts payable!. notes payable

# $. longterm "ebt

. ,he monetaryPnonmonetary metho" of currency translation will not affect .A. cash

B. accounts receivable# . inventory!. maretable securities$. accounts payable

0. ,he temporal metho" of currency translation is almost similar to the monetaryPnonmonetary metho" e%cept the following item .A. accounts receivables at historical costB. accounts receivables at maret price. inventory at historical cost

# !. inventory at maret price$. fi%e" assets at maret price

2+


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. (AB -o. 8 is the same as the following translation metho" .A. currentPnoncurrent metho"B. monetaryPnonmonetary metho"

# . temporal metho"

!. current rate metho"$. e%change rate metho"

5. (AB -o. 02 shows e%change gains or losses in the following .A. 4uarterly income statementB. annual income statement

# . stochol"ers' e4uity account!. the sources an" uses of fun"s statement$. none of the above

8. ,he functional currency is "efine" as the currency of the environment in which the entity

primarily generates an" e%pen"s cash* an" usually refers to the currency.A. parent# B. local

. reporting!. recor"ing$. home

6. ,he > "ollar is the functional currency for ))).A. those foreign operations whose cash flows "irectly affect the parentEs > "ollar

cash flowsB. foreign entities that are merely an e%tension of the parent company

. foreign subsi"iaries in countries with runaway inflation!. foreign subsi"iaries in countries with inflation of 177F over three years# $. all of the above

17. When an /- has several subsi"iaries* a variety of fun"s a"justment techni4ues can beuse" to re"uce its translation loss. ,hese techni4ues inclu"e the following basic strategies))))).

# A. "ecrease softcurrency assets* increase softcurrency liabilitiesB. increase softcurrency assets* increase softcurrency liabilities. "ecrease har"currency assets* "ecrease softcurrency liabilities!. "ecrease har"currency assets* increase har"currency liabilities$. none of the above

2+0


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11. ,he following statement "oes not apply to transfer prices ))))).A. they are prices of goo"s an" services sol" between relate" partiesB. they are prices of goo"s an" services sol" between parents an" subsi"iaries. they are usually the subject of government policing mechanisms

# !. they cannot be manipulate" by importers$. they are fre4uently "ifferent from armEs length prices

12. ,ranslation e%posure ))).A. is sometimes calle" accounting e%posureB. measures the affect of an e%change rate change on publishe" financial statement

of a firm. refers to the potential change in the value of outstan"ing obligations "ue to

changes in the e%change rate between the inception of a contract an" thesettlement of the contract

# !. A an" B

$. A an"

1+. ,ranslation e%posure affects a companyEs ))).A. ability to raise capitalB. earnings per share. stoc price!. ey financial ratios


1. ,ranslation e%posure ))).A. measures the affect of an e%change rate change on publishe" financial statement

of a firmB. "oes not involve actual cash flows. "oes not present any financial ris to a firm


10. Which of the following items is not relate" to a balance sheet he"ge in translatione%posure management?A. re"uce the levels of local currencyB. tighten cre"it. "elay the collection of har" currency receivables!. increase har"currency assets

# $. options maret he"ge

>se the following information to answer the ne%t three 4uestionsGAB ompany's ana"ian subsi"iary has the following balance sheet.

2+


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ash an" receivables J 877 9ayables J 6773nventory 677 ong,erm !ebt 077(i%e" assets 577 -et Worth 1*777,otal assets J2*77 ,otal claims J2*77

uppose the ana"ian "ollar "epreciates from >J1.77 to >J.87 "uring the perio".

1. >n"er the monetaryPnonmonetary metho"* what is AB's translation gain or loss?# A. D J127

B. J127. D J277!. J277$. D J677

Solution) net e'posure 5 C


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Chapter 11

International Financial Mar(ets

1. ,he $urocurrency maret consists of bans which accept "eposits an" mae loans in

foreign currencies .# A. outsi"e the country of issueB. insi"e the country of issue. in the home country!. in $urope only$. none of the above

2. $uro"ollars are > "ollars "eposite" in .A. -ew Nor B. hicago

# . on"on

!. an (rancisco$. !etroit

+. $uro"ollars can be create" in .A. $uropeB. Asia. atin America!. Africa


. $uro"ollar "eposits coul" e%pan" in"efinitely if .

A. public an" private "epositors always eep their money in non>.. bansB. bans always eep their money in non>.. bans. bans are able to fin" public an" private borrowers in $uro"ollars


0. ,he Ban for 3nternational ettlement is a ban in that facilitates transactions amongcentral bans.A. the >nite" tates

# B. wit&erlan". ana"a!. :ermany$. Capan

2+8


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. ,he $uro"ollar maret is probably the most efficient because there are no .A. reserve re4uirementsB. interest ceilings on "eposits. (!3 ban "eposits* theliely effect of this regulation is to .

# A. e%pan" the $uro"ollar maretB. re"uce the $uro"ollar maret. have no impact on the si&e of the $uro"ollar maret!. increase >.. ban "eposits$. none of the above

8. ;ecent movement towar" a highly integrate" global financial system has cause" banersto "evelop three s of central baning. ,hese three s are .A. consultation* cooperation* an" common senseB. coor"ination* cooperation* an" con"itions. consultation* cooperation* an" con"itions

# !. consultation* cooperation* an" coor"ination$. none of the above

6. $uronote issue facilities consist of .# A. $uronotes* $urocommecial paper* an" $urome"iumterm notes

B $uronotes* commercial paper* an" $urobon"s

. $urocommercial paper* $uronotes* an" $urostocs!. $urocommercial paper* $uronotes* an" $urobon"s$. none of the above

17. 3nterest rates on $uro"ollar "eposits are normally than those on > "eposits.A. lower B. same

# . higher !. cannot tell$ none of the above

11. 3nterest rates on $uro"ollar loans are normally than those on > loans.# A. lower

B. same. higher !. cannot tell$. all of the above

2+6


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12. $urobon"s are longterm obligations "enominate" in outsi"e the country of issue.A. wiss francB. > "ollars. Capanese yen

!. British poun"s# $. all of the above

1+. ,he main characteristics of straight bon"s "o not inclu"e .A. a fi%e" interest rateB. a fi%e" maturity. unsecure" "ebentures

# !. no interest payment until maturity$. none of the above

1. ,he interest rate on floating rate bon"s is usually a"juste" every .

A. three months# B. si% months. nine months!. twelve months$. two years

10. ,he main characteristics of &erocoupon bon"s "o not inclu"e .A. interest payment ma"e at maturityB. principal payment ma"e at maturity. sales at a "eep "iscount

# !. "iscounte" interest

$. no perio"ic interest to pay.

1. ,he has the largest maret share of the international bon" maret.# A. > "ollar

B. Capanese yen. :erman mar !. British poun"$. (rench franc

15. Which of the following "oes not contribute to the efficiency of the $uro"ollar maret?A. the > government imposes no restrictions on nonresi"ent transactionsB. foreign entities are free to transact with > bans. $uropean bans offer competitive rates for $uro"ollar "eposits an" loans!. no reserve re4uirements for $uro"ollar time "eposits

# $. none of the above

27


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18. Which of the following is relate" to the $uro"ollar maret?A. H3B;

# B. 3B; . 3B;

!. /3B; $. none of the above

16. Which of the following "oes not contribute to the "evelopment of the Asian currencymaret in ingapore?A. Asian "ollar "epositsB. an increase in baning activities in Asia

# . political instability in Asia!. an increase in tra"e in Asia$. none of the above

27. 3nterest rates on $uro"ollar "eposits may be higher than the rates on "eposits in the >because .A. $urobans are more efficientB. $uro"ollar "eposits are not re4uire" to pay (!3 fees. $urobans are free of reserve re4uirements!. A an" B

# $. A* B* an"

21. ,he Ban for 3nternational ettlements recommen"s that globally active bans maintaincapital e4ual to at least ))) percent of their assets.A. 17

B. 6# . 8!. 5$.

22. ,he popularity $uronotes in comparison with $uro ommercial paper is .A. larger

# B. smaller . e4ual!. A an" $. B an"

2+. ,he international capital maret consists of the following .A. international bon" maretB. international stoc maret. $urocurrency maret!. $uro commercial paper maret

# $. A an" B

21


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2. :lobal bon"s are bon"s sol" .A. insi"e the country in whose currency they are "enominate"B. outsi"e the country in whose currency they are "enominate"

# . insi"e as well as outsi"e the country in whose currency they are "enominate"!. A an" B$. A* B* an"

20. ,he hol"er of currency option bon"s are allowe" to receive their interest payments in thecurrency of their option among .A. ten pre"etermine" currenciesB. five pre"etermine" currencies

# . two or three pre"etermine" currencies!. A an" B$. A* B* an"

2. urrency coctail bon"s are issue" to minimi&e .A. interest rate ris

# B. foreign e%change rate ris . sovereign ris !. "efault ris $. all of the above

25. :overnments privati&e stateowne" companies to .A. assist the "evelopment of capital maretsB. raise money

. wi"en share ownership!. replace publicsector "ecisionmaing# $. all of the above

28. ,ra"itionally* > bans have face" all of the following prohibitions on e4uityrelate"activities e%cept for ))))).A. bans cannot own stoc for their own accountB. bans cannot mae a maret in e4uity securities

# . bans cannot participate in interstate baning!. bans cannot actively vote shares hel" in trust for their baning clients$. bans cannot engage in investment baning activities

22


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26. By crosslisting its shares on foreign e%changes* an /- hopes to accomplish all but thefollowing )))))).

# A. avoi" security regulations of all countries where their shares are liste"B. allow foreign investors to buy their shares in their home maret

. provi"e another maret to support a new issuance!. compensate local management an" employees in the foreign affiliates$. establish a presence in an a""itional country

2+


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Chapter 12

International Ban(in Issues and Countr$ 9is( Anal$sis

1. ,he foreign ban representative office .

A. accepts "eposits# B. obtains local maret information. maes loans!. issues letters of cre"it$. tra"es $uro"ollars

2. ,he foreign correspon"ent ban is a form of .A. branch baningB. subsi"iary ban

# . informal baning relationship!. consortium baning


+. Which of the following is not a major characteristic of the foreign baning subsi"iary?A. its own charter B. its own boar" of "irectors. its own stochol"ers

# !. all baning officers from the parent ban $. none of the above

. ,he learing ouse 3nterban 9ayments ystem


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. An international syn"icate" loan is ma"e by a group of .# A. bans from "ifferent countries

B. corporations from "ifferent countries. countries

!. > bans$. Capanese bans

5. A country ris analysis "oes not inclu"e .A. political ris B. economic ris . objective criteria

# !. company financial analysis$. none of the above

8. ,he Worl" Ban classifies the "ebt bur"en of "eveloping countries accor"ing to a set of

))))) ratios.A. fiveB. four . three!. seven

# $. two

6. ountry ris ranings can be foun" in the following journal ))).A. 3/( taff 9apers

# B. $uromoney. the Cournal of 3nternational Business tu"ies

!. /ultinational Business ;eview$. Cournal of (inance

17. ,wo financial service firms an" assign letter ratings to in"icate the 4uality ofsovereigngovernment bon"s.A. !ow Cones ompany an" /oo"y's 3nvestor erviceB. tan"ar" Q 9oor's an" !ow Cones ompany. itiban an" /oo"y's 3nvestor ervice!. C.9. /organ an" itiban

# $. /oo"y's 3nvestor ervice an" tan"ar" Q 9oor's

11. ,he international "ebt crisis of the 1687s starte" when the following countries coul" notmae international "ebt payments .A. /e%ico* Bra&il* an" ,aiwan

# B. Bra&il* /e%ico* an" Argentina. Argentina* Bra&il* an" Horea!. ,aiwan* Horea* an" /e%ico$. all of the above

20


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12. ,he Asian financial crisis of 1665 starte" in .A. Horea

# B. ,hailan"

. /alaysia!. 3n"onesia$. 9hilippines

1+. ,he causes of the Asian financial crisis fall into one of two theories )) .A. the fun"amental view an" the pessimistic viewB. the pessimistic view an" the panic view. the panic view an" the optimistic view!. the pessimistic view an" the optimistic view

# $. the fun"amental view an" the panic view

1. A country ris analysis involves the following assessment .A. political ris B. economic ris . legal ris

# !. both A an" B$. A* B* an"

10. ,o solve the Asian financial crisis of 1665* crisis countries too the following actions .A. close" many ailing bansB. cleane" up nonperformorming loans. encourage" surviving bans to merge with other bans


1. A consortium ban ))))) .A. "oes not have its own charter

# B. is a permanent group of bans that han"le large international loans. is usually owne" by sharehol"er bans from the same country!. is an information arrangement in which a ban in a country maintains "eposit

balances with bans in foreign countries an" loos to them for services an"assistance

$. has little contact with its parent bans

2


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15. ,he ociety for Worl"wi"e 3nterban (inancial ,elecommunications ,reasury bon"s purchase" by "ebtor countriesB. they are highly maretable. they are largely cre"ite" with solving the "eca"elong global "ebt crisis of the

1687s!. originate" from the Bra"y 9lan* name" after > ,reasury ecretary -icholas

Bra"y# $. maintain the original "ebt maturity of the "ebtor country

27. ,he panic view theory of the cause of the Asian (inancial risis of 1665 supports all ofthe following statements but )))) .A. the Asian crisis was not cause" by problems with economic fun"amentalsB. there were no visible warning signs of the impen"ing crisis. a swift change in e%pectations was the catalyst for the crisis!. the crisis was cause" by international investorsE irrational behavior

# $. the 3/(Es fiscal an" monetary policies after the crisis greatly assiste" incontaining the sprea" of the crisis

25


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Chapter 1"

Financin Forein Trade

1. Which of the following is not a "ocument involve" in foreign tra"e?

A. bill of la"ing# B. commercial paper . letter of cre"it!. "raft$. insurance "ocument

2. Which of the following con"ition


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. A bill of la"ing is not a .A. shipping "ocumentB. receipt. contract

# !. letter of cre"it$. "ocument involve" in the physical movement of the merchan"ise by a commoncarrier

5. A letter of cre"it is issue" by .A. an importer B. an e%porter

# . a ban !. a government$. the 3nternational /onetary (un"

8. ,he a"vantages of letters of cre"it "o not inclu"e .A. a ban's promise to payB. importers can receive merchan"ise sooner. e%porters can receive money sooner

# !. bans are responsible for the 4uality of goo"s$. the importer can obtain better terms

6. A revocable letter of cre"it can be revoe" at any time by a


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12. (orms of countertra"e inclu"e the following e%cept ))).A. simple barter B. clearing arrangement. switch tra"e

!. counterpurchase# $. mutual agreement

1+. witch tra"ing is a form of countertra"e. When two tra"ing countries e%perience a tra"eimbalance* the imbalance is .

# A. balance" by a purchase agreement involving a thir" partyB. finance" by a cre"itor country who len"s money to a "ebtor country. finance" by a ban !. finance" by the Worl" Ban$. none of the above

1. A counterpurchase involves a return purchase of goo"s by a seller from .# A. the buyer B. a thir" party. a broer !. a ban $. a government

10. A buybac agreement is an agreement by the seller to receive a portion of payment inpro"ucts pro"uce" by .

# A. the buyer B. a thir" party company

. a thir" party country!. a ban $. the > government

1. 3f a tra"e is "one on open account* .A. the importer pays in cashB. the importer borrows from a ban. the importer signs a formal "ebt instrument

# !. the importer purchases with a specifie" cre"it term$. a ban finances the tra"e

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15. ,he $%port ,ra"ing ompany Act was passe" by the > ongress in 1682 to achieve thefollowing objectives e%cept .A. help small an" me"iumsi&e" firms e%port their pro"uctsB. allow > bans to invest in commercial enterprises for e%port purposes

. permit > companies to form a partnership for e%port purposes without fear ofantitrust ramifications# !. purchase a companyEs accounts receivables on a nonrecourse basis

$. enable e%porttra"ing companies to buy pro"ucts an" e%port these pro"ucts

18. An offset agreement is fre4uently calle" .# A. "irect offset

B. in"irect offset. compensation agreement!. counterpurchase$. switch tra"er

16. A forfaiting arrangement in international tra"e financing normally "oes not re4uire .A. a large "iscountB. long term financing. a ban

# !. a recourse privilege$. foreign tra"e

27. Which of the following items is not relate" to the > $%port3mport Ban?A. an in"epen"ent agency of the > governmentB. the promotion of > e%ports

. commercial banloan guarantees!. insurance offerings to > e%porters# $. mobili&es private capital

21. ,he 9rivate $%port (un"ing orporation nite" -ationsB. the > ,reasury !epartment. the > $%3m Ban !. both B an" $. large > bans

201


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22. ,he (oreign re"it 3nsurance Association


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28. What is the cost of not taing cash "iscount for the following termG +P17* net 177?Assume +7 "ays a year.A. 12.77F

# B. 12.+5F

. 1.00F!. 1.77F$. 27.77F

Solution) @se E*uation +1",1-/ "+100 , "- ' "3070 5 12/"86/

26. (or the following import purchase* calculate the annual cost of the cash "iscount forgone*an" "etermine the "ate an" amount pai" if the "iscount is taenG J177* P17* net +7.Assume that the invoice "ate is /arch 27 an" that there are +7 "ays in a month.a. 50F* J67* /arch +7b. 00F* J67* April 17

# c. 50F* J67* /arch +7". 00F* J87* /arch 27e. 50F* J87* /arch +7

Solution) %+100 , %- ' "3020 5 8&6?


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+1. What is the effective annual cost of factoring the accounts receivable?a. 0.66Fb. +0.Fc. 26.77F

# ". 21.7Fe. 10.07F

Solution) .


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Chapter 1%

Financin Forein Invest!ent

1. 3nternal sources of fun"s available for foreign investment "o not inclu"e .

A. the parent e4uity contributionsB. the parent "irect loans. fun"s provi"e" by operations from retaine" earnings!. intersubsi"iary fun" transfers

# $. commercial ban loans

2. /any multinational companies are reluctant to mae large e4uity investments in theirforeign subsi"iaries because .A. "ivi"en"s to foreign sharehol"ers are normally subject to local income ta%esB. "ivi"en"s to foreign sharehol"ers are usually subject to withhol"ing ta%es. "ivi"en"s to foreign sharehol"ers are usually subject to foreign e%change ris

!. an e4uity investment is not very fle%ible for the investor# $. all of the above

+. 9arent loans to foreign subsi"iaries are usually more popular than e4uity contributionsbecause .

# A. parent loans give a parent company greater fle%ibility in repatriating fun"sB. interest payments on intracompany loans are not ta% "e"uctible in the host country. intracompany loans re4uire cumbersome paperwor!. intracompany loans carry high interest rates$. none of the above

. When a foreign subsi"iary has "ifficulty in borrowing money* a parent may provi"e itssubsi"iary a loan guarantee through the following form


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. oans from sister subsi"iaries are consi"ere" to be .# A. an internal source of fun"ing

B. an e%ternal source of fun"ing. an e%ternal source of borrowing

!. a form of cash "ivi"en"s$. none of the above

5. $%ternal sources of fun"s for the multinational company inclu"e .A. joint ventures with local investorsB. borrowing from bans in the parent country. ban loans from the host country!. loans from the host government


8. Ban over"rafts in international financing have the following feature


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12. $"ge Act orporations are not allowe" to "o the following baning activity .A. international baningB. international financing. financing foreign in"ustrial projects

# !. accept "omestic "eposits$. accept foreign "eposits

1+. ,he privileges of 3nternational Baning (acilities nite" tates to accept time "eposits in either

"ollars or foreign currency from foreign customers$. B* * an" !

1. 3nternational Baning (acilities nite" tates to .A. accept time "eposits from foreign customersB. accept foreign currency "eposits from foreign customers. e%ten" cre"it to foreigners


10. Which of the following is not a major a"vantage of forming a joint venture from amultinational firm's point of view?A. ta% benefitsB. local mareting e%pertise

. more capital!. less political ris # $. tight control

1. ,he main emphasis of the Worl" Ban is in the following area .A. shortterm commercial loansB. shortterm government loans

# . loans for longterm social infrastructures!. loan guarantees for member countries$. investment in former communist countries

15. ,he 3nternational (inancial orporation


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18. ,he 3nternational !evelopment Association ommerce !epartmentB. the > ,reasury !epartment

# . the > tate !epartment!. the > Custice !epartment$. the > $"ucation !epartment

21. ,he verseas 9rivate 3nvestment orporation nite" tates* an" /e%icoB. Bra&il* /e%ico* an" Argentina

# . the >nite" tates an" 16 atin American countries!. A an" B$. none of the above

208


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2+. ,he $uropean Ban for ;econstruction an" !evelopment was establishe" in 1667 as a"evelopment ban for the following region .A. Western $urope

# B. emerging "emocracies in $astern $urope

. the -A, countries!. A an" B$. A* B* an"

2. ,he $uropean 3nvestment Ban was establishe" in 1608 by the member countries of the$uropean ommunity to support the following activities .A. to mae loans to the member governments

# B. to support the socioeconomic infrastructures of the member nations or their basicin"ustries

. to mae loans to $uropean bans!. A an" B

$. A* B* an"

20. ,he Asian !evelopment Ban was forme" in 16 by 15 Asian countries in partnershipwith the following countries .A. the >nite" tatesB. ana"a. :reat Britain!. :ermany


2. :lobal partnerships an" alliances have flourishe" in recent years because of the following

reasons .A. re"uce high "evelopment costsB. re"uce pro"uction costs. re"uce critical time to maret!. ma%imi&e ownership an" technology control

# $. A* B* an"

25. 9roject finance has been use" to finance a variety of infrastructure projects e%cept ))). A. airports# B. high schools

. bri"ges!. highways$. power generation projects

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28. ome major forms of strategic alliances are .A. licensing agreementsB. mareting arrangements. joint ventures

!. management contracts# $. all of the above

26. 9roject finance refers to an arrangement where a project sponsor finances a termproject on a basis.A. shortK nonrecourse

# B. longK nonrecourse. longK recourse!. shortK recourse$. none of the above

+7. ,he principal instruments use" by bans to service an /-Es re4uest for a loan are all ofthe following but ))).# A. letter of cre"it

B. over"raft. bri"ge loans!. currency swaps$. lin financing

+1. All of the following are nown types of joint ventures e%cept ))).A. two companies from the same country con"uct a business in a thir" countryB. an /- forms a joint venture with hostcountry companies

. an /- an" a local government form a joint venture!. companies from two or more countries establish a venture in a thir" country# $. all of the above are nown types of joint ventures

+2. A firm borrows J27*777 at 12 percent. What is the effective rate of interest if the loan is"iscounte"?A. 12.77FB. 12.12F

# . 1+.F!. 1+.66F$. 1.77F

Solution) Gollar interest cost 5


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++. A firm borrows J27*777 at 17 percent. What is the effective rate of interest if theprincipal an" its interest are pai" at maturity?A. 11.11FB. 11.77F

. 17.07F# !. 17.77F$. 6.0F

Solution) Gollar interest cost 5


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+5. A > company borrows British poun"s for one year at percent. ,he > oneyearinterest rate is 8 percent. ,he oneyear forwar" rate of the poun" is J1.6+. ,he spot rateof the poun" at the beginning is J1.60. ,he poun"'s spot rate is J2.70 by the en" of theyear. Base" on the information* compute the percentage change in poun" an" the

effective interest rate of the loan in > "ollar terms.A. 0.1F* 17.7FB. .1F* 11.F

# . 0.1F* 11.F!. 5.7F* 12.7F$. 8.7F* 12.0F

Solution) #ercentae chane in pound 5 + interest rate fromthe > company's perspective?A. 17.00FB. .07F. .0F

# !. 2.0F$. 1.77F

Solution)

@se E*uation +1%,1-/

0/10 5 +1 = 0/1"-+1 = ie- , 1? solve the e*uation for ie+percentae depreciation-/ie5 +1 = 0/10+1 = 0/1"- , 1 5 ,2/3&6/

+6. A > investor has J0 million in e%cess cash that it has investe" in hile at an annualinterest rate of 7 percent. ,he > interest rate is 6 percent. By how much woul" thehilean peso have to "epreciate to cause such a strategy to bacfire?A. 17.00FB. 27.77F

# . +1.88F!. +0.77F$. 2.07F

Solution)

@se E*uation +1%,1-/

0/07 5 +1 = 0/30-+1 = ie- , 1? solve the e*uation for ie+percentae depreciation-/

ie5 +1 = 0/07-+1 = 0/30- , 1 5 ,"1/446/

22


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Chapter 1&

International Wor(in Capital Manae!ent

1. ,he ability to relocate woring cash balances an" profits on a global basis provi"es

multinational firms with several types of arbitrage opportunities. ,hese types of arbitrageopportunities "o not inclu"e arbitrage.A. ta%B. financial maret. regulatory system

# !. commo"ity maret$. both A an" B

2. (un" flows from parent to subsi"iary "o not inclu"e .A. the initial investment from the parentB. intracompany loans from the parent

. the purchase of goo"s from the parent!. a""e" investments from the parent# $. the transfer of employees from the parent

+. Which of the following is not a major component of fun" flows from subsi"iary toparent?A. "ivi"en" payments from subsi"iaryB. interest payments from subsi"iary. royalty payments from subsi"iary!. payments for goo"s receive" from the parent

# $. ta% payments from subsi"iary

. An a"vantage of multilateral netting by a multinational corporation an" its foreignaffiliates is that it .

# A. re"uces the total volume of interaffiliate fun" flowsB. increases the total volume of interaffiliate fun" flows. increases foreign e%change ris!. increases political ris$. re"uces the number of employees

0. ea"s an" lags are a form of woring capital management by .# A. accelerating har"currency payables payments an" "elaying softcurrency

payables paymentsB. "elaying accounts receivable payments an" spee"ing up accounts payable

payments. accelerating both receivables an" payables payments!. accelerating softcurrency payables payments an" accelerating har"currency

payables payments$. all of the above

2+


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. Accor"ing to the transfer pricing regulations* multinational firms are suppose" to chargeprices to its foreign affiliates base" on the followingGA. total cost

# B. arm'slength prices. average cost!. internal prices$. none of the above

5. ome multinational companies set up a reinvoicing center which normally .A. invoices in the same currency for the buyer an" seller of goo"s an" services

# B. buys in one currency an" pays in another currency. buys in the parent currency an" pays in the parent currency!. buys in gol" an" pays in the > "ollar$. all of the above

8. 3ntracompany loans "o not inclu"e the following transaction


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11. Which of the following is not relate" to the tra"itional objectives of multinational firms'cash management?A. to minimi&e the cost of fun"sB. to improve li4ui"ity

. to improve the return on investment!. to re"uce riss# $. to pay the same amount of "ivi"en" year after year

12. entrali&e" international cash management re4uires each local subsi"iary to .A. "o whatever it wants with its e%cess cash

# B. hol" the minimum cash balance. invest in foreign e%change marets!. invest in local capital marets$. invest in longterm securities

1+. ,he most important factor affecting the location of international cash centers is probably))).# A. the local government's political stability an" its attitu"e towar" foreignbase"

companiesB. having enough cash balances at the local subsi"iary. e%change rate volatility!. the local government's ability to e%port oil$. all of the above

1. /ajor categories of a float "o not inclu"e the following ))) .A. invoicing float

# B. cre"it float. mail float!. processing float$. transit float

10. ,he @justintime@ inventory management was initiate" by .A. the >nite" tatesB. :ermany

# . Capan!. the >nite" Hing"om$. Horea

20


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1. A 166 stu"y by ;icci an" /orrison foun" that 87 percent of (ortune 277 companies usewire transfers * 07 percent pool their cash * an" almost half net payments an"transfer fun"s electronically .A. sometimesK sometimesK sometimes

# B. oftenK oftenK often.. oftenK sometimesK rarely.!. rarelyK rarelyK rarely.$. oftenK oftenK rarely.

15. ,ransfer pricing has been use" by multinational firms to achieve the following objectivesGA. minimi&e income ta%esB. minimi&

test bank financial management

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