1. (Choose 1 answer)
Universal banks
A. may engage in investment banking activities.
B. may arrange for foreign exchange transactions.
C. may assist their clients in hedging exchange rate risk.
D. all of the options
2. (Choose 1 answer)
What is the criterion for accepting or rejecting a project in the APV model?
A. APV should be greater than the firm's cost of equity
B. APV should be less than the firm's weighted average cost of capital
C. APV should be greater than or equal to zero
D. APV should be less than or equal to zero
3. (Choose 1 answer)
When a swap bank serves as a dealer in swap transactions, the concept of interest rate risk pertains to:
A. The risk that interest rates will shift unfavorably before the swap bank can secure an opposing counterparty for an interest rate swap agreement initially made with another counterparty.
B. The risk stemming from a situation where the floating rates of the two counterparties are tied to different indices.
C. The risk of a counterparty failing to fulfill its obligations.
D. The risk faced by the swap bank due to changes in exchange rates while arranging a counter transaction to an initial swap agreement.
4. (Choose 1 answer)
Firms that have intangible assets with a public good property tend to invest directly in foreign countries. This is
A. in order to use these assets on a larger scale.
B. to avoid the misappropriation that may occur while transacting in foreign countries through the market mechanism.
C. in order to use these assets on a larger scale, and to avoid the misappropriation that may occur while transacting in foreign countries through the market mechanism.
D. none of the options
5. (Choose 1 answer)
The adjusted present value (APV) model that is suitable for an MNC is the basic net present value (NPV) model expanded to
A. distinguish between the market value of a levered firm and the market value of an unlevered firm.
B. discern the blocking of certain cash flows by the host country from being legally remitted to the parent.
C. consider foreign currency fluctuations or extra taxes imposed by the host country on foreign exchange remittances.
D. all of the options
6. (Choose 1 answer)
What major dimension sets apart international finance from domestic finance?
A. Foreign exchange and political risks
B. Market imperfections
C. Expanded opportunity set
D. all of the options
7. (Choose 1 answer)
At the end of 2018, there were how many DR programs representing issuers from around the world trading on the world's exchanges according to the DR market review by BNY Mellon?
A. 3,049
B. 40,390
C. 34,090
D. 4,309,000
8. (Choose 1 answer)
A bill of lading
A. is a document issued by the common carrier specifying that it has received the goods for shipment; it can serve as title to the goods.
B. later becomes a banker's acceptance.
C. is a time draft that calls for payment upon physical delivery of goods.
D. none of the options
9. (Choose 1 answer)
Explanations for Home Bias include
A. domestic securities may provide investors with certain extra services, such as hedging against domestic inflation that foreign securities do not.
B. there may be barriers, formal or informal, to investing in foreign securities.
C. investors may face country-specific inflation in violation of PPP.
D. all of the options
10. (Choose 1 answer)
The British version of the Ex-Im bank
A. helps U.S. exporters develop and expand their overseas sales.
B. is called Inland Revenue.
C. is called the Exports Credits Guarantee Department.
D. is called Ex-Im bank U.K.
11. (Choose 1 answer)
Which type of trading system is desirable for actively traded issues?
A. Continuous trading systems
B. Call trading systems
C. Crowd trading systems
D. none of the options
12. (Choose 1 answer)
The majority of ADRS
A. are from such developed countries as Australia and Japan.
B. are from developing nations.
C. are from emerging markets.
D. are from both developing nations and emerging markets.
13. (Choose 1 answer)
With regard to clearing procedures for bond transactions
A. it is a system for transferring ownership of bonds.
B. it is a system for ensuring payment from buyers to sellers.
C. most Eurobond trades clear through two major clearing systems.
D. all of the options
14. (Choose 1 answer)
Underlying the theory of comparative advantage are assumptions regarding
A. free trade between nations.
B. that the factors of production (land, labor, capital, and entrepreneurial ability) are relatively immobile.
C. that the factors of production (land, labor, capital, and entrepreneurial ability) are relatively mobile.
D. free trade between nations and that the factors of production (land, labor, capital, and entrepreneurial ability) are relatively immobile.
15. (Choose 1 answer)
Company X wishes to borrow $10,000,000 at a floating rate for 5 years, while Company Y wants to borrow £5,000,000 at a fixed rate for the same duration. The exchange rate is $2 for £1 and is expected to remain stable for the next 5 years. Company X's borrowing cost is 10% for dollars and 10.5% for pounds, while Company Y's borrowing cost is 12% for dollars and 13% for pounds. A swap bank proposes an interest-only swap as follows: Company X will make annual payments to the swap bank on $10,000,000 at an interest rate of 9.80%, and in return, the swap bank will pay Company X interest on £5,000,000 at a fixed rate of 10.5%. Company Y will pay the swap bank interest on £5,000,000 at a fixed rate of 12.80%, and the swap bank will pay Company Y annual payments on $10,000,000 at a coupon rate of 12%. If company X decides to enter the swap, they should take the following external actions:
A. They should borrow £5,000,000 at 10.50 percent interest-only for five years; translate pounds to dollars at the spot rate.
B. They should borrow $10,000,000 at $10 percent.
C. They should borrow £5,000,000 at £10.50 percent interest-only for five years; translate pounds to dollars at the spot rate; enter long position in a forward contract to buy £5,000,000 in five years.
D. None of the options provided.
16. (Choose 1 answer)
How does a financial manager typically examine different scenarios in the analysis of investment projects?
A. By using fixed exchange rate estimates
B. By performing a sensitivity analysis
C. By relying solely on point estimates of cash flows
D. By conducting a Monte Carlo simulation
17. (Choose 1 answer)
A buy-back transaction
A. is also called a bilateral clearing agreement.
B. involves a technology transfer via the sale of a manufacturing plant: as part of the terms, the seller of the plant agrees to purchase a certain portion of the plant output.
C. involves two parties agreeing to buy a specified amount of goods or services from one another.
D. all of the options
18. (Choose 1 answer)
In 1992, the Enron Development Corporation, a subsidiary of the Houston-based energy company, signed a contract to build the largest-ever power plant in India, requiring a total investment of $2.8 billion. After Enron had spent nearly $300 million, the project was canceled by Hindu nationalist politicians in the Maharashtra state where the plant was to be built. Which of the following is(are) true?
A. Upon the news release of the project cancellation, Enron's share price fell immediately by about 10 percent.
B. In the process of structuring the deal, Enron made a profound political miscalculation: Instead of waiting for the next election results, Enron rushed to close the deal and began construction, apparently believing that a new government would find it difficult to unwind the deal when construction was already under way.
C. Enron had the last laugh, however when they went bankrupt and left the power plant unfinished.
D. all of the options
19. (Choose 1 answer)
The first ADRs began trading ________ as a means of eliminating some of the risks, delays, inconveniences, and expenses of trading the actual shares.
A. in 1997
B. in 1987
C. in 2017
D. in 1927
20. (Choose 1 answer)
A closed-end mutual fund
A. invests in bonds of a particular maturity, and when they mature, the fund closes.
B. trades on a stock exchange just like a publicly traded corporation.
C. always trades at Net Asset Value.
D. all of the options
21. (Choose 1 answer)
Good cash management encompasses
A. investing excess funds at the most favorable interest rate and borrowing at the lowest rate when there is a temporary cash shortage.
B. investing excess funds at the lowest rate and borrowing at the highest rate when there is a temporary cash shortage.
C. hedging currency exposure with judicious use of futures, forwards, and currency option contracts.
D. none of the options
22. (Choose 1 answer)
Investors will generally accept a lower yield on __________ than on __________ of comparable terms, making them a less costly source of funds for the issuer to service.
A. bearer bonds; registered bonds
B. registered bonds; bearer bonds
C. Eurobonds; domestic bonds
D. domestic bonds; Eurobonds
23. (Choose 1 answer)
Determine the percentage gain in dollars an American investor would achieve by purchasing a German stock priced at €50 per share and selling it a year later at €60. The exchange rate was $1.50 per euro when the purchase was made and $1.70 per euro when the sale occurred.
A. 26.47 percent gain
B. 36 percent gain
C. 9.6 percent gain
D. none of the options
24. (Choose 1 answer)
A zero-coupon British bond promises to pay £100,000 in five years. The current exchange rate is $2.00 = £1.00 and inflation is forecast at 2 percent in the U.S. and 3 percent in the U.K. per year for the next five years. The appropriate discount rate for a bond of this risk would be 10 percent if it paid in dollars. What is the appropriate price of the bond?
A. £65,196.13 = $130,392.26
B. £62,092.13 = $124,184.26
C. £59,135.91 = $118,271.83
D. £60,000 = $120,000
25. (Choose 1 answer)
A decrease in the implied three-month LIBOR yield causes Eurodollar futures price
A. to increase.
B. to decrease.
C. there is no direct or indirect relationship.
D. none of the options
26. (Choose 1 answer)
In the early 1980s, Honda, the Japanese automobile company, built an assembly plant in Marysville, Ohio, and began to produce cars for the North American market. As the production capacity at the Ohio plant expanded, Honda began to export its U.S.-manufactured cars to Japan.
A. true
B. false
27. (Choose 1 answer)
In March 2018, a free trade area was created among 11 Pacific Rim Countries including
A. Australia, Brunei, and Canada.
B. Chile, Japan, and Malaysia.
C. Mexico, New Zealand, Peru, Singapore, and Vietnam.
D. all of the above
28. (Choose 1 answer)
The cost of capital is
A. the minimum rate of return an investment project must generate in order to pay its financing costs.
B. the minimum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit.
C. the maximum rate of return an investment project must generate in order to pay its financing costs.
D. the maximum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit.
29. (Choose 1 answer)
What is one of the key advantages of the APV model?
A. It requires the explicit consideration of all possible cash flow terms
B. It facilitates the estimation of cash flows in a straightforward manner
C. It discounts all cash flows at the weighted average cost of capital
D. It simplifies the handling of complex cash flow terms like tax savings or deferrals
30. (Choose 1 answer)
Recent studies suggest that agency costs of managerial discretion are lower in Japan than in the United States. This suggests that
A. the cost of capital can be lower in Japan than the United States, but only if international financial markets are not fully integrated.
B. the cost of capital can be lower in Japan than the United States, even if international financial markets are fully integrated.
C. the cost of capital will be higher in Japan than the United States, even if international financial markets are fully integrated.
D. none of the options
31. (Choose 1 answer)
The role of an underwriter is to
A. help negotiate terms with the borrower.
B. ascertain market conditions.
C. manage the issuance.
D. all of the options
32. (Choose 1 answer)
Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso depreciates drastically against the U.S. dollar, as it did in December 1994. This means that
A. your company's products can be priced out of the Mexican market, as the peso price of American imports will rise following the peso's fall.
B. your firm will be able to charge more in dollar terms while keeping peso prices stable.
C. your domestic competitors will enjoy a period of facing little price competition from Mexican imports.
D. none of the options
33. (Choose 1 answer)
How can political risk be classified based on the incidence of adverse political events?
A. As micro risk and transfer risk
B. As macro risk and operational risk
C. As operational risk and control risk
D. As macro risk and micro risk
34. (Choose 1 answer)
Not all countries allow MNCs the freedom to net payments,
A. by limiting netting, more needless foreign exchange transactions flow through the local banking system.
B. MNCs can avoid these restrictions by using a Centralized Cash Depository.
C. MNCs can avoid these restrictions by using wire transfers.
D. MNCs can avoid these restrictions by using a Centralized Cash Depository, as well as by using wire transfers.
35. (Choose 1 answer)
The rapid increase in cross-border M&A deals can be attributed to
A. the end of the greenfield era-we are running out of land.
B. the lack of domestic investment opportunity.
C. the ongoing liberalization of capital markets and the integration of the world economy.
D. none of the options
36. (Choose 1 answer)
On a reset date, floating-rate notes
A. experience very volatile price changes.
B. market price will always gravitate toward par.
C. market price will usually gravitate toward par, unless the borrowers' credit rating has declined.
D. none of the options
37. (Choose 1 answer)
A switch trade
A. is the purchase by a third party of one country's a clearing agreement balance for hard currency.
B. is a form of barter.
C. involves two parties agreeing to buy a specified amount of goods or services from one another.
D. all of the options
38. (Choose 1 answer)
Suppose ABC Investment Banker Ltd., is quoting swap rates as follows: 7.50 – 7.85 annually against six-month dollar LIBOR for dollars, and 11.00 percent–11.30 percent annually against six-month dollar LIBOR for British pound sterling. ABC would enter into a $/£ currency swap in which:
A. it would pay annual fixed-rate dollar payments of 7.5 percent in return for receiving annual fixed-rate £ payments at 11.0 percent.
B. it will receive annual fixed-rate dollar payments at 7.50 percent against paying annual fixed-rate £ payments at 11 percent.
C. it would pay annual fixed-rate dollar payments of 7.5 percent in return for receiving annual fixed-rate £ payments at 11.3 percent, and it will receive annual fixed-rate dollar payments at 7.85 percent against paying annual fixed-rate £ payments at 11 percent.
D. none of the options
39. (Choose 1 answer)
Who benefits from debt-for-equity swaps?
A. The creditor bank
B. The LDC
C. The market maker
D. all of the options
40. (Choose 1 answer)
Which of the following are principles of sound banking behavior?
A. Avoid an undue concentration of loans to single activities.
B. Control mismatches between assets and liabilities.
C. Expand cautiously into unfamiliar activities.
D. all of the options
41. (Choose 1 answer)
What is the weighted average cost of capital (WACC) used for in a firm's capital structure?
A. To determine the minimum rate of return for investment projects
B. To compute the cost of debt and equity separately
C. To evaluate the firm's value-maximizing potential
D. To calculate the financing cost by considering the capital structure ratio
42. (Choose 1 answer)
Swaps are said to offer market completeness.
A. This means that all types of debt instruments are not regularly available for all borrowers. Thus interest rate swap markets assist in tailoring financing to the type desired by a particular borrower.
B. In that the swap market offers price discovery to the market
C. Because you can trade across both currencies and fixed and floating market segments
D. none of the options
43. (Choose 1 answer)
Through its Export Credit Insurance Program, Ex-Im bank helps U.S. exporters develop and expand their overseas sales by
A. protecting them against loss should a foreign buyer default.
B. guaranteeing the loans made by private financial institutions to foreign importers.
C. providing liquidity via the purchase of notes issued by Ex-Im bank to finance the loans.
D. none of the options
44. (Choose 1 answer)
The "Jenson performance measure" (JEP)
A. is defined as the portfolio's realized return minus the expected return computed using the SML equation.
B. is an absolute measure of performance.
C. measures the raw rate of return.
D. all of the options
45. (Choose 1 answer)
When pricing an interest-only single currency swap after it starts, it involves:
A. Adding up the current values of the payment streams each party gets in one currency and gives in another, then converting it to a common currency.
B. Figuring out the gap between the current values of the payment streams the party receives and gives.
C. Placing a market order with a swap dealer.
D. None of the options provided.
46. (Choose 1 answer)
Suppose the quote for a five-year swap with semiannual payments is 8.50-8.60 percent. This means
A. the swap bank will pay semiannual fixed-rate dollar payments of 8.60 percent against receiving six-month dollar LIBOR
B. the swap bank will receive semiannual fixed-rate dollar payments of 8.50 percent against paying six-month dollar LIBOR.
C. if the swap bank is successful in getting counterparties to both legs of the swap at these prices, he will have an annual profit of ten basis points.
D. none of the options
47. (Choose 1 answer)
Under multilateral netting
A. each affiliate nets all its interaffiliate receipts against all its disbursements. It then transfers or receives the balance, respectively, if it is the net payer or receiver.
B. each pair of affiliates determines the net amount due between them, and only the net amount is transferred.
C. no interaffiliate payments are made or even computed, since no real cash flows are involved.
D. all of the options
48. (Choose 1 answer)
ABC International has borrowed $4,000,000 at LIBOR plus a lending margin of.65 percent per annum on a three-month rollover basis from Barclays in London. Three month LIBOR is currently 5.5 percent, but ABC is worried about an increase in three-month LIBOR 3 months from now. What could they do to hedge?
A. Buy a 3 × 6 FRA in the amount of $4 million.
B. Sell a 3 × 6 FRA in the amount of $4 million.
C. Buy a 3 × 3 FRA in the amount of $4 million.
D. Buy a 3 × 9 FRA in the amount of $4 million.
49. (Choose 1 answer)
A specialist on the NYSE
A. is obliged to fill limit orders if they are more favorable than the specialist's posted bid and ask quotes.
B. is obliged to fill limit orders at the specialist's posted bid and ask quotes.
C. is actually a computer program, not a human.
D. is obliged to fill limit orders if they are more favorable than the specialist's posted bid and ask quotes, and is actually a computer program, not a human.
50. (Choose 1 answer)
When the choice of financing a foreign subsidiary is between external debt and equity financing
A. many host governments tolerate the repatriation of funds in the form of interest much better than dividends.
B. debt financing is generally secured from the World Bank, but only in developed countries.
C. many host governments tolerate the repatriation of funds in the form of dividends much better than interest.
D. none of the options
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